Brussels, 20/03/2014 (Agence Europe) - Agreement was reached on Thursday 20 March on a bank resolution mechanism (SRM) for the eurozone between representatives of the EU Council of Ministers and the European Parliament.
More than 15 hours of talks were needed and the French and German finance ministers, Moscovici and Schäuble, were reportedly contacted at dawn about the deal. The president of the European Commission and the president of the European Council commented that this was the best possible deal within the time frame and augured well for the launch of banking union because it will stabilise the European financial system and allow financing to be restored to the real economy. They repeatedly referred to the key involvement of the head of the Eurogroup, Jeroen Dijsselbloem, in making the agreement possible.
The SRM will come on stream in 2015. A 300-strong bank resolution body will be set up in Brussels, comprising competent national bank authorities and European figures. The body will be responsible for preparing bank resolution plans for cross-border European banks directly supervised by the European Central Bank from November onwards under the bank supervision mechanism (SSM). As the bank supervisory body, it will have broad power over all 6,000 banks in the eurozone, although the smaller banks that only operate in their home country will remain under the control of national bank resolution authorities. Based in part on an intergovernmental agreement, a €55 billion (1% of covered deposits) bank resolution fund (SRF) will be set up in 2016, financed by the financial industry. Banks' contributions will initially go into national compartments, which will gradually be mutualised (pooled) over 8 years from 2016 to 2023.
The two European co-legislative institutions, the EP and the Council of Ministers, both made concessions in order to strike a deal. The EP's rapporteur, Elisa Ferreira (S&D, Portugal) said they had managed to get a substantial improvement on the Council of Ministers' December stance. Sylvie Goulard (ALDE, France) said the MEPs had got as much as they could.
The MEPs had fought hard to restrict ministers' powers in how the SRM operates. The power to decide whether a bank has failed will mainly be in the hands of the ECB, and the resolution board will be able to ask the bank to examine particular cases. In general, the Commission will be the European institution with its finger on the button. The Council of Ministers will only be allowed to issue an objection to a resolution plan drawn up by the resolution board if the European Commission increases the initial amounts required from the SRF (because, for example, exempting some parties from bail-in means that more SRF cash is needed) or if the winding up of a bank jeopardises the general interest.
Along with rationalising procedures, the timelines for decision-making have been slashed. The Commission and Council will have no more than 24 hours to issue an objection. Welcoming the improvements, Internal Market Commissioner Michel Barnier said that the SRM would be able to take decisions in 48 hours.
Strict limits have been placed on cases where the resolution board's plenary sitting (rather than its executive sitting of simply the resolution bodies of countries where the failing bank has a branch) will have the power to decide on a resolution process. The plenary will discuss cases where at least €5 billion is requested from the SRF. A distinction is made here between money for recapitalisation and money to supply liquidity (€1 billion of cash for liquidity purposes will only count as €500 million). The plenary will also discuss cases where the SRF has disbursed €5 billion over twelve consecutive months (not including the provision of liquidity that has since been reimbursed) and draw up guidelines on how further cases are to be dealt with. The plenary will have the power to decide when the SRF shall borrow from the markets or demand extra, “ex post”, contributions from banks.
Mutualisation. MEPs managed to overcome their doubts and agree to the SRF being based in part on an intergovernmental agreement (IGA) to be signed shortly by the 18n eurozone nations. After an eight-year transition period, the fund will have €55 billion (€11.7 billion in 2016 and €6.2 billion a year after that until 2023) and will then be governed using the community method. The cash allocated to national compartments will be gradually pooled (40% in 2016, 60% in 2017 and the full 100% in 2023). The different speeds for banks contributing to the fund and the speed of mutualisation is a major concession made by the Council of Ministers, and more precisely Germany. The SRF's national compartments will be used first for any bank resolution, followed by pooled amounts. National compartments may lend to each other on a voluntary basis.
In order to ensure the SRF is credible from day one, it will be allowed to borrow the cash it feels it needs from the money markets. This borrowing capacity will be based solely on the annual contributions that banks are required to contribute to the fund because the idea of national backing has been rejected. The €55 billion of contributions, along with a 70% mutualisation of the fund after the first three years, make this process “more credible” commented Corien Wortmann-Kool (EPP, the Netherlands). On the question of a backstop for the SRF, the eurozone countries will have until 2016 to work on a promise they made in December. Ferreira says she will keep up the political pressure for this promise to be kept, aware that Germany has refused to agree to any changes to the European stability mechanism so that it could provide the SRF with a credit line.
Talks were bitter when it came to deciding how banks are to contribute to the fund. Barnier said the politicians had spent three hours on that question alone. In the end, it will be for the Council of Ministers to decide because the EP is simply consulted on the issue. Under the BRRD directive (harmonising bank resolution schemes), the Commission will unveil a delegated act for adoption after 2015, which Sven Giegold (Greens/EFA, Germany) said would give the EP the ability to hold the Council of Ministers hostage.
“The agreed text will now be submitted to the member states, and I hope they will be able to support it”, commented Greek Finance Minister Yiannis Stournaras in a press release. The EP will endorse the deal at its second plenary in April. (MB)