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ECB wants bank resolution rules drawn up early

08 November 2013, 14:02 CET
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(FRANKFURT) - The European Central Bank on Friday called for Europe-wide rules for winding up failed banks to be drawn up before it takes over as the region's single banking supervisor.

The so-called Single Resolution Mechanism (SRM) "should be established by the time the ECB assumes full supervisory responsibilities" late next year, the central bank said in a statement.

European member states are currently trying to hammer out the rules for a new banking union in order to avoid a repeat of the bloc's banking crisis that pushed countries such as Ireland and nearly Spain into bailouts.

The new regime not only includes a Single Supervisory Mechanism or SRM, which will be housed within the ECB, but also a resolution mechanism or SRM for winding up failed banks.

"Both the SSM and the SRM are essential parts of the integrated financial framework of the banking union, which will help break the link between banks and sovereigns in the member states and reverse the current process of financial market fragmentation," the ECB wrote.

"The ECB strongly supports the envisaged timeline for the SRM. Under this timeline, the SRM would enter into force by the middle of 2014 and would become fully operational by January 1, 2015," it said.

The scope of the SRM "should include all credit institutions in EU Member States participating in the single supervisory mechanism," the ECB argued.

And while it insisted that it was "crucial" that the supervisory and resolution authorities be kept distinct, the ECB would seek representation "in all plenary and executive meetings of the Single Resolution Board as an observer," it said.

All EU member states, and not just eurozone members, must agree on the so-called "bail-in" rules with the EU Commission and the EU parliament by the end of the year.

A bail-in is when a bank's shareholders and creditors are first in line to help rescue a bank before turning to the taxpayer.

The ECB said it was in favour of "an earlier implementation of the bail-in tool."

Under the proposed regulation, the bail-in provisions are to applly from January 1, 2018.

"This means that from 2015 until 2018, the SRM may need to resolve banks" without the bail-in tool and that could be the source of uncertainty, the ECB warned.

"In the light of this, the ECB supports implementing the bail-in tool earlier than 2018," it said.


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