EU ministers narrow differences over banking union
(BRUSSELS) - EU finance ministers narrowed Friday some of their differences over "Banking Union", a new framework meant to prevent a repetition of the financial meltdown that plunged Europe into crisis.
Having last month approved a first step in the plan -- the Single Supervisory Mechanism (SSM) to oversee eurozone banks -- the ministers are under pressure to agree a Single Resolution Mechanism (SRM) by year's end.
European Central Bank board member Jorg Asmussen said the key lay first in clarifying arrangements for the recapitalisation of banks that are found to have holes in their books.
The ECB has "always said it's absolutely necessary we have credible backstops in place before the whole exercise" begins.
To put the banking union scheme in place by 2015 as planned, Asmussen said there must be a decision on SRM by year's end because it will still need to be approved by the European Parliament, whose mandate ends in April.
With officials at the talks saying it was "pointless" to spend the night on differences at this stage, ministers contented themselves with spelling out the backstop arrangements demanded by the ECB for banks subject to next year's asset quality reviews and stress tests.
Where capital is needed, lenders should turn first to private investment, then national and euro area funds, with EU instruments as a last resort.
Ministers emphasised there should be "equal treatment" between eurozone and non-euro EU countries that also have banks participating in the SSM and may potentially call on recapitalisation via the ESM.
The SRM would serve to close failing banks and would also need to be complemented by a deposit guarantee regime to protect savers.
Combined, the three pillars of the scheme will provide a unified regulatory framework intended to prevent taxpayers from paying for disastrously expensive bank bailouts which led to years of austerity and recession in the eurozone.
These issues are highly complex and highly sensitive, partly because they affect national sovereignty over a large slice of the critically important financial sector.
The SSM was 13 months in the making due to sharp differences over its precise role and the resolution mechanism is proving even more controversial than the SSM supervision.
Powerhouse Germany notably is reluctant to cede control of its banks.
And along with some other nations, Germany is opposed to the EU executive, the European Commission, being given the authority to decide whether to save or to liquidate a struggling bank.
It favours handing that authority to the European Union Council, which repesents the 28 governments.
The EU's second economic power France on the other hand believes the Commission would be best placed due to its rapid response capability. Paris and Belgium notably dealt with the collapse of Dexia bank over a single weekend.
EU nations too differ over the scope of the banking sector to be placed under the framework, with France wanting to embrace all of Europe's banks while Germany calls for supervision of only the top 130 banks.
Paris, the Commission and the European Central Bank all agree on the need for a single resolution fund while Berlin has called for a network of national funds.