Eurozone close to agreeing on a Banking Union

ECOFIN Council. Michel Barnier, Member of the European Commission, Vitor Constancio, Vice-President of the European Central Bank, (from left to right). The central banker may look timid before the French showman but he clarified that the ECB needs clear-cut procedures. (Council of the European Union, 18/12/2013).

ECOFIN Council. Michel Barnier, Member of the European Commission and Vitor Constancio, Vice-President of the European Central Bank, (from left to right) shake hands. The central banker may look timid before the French showman but he clarified that the ECB needs clear-cut procedures. (Council of the European Union, 18/12/2013).

In the small hours of yesterday night, the ECOFIN Council agreed on a general approach over the single resolution board (SRB) and a single fund for the resolution of banks in Eurozone. These are the main tools of the Single Resolution Mechanism (SRM), which constitutes the second pillar of the grandiose European Banking Union project. The agreement reached at the ECOFIN, largely follows the German proposal and doesn’t diverge much from the position the European Parliament adopted on Tuesday.

If the ECOFIN compromise is approved today by the 28 EU leaders, during their year-end European Council, then negotiations will start between legislators and the Greek presidency of the Council as from 1st January. The target is that negotiations between the Council, as represented by the Presidency, and the European Parliament are concluded on time and an agreement is reached over this regulation on the SRM at first reading, before the end of the Parliament’s current legislature (May 2014).

The ECOFIN compromise

The compromise reached yesterday by the ECOFIN Council contains the following basic elements:

*Member states are committed to conclude an intergovernmental agreement by 1 March on the functioning of the single resolution fund and come up with a draft regulation on the single resolution mechanism.

*This intergovernmental agreement would include arrangements for the transfer of national contributions to the fund and their progressive mutualisation over a ten-year transitional phase. It would endorse the bail-in rules established in the bank recovery and resolution directive as applicable to the use of the single fund.

*The single resolution fund would be financed by bank levies raised at national level. It would initially consist of national compartments that would be gradually merged over ten years. During this ten-year period, mutualisation between national compartments would progressively increase. So, while during the first year the cost of resolving banks (after bail-in) would mainly come from the compartments of the member states where the banks are located, the share would gradually decrease as the contribution from other countries’ compartments increases.

The Eurogroup and ECOFIN ministers also adopted a statement on the design of a backstop to the single resolution fund. The statement specifies that during the initial build-up phase of the fund, bridge financing will be available from national sources, backed by bank levies, or from the European Stability Mechanism (ESM), according to existing procedures.

This funding process of bank resolutions and recoveries may look tortuous, but the reference to the ESM clarifies that during the transitional period there would be a reliable backstop. However, there seems to be a problem in the decision-making procedure to conclude that a bank will be resolved. The implication of three bodies in this procedure (Resolution Board, Commission and Council) could be ineffective and time-consuming. The ECB insists that this decision has to be agreed upon in 24 hours, within a weekend. This is probably the weakest point of the compromise reached yesterday by the member states. The Parliament will attack it for sure.

The Parliament’s position

However, the Parliament‘s position doesn’t differ greatly from the compromise reached yesterday at the ECOFIN. The proposal of the legislators has the following main characteristics:

*The supervisor (European Central Bank) would be the sole body empowered to propose initiating a resolution. The Resolution Board composed of national resolution authority representatives and others, would then evaluate this proposal and suggest that the Commission initiate such action. The Commission would then take the official decision to initiate a resolution and the Board would decide on the details for its execution.

*Within 10 years a European Fund, fed by bank contributions and representing 1% of covered deposits, should be up and running… Until the Fund reaches its target level, it could be financed by loans from a “European public instrument”, MEPs suggest. This would include, for example, loans from the European Stability Mechanism or the EU budget.

Common points

The two approaches coincide in the following crucial points:

*The ECB will single out which bank is about to fail and would recommend its resolution to the Bank Resolution Board.

*The Bank Resolution Board comprising the member states and some others will give the final accord for the resolution, in coordination with the Commission and the Council. Upon this issue the Parliament longs for a clear-cut decision-making procedure, supporting the position of the ECB. A decision has to be produced within 24 hours.

*There will be a Resolution Fund, initially divided in national branches. The Fund will be capitalised in 10 years, through a levy on all banks. In the transition period if the Fund needs extra money, it will borrow from national sources and the ESM. At the end of the 10 year period all the national branches of the Fund will merge in one.

There is no question that Germany had it its own way. For at least the next four years member states will be responsible for the resolution and the recovery of banks in their territory. A truly common liability, resembling to a Eurobond, will start emerging after the fourth year that is towards 2020. The SRM would enter into force on 1 January 2015. According to yesterday’s decision in the ECOFIN bail-in and resolution functions would apply from 1 January 2016. The SRM regulation wouldn’t apply before the intergovernmental agreement enters into force.

 

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

State aid: Commission invites interested parties to provide comments on proposed draft Climate, Energy and Environmental State aid Guidelines

Parliament gives green light to EU-Singapore trade and investment protection deals

COVID 19 Vaccine: A new terror or a savior for mankind?

Cyprus President urges collective leadership to address ‘root causes’ of world’s crises

EU Budget 2021 approved: supporting the recovery

Obama turns the G20 summit into warmongering platform

This is how many people are forcibly displaced worldwide

EU food watchdog: more transparency, better risk prevention

COVID-19: What you need to know about the coronavirus pandemic on 9 April

Smart toys: Your child’s best friend or a creepy surveillance tool?

Draghi will not hesitate to zero ECB’s basic interest rate

Biggest London City Banks ready to move core European operations to Frankfurt or Dublin?

Ukraine: EU report notes continued implementation of the reform agenda though challenges remain

EU: Turkey to shelter Syrian refugees and turn other immigrants back in return of €3 billion

UN working to prevent attacks on civilians in eastern DR Congo

CLIMATE CHANGE FOCUS: Cows, coffee and sustainable farming

The world invested almost $2 trillion in energy last year. These 3 charts show where it went

Anti-vaccers: does the empty can rattle the most?

EU consumers will soon be able to defend their rights collectively

Could robot leaders do better than our current politicians?

MWC 2016 LIVE: Industry looks to reduce mobile gender gap

Why education and accountability are important for developing countries?

The metamorphosis of the categorical imperative in medical students

How should cities prepare for self-driving cars? Here’s a roadmap

EU fight against tax-evasion and money laundering blocked by Britain

UN chief welcomes Taliban’s temporary truce announcement, encourages all parties to embrace ‘Afghan-owned peace’

Although Greece is struggling to pay salaries and pensions Varoufakis is “optimistic”; the Sting reports live from EBS 2015

Coronavirus Global Response: EIB and Commission pledge additional €4.9 billion

Industry 4.0: Championing Europe’s fourth industrial revolution

A European young student shares his thoughts on Quality Education

France: New labour laws for more competitiveness

EU adopts rebalancing measures in reaction to US steel and aluminium tariffs

Employment and Social Developments in Europe: 2018 review confirms positive trends but highlights challenges, in particular linked to automation and digitalisation

The more we learn about Antarctica, the greater the urgency to act on climate change

Dare to be vulnerable, and three other lessons in leadership

Lorenzo Natali Media Prize 2019: winners of EU’s development journalism award unveiled

A silent killer: the impact of a changing climate on health

Switzerland to introduce strict restrictions on executive pay

Ahead of State of the Union the European Youth Forum highlights lack of action on youth employment

The Challenger Within – Mental Health In Romania During Lockdown

10 ways COVID-19 could reshape offices

Why salaries could finally be on the way up

Problems Faced by Young Doctors and What We Can Do About Them

How big data can help us fight climate change faster

Hydrogen power is here to stay. How do we convince the public that it’s safe?

EU Facility for Refugees in Turkey: €6 billion to support refugees and local communities in need fully mobilised

Promoting Health in the Brazilian Amazon: one nation but many cultures

Here’s what happened when a charity gave $1,000 each to poor households in Kenya

Will Cameron succeed in keeping UK inside the EU and reverse the present economic downturn?

Armenia should take vigorous measures against entrenched corruption

State aid: Commission approves €1.25 billion German measure to recapitalise TUI

How Britain’s backyard bird feeders are shaping evolution

The EU responds to US challenges by fining Apple with €13 billion

Only international actions can settle the world’s ‘enormous and diverse cross-border challenges’, Qatar tells UN Assembly

Questions & Answers on vaccine negotiations

Brain drain 2017: why do medical students need to emigrate to become doctors in 2017?

Investment and Financing under the Belt and Road Initiative (BRI): EU and Chinese stakeholders share their views at European Business Summit 2018

World Malaria Day: 7 things to know about the deadly disease

Systems leadership can change the world – but what exactly is it?

Commission launches open access publishing platform for scientific papers

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s