168 hours left for MEPs – ECOFIN Council to deliver a Banking Union

Contradicting messages are emitted from a statement issued yesterday by the lead MEPs currently negotiating the details of the legislation on the Single Resolution Mechanism and Fund for Eurozone banks with the ECOFIN council. This legislation is set to complete the legal and structural background of the European Banking Union. The other pillar of the EBU, namely the Single Supervisory Mechanism is already functioning under the roof of the European Central Bank and will assume its full responsibilities on November this year. The friction points However, negotiations between the European legislators representing the Parliament and the Council have stuck on two important issues. The main friction points are firstly ‘who will press the button’ to resolve a bank and how ‘the bill will be footed’. The Parliament wants the Council to not be implicated in the ‘button’ mechanism in order for political horse trading to be avoided around this crucial decision. On top of that, the parliamentarians want to make sure that all banks will be treated equally irrespective of their country of origin. Understandably, if the Council will be in control of the resolution ‘button’, a German bank could be seen ‘differently’ from a Greek one. Coming to the second point of friction between the legislative and the ECOFIN, which is the footing of resolution costs, the European Parliament wants a brief transitional period of three years to the full mutualisation of the financial responsibilities stemming from winding up a bank. On the other side of the fence, the Council wants a long transitional period of at least seven to eight years if not ten. Last Tuesday the Greek Presidency of the council, which conducts the negotiations with the Parliament, received a new mandate from the ministers of Finance, seemingly leaving a wider maneuvering space than the previous unsuccessful one. The Press release issued yesterday by the Greek Presidency though allows it to be understood that almost all the crucial points are open. It says “These proposals included the following issues: (A) which institution will be the ultimate resolution authority, the so called “Meroni institution” (balance of powers between the EU bodies) (B) Who will determine whether an institution is failing or likely to fail, (C) What types of decisions should be taken by the Plenary session of the Board and which by the Executive, in any individual resolution (D) The voting regime in the Plenary session of the Board, (E) The loan facility (credit line) to the Single Resolution Fund, and finally, (F) The contributions to the SR Fund”. Everything is in the air From this catalogue one can conclude that not only every issue concerning the SRM and Fund is still on the air, but there is also controversy even on points which have already been decided and legislated upon. One of these cases is “(B) Who will determine whether an institution is failing or likely to fail”. According to the SSM Regulation “the ECB shall, in accordance with paragraph 3 of this Article, be exclusively competent to carry out, for prudential supervisory purposes, the following tasks in relation to all credit institutions established in the participating Member States:… to carry out supervisory tasks in relation to recovery plans, and early intervention where a credit institution or group in relation to which the ECB is the consolidating supervisor, does not meet or is likely to breach the applicable prudential requirements, and, only in the cases explicitly stipulated by relevant Union law for competent authorities, structural changes required from credit institutions to prevent financial stress or failure, excluding any resolution powers”. In short, the powers of the ECB stop exactly before the resolution of a bank. As a result, the ECB is responsible to state if ‘a bank is failing or is about to fail’. Then the resolution authorities take over. It seems that Germany doesn’t like that either because decisions in the Supervisory Board of the single supervisory mechanism at the European Central Bank are taken by professionals and by simple majority. This fact excludes, in principle, any possible political interference. Seemingly, some member states which are ‘more equal that the others’ don’t like this simplicity. Last deadline In any case, the Press release issued by the lead MEPs who are negotiating all that with the Council seems equally ambiguous. It says that “We can now hope to have a constructive meeting next week in which concrete drafting can be made in a bid to reach a deal”. What every bona fide reader can conclude here is that the negotiations have come to the point of drafting what has been agreed upon, in order the text to be reviewed next week and possibly corrected. However, in the next sentence, the MEPs take a completely different stance by stating “We must reiterate however that we are not yet there and that the crucial issues are still all to be agreed if we are to have a deal on Wednesday under this Parliament.” After all that, the only safe deduction is that next Wednesday is the final date to conclude an agreement for the enactment the European Banking Union. If this deadline is missed the whole operation will be derailed and the ECB will not be able to guarantee anything in relation to Eurozone banks.