“We would like to pass it as quickly as possible,” Vestager told reporters in Dublin today before a meeting of EU finance chiefs. “We think it’s important to keep the momentum. Of course we listen to the German problems, for obvious reasons, but we hope that we can decide upon it as soon as possible.”
Central powers to handle failing banks are the second leg of the EU’s banking union strategy, which EU leaders laid out last year in an attempt to break the link between weak banks and sovereign debt struggles. The project took on new urgency in the aftermath of Cyprus bailout talks that culminated in forced losses for unsecured depositors at that nation’s two largest banks.
Michel Barnier, the EU’s financial services chief, plans in June to unveil plans for a joint bank resolution agency and a dedicated common fund. The European Commission hasn’t yet decided where the new agency will be located, what legal form it would take or how it will be funded. At the same time, EU officials are committed to moving ahead even though some nations, such as Germany, oppose pooled financial commitments.
Barnier called yesterday for a “common resolution fund” for the euro area and other nations that sign up their banks for ECB oversight. “Common financial backstops” are needed, he said in a speech in Dublin. “From a European perspective, it would make sense and be both more coherent and effective.”
The EU shouldn’t rush this matter, Swedish Finance Minister Anders Borg told reporters in Dublin today. The plan needs to be designed carefully so that it doesn’t create “moral hazard,” he said.
Vestager said the EU can’t afford to get bogged down in delays as it pursues banking union. For example, legislation to establish a euro-area supervisor at the European Central Bank has been held up by technical snags.
“We thought the common supervisor was a done deal and then we bump into legal issues, but they need to be cleared as we have to move on to discuss how to handle banks in distress,” Vestager said. “We want clarity on what to expect.”
Denmark hasn’t decided whether it will join the joint supervision regime. Vestager said Denmark might support pooled backstops for banks in other nations under some circumstances.
“If it’s caused by someone failing to assume responsibility elsewhere the answer is a resounding no, while we would consider to do it if things are done in an orderly fashion,” Vestager said.
European Commission data show the bloc’s governments have injected 1.7 trillion euros into their banking systems since 2008 as the fates of nations depended on the survival of their financial industries. Bank of Finland Deputy Governor Pentti Hakkarainen said the EU needs a more predictable crisis- management rulebook after Cyprus’s bank creditor bail-in confused investors.
“The better the mechanism is designed, the smaller the bailout need becomes,” Hakkarainen said in an April 10 interview in Helsinki. “Adequate risk buffers and adequate amounts of bail-in-able items. The financial crisis taught us that that’s needed.”
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