ECB Urges EU to Build Strong Central Authority for Failing Banks

The European Central Bank urged governments to press ahead with setting up a “strong” central authority to handle bank failures in the euro area, saying that progress in the project is essential to bolster lenders and spur growth.

“Mere coordination between national authorities is not sufficient for cross-border resolution in crises,” Vitor Constancio, the ECB’s vice president, told lawmakers today at the European Parliament in Brussels.

The currency bloc needs a “single resolution authority” with “independent decision-making powers that would enable prompt and decisive action,” Constancio said. The authority should be backed by a “privately funded European resolution fund,” he said.

The ECB’s call for decisive action to build a common resolution system for crisis-hit banks runs counter to warnings from Germany that setting up a central authority with independent powers would require changes to the 27-nation bloc’s treaties.

German Finance Minister Wolfgang Schaeuble told counterparts this month at a meeting in Dublin that the EU is approaching the limit of what it can achieve under its current rulebook to build a so-called banking union with common oversight and backstops for lenders.

“Progress in these elements of a future banking union is very important in the present economic environment of low growth,” Constancio said today in Brussels.

`Desirable Separation'

The setting up of a “single resolution mechanism” equipped with an authority and fund will contribute to “the desirable separation of banks and sovereigns,” he said.

Constancio also urged the EU to push ahead with the formal adoption of a draft law to hand the central-bank oversight powers.

“Key organizational decisions can only be taken once the legal text has entered into force,” he said. “The timely adoption of the regulation by early summer is crucial.”

To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editor responsible for this story: Jones Hayden at jhayden1@bloomberg.net

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