EU Nations Weigh Shift Toward Germany in Bank Resolution Fight

European Union governments are considering boosting the powers of national authorities in a planned common system for handling failing banks, and granting special treatment to smaller lenders, in a bid to tackle German opposition to key planks of the original blueprint.

A revised proposal for the Single Resolution Mechanism, published on the EU’s website, would give national regulators the lead in drawing contingency plans for dealing with crises at many of the bloc’s smaller banks, and in setting rules on writedown-eligible debt for such lenders. The text also foresees exemptions for the bloc’s smallest banks from having to contribute to a planned central fund.

Under the updated proposals, prepared by Lithuania, which holds the rotating presidency of the EU, a higher degree of central control would apply to lenders that from next year will be directly supervised by the European Central Bank, as well as others with “cross-border” operations.

The SRM is part of an effort to break the financial links between sovereigns and banks by centralizing oversight and crisis management of failing lenders. The plans, presented in July by Michel Barnier, the EU’s financial-services chief, have met with a barrage of complaints from Germany, which has warned that elements of the plan may breach the bloc’s basic laws.

Still, EU leaders reaffirmed last month that nations should agree on a common stance by the end of this year, in order for negotiations to start with the EU parliament on the final version of the law. The initiative will cover the euro area and any other EU nations that decide to participate.

Clear Shift

The updated proposals mark a clear shift in direction toward German Finance Minister Wolfgang Schaeuble, who has called for a less centralized approach, especially for banks that aren’t among the around 130 slated for direct ECB oversight.

Barnier is meeting Schaeuble today in Berlin. National officials are also discussing the SRM plans today in Brussels, according to the EU’s website.

Other changes to Barnier’s original blueprint in the Lithuanian text, dated Nov. 28, include steps to clarify how decisions by the European Banking Authority, a London-based agency that brings together bank regulators from across the EU, would apply to the central board, and to the European Commission when it takes bank resolution decisions.

The plans also set out in more detail than before how banks will contribute to a planned central fund that would act as a backstop to the SRM.

Systemic Importance

Banks would pay levies over a 10-year period to build up a standing fund equivalent to 0.8 percent of government-insured deposits in the euro area and other participating countries.

Individual contributions would be made up of both a flat-rate levy, calculated against the bank’s liabilities excluding capital and covered deposits, and a risk-based levy calculated against the bank’s systemic importance, according to the document.

Smaller banks whose liabilities fall below a pre-determined threshold would be exempted entirely from contributing to the fund, according to the document, which doesn’t specify what this threshold should be.

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

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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