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EU Nations Said to Be Split Over Lending Plan for Failing Banks

June 19 (Bloomberg) -- European Union nations are split over plans to force governments to lend to each other as a last resort to stabilize crisis-hit banks, according to two people familiar with the matter.

Germany and Sweden are among nations opposing the move, part of a broader proposal to take taxpayers off the hook for bank rescues, said the people, who couldn’t be identified because the talks are private. The plan, discussed by diplomats at a meeting in Brussels yesterday, received support from other nations, including Italy and France.

Michel Barnier, the EU financial services chief, proposed setting up a network of national bank-financed funds to shore up crisis-hit lenders in a draft law this month. He said the measure was needed to prevent a repeat of the public bailouts that followed the 2008 collapse of Lehman Brothers Holdings Inc.

Preben Aaman, a spokesman for the Danish presidency of the EU, and Stefaan De-Rynck, spokesman for Barnier, declined to immediately comment. The proposals need to be approved by nations and by lawmakers in the European Parliament before they can enter into force.

Barnier said that these funds should be required to lend to each other if a country had exhausted contributions from its lenders, and other back-up options such as central bank loans. The European Commission, the 27-nation EU’s executive arm, said the proposal was a first step toward banking union, with financial backstops and supervision of lenders.

Poland, along with Germany and Sweden, said that any emergency lending between national funds should be voluntary, according to the people.

The U.K. has previously said that it was opposed to such funds as they could encourage lenders to take excessive risks.

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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