Barnier Seeks Fast Deals on Cornerstone Rules for Banking Union

European Union Financial Services Commissioner Michel Barnier called on the bloc to broker deals on draft financial regulations in the coming weeks as a “cornerstone” of the banking union that EU leaders seek to secure the long-term future of the euro.

Barnier also said decisions on whether the London-based European Banking Authority or the Frankfurt-based European Central Bank should gain some enhanced supervisory powers over lenders may hinge on how many of the bloc’s 27 nations agree to further pool their bank-oversight powers.

The adoption of proposals that the commissioner has made on bank capital requirements, coordination of deposit guarantee programs and the winding-down of failing banks is a “precondition” for the creation of a banking union, Barnier said yesterday in an interview with Bloomberg News in Brussels. The draft laws should be settled “in the weeks to come, or in the case of crisis resolution before the end of the year.”

European leaders gathered in Brussels yesterday for a two-day summit in their latest attempt to overcome the financial crisis against a background of borrowing costs near euro-era records for Italy and Spain. ECB President Mario Draghi and European Commission President Jose Barroso are among those urging EU nations to bolster investor confidence by pooling their financial backstops for failing banks and their supervision of lenders.

Banking Supervision

A report for the summit prepared by EU President Herman Van Rompuy calls for steps to be taken “as soon as possible” to create a European banking supervision system.

Depending on the outcome of the summit, the commission will present plans for extra EU supervision of banks, as well as for “the mutualization of deposit guarantee funds and resolution funds,” by year end, Barnier said.

“This concept, this step of integration, is only possible if we have laid the foundations” by adopting existing proposals, he said.

Should all 27 EU countries sign up for the banking union plans, then the enhanced power for the EU to supervise lenders should “probably” be handed to the EBA, Barnier said.

The authority, which began work last year, was set up as part of the EU’s response to the crisis that followed the 2008 collapse of Lehman Brothers Holdings Inc. It coordinates the work of national regulators across the EU, and has some power to resolve disputes between them.

EBA’s Mandate

The decision on where to place enhanced supervisory power becomes trickier if individual countries opt out of banking union, Barnier said, in part because the ECB decides monetary policy for the 17 countries of the euro area, and in part because of other aspects of the EBA’s mandate.

“If you are fewer than 27 then there is an issue to resolve with the EBA, if you are more than 17 then there is an issue to resolve with the ECB,” he said.

“This is why there are a range of possible models, and why we need some weeks or months to work on this”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE