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Euro Area Needs Common Fund for Failing Banks, Barnier Says

Michel Barnier, the European Union’s financial services chief, said that euro area nations should put in place a “common resolution fund” as a backstop to efforts to wind down or restructure failing banks.

The fund should cover the euro area and other nations that sign up their banks for oversight by the European Central Bank, Barnier said in prepared remarks for a speech in Dublin. “Common financial backstops” are needed, he said.

“From a European perspective, it would make sense and be both more coherent and effective, for those countries which belong to the banking union to establish a common resolution fund,” he said, in reference to efforts by the euro area to centralize oversight of lenders.

EU leaders have called for the setting up of a central authority to handle large bank failures in the euro area in a bid to untangle the solvency of governments and lenders. Barnier has said that he will seek to present a draft law in June, with this dependant on how fast legislators advance in adopting a related proposal on failing banks that was published last year.

Barnier said that he would oppose attempts by some governments to dilute this earlier proposal by giving national regulators flexibility to decide which bank creditors should face forced losses in a crisis.

“We need to have one set of common, predictable rules,” he said. “Authorities need some flexibility. But national discretion must be limited and properly framed,” he said.

Creditor Writedowns

Under European Commission proposals from last year, regulators would be empowered to impose creditor writedowns at failing banks from 2018.

Barnier said today that he could back German and ECB calls for an earlier start date, on condition that progress is made in setting up the single resolution authority and fund.

“In order to avoid fragmentation in the Single Market, all parts of the banking union must be in place,” he said. “This includes agreement on the complete tool-kit of resolution tools. And most importantly, common financial backstops.”

Barnier said the plans would be discussed at a meeting of finance ministers and central bank governors that begins tomorrow in Dublin.

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