The European Union’s proposed fund for handling euro-area bank failures should have the power to seek market financing, EU financial services chief Michel Barnier said.
Under a European Commission presented today, the common resolution fund would have the power to borrow from markets in advance of any particular spending need, an EU official told reporters in Brussels. This would allow the fund to tap financial markets if it did not have enough cash on hand from industry fees.
Barnier today proposed a single resolution mechanism for euro-zone banks that will be supervised by the European Central Bank beginning next year. The plan would establish a 55 billion-euro ($70.5 billion) common resolution fund financed by levies on banks. As the fund is tapped to shore up banks, further levies would be imposed to top it up.
“In the first few years of course, the funding for it will be more modest,” Barnier told reporters. “Our intention is that it should be able to borrow and draw upon alternative differentiated forms of funding on the markets.”
The proposed joint fund builds on legislation that would set standards for national procedures on shuttering or restructuring failing banks. The bank resolution and recovery rules, currently under negotiation between EU nations and the European Parliament, would require each country to have funds set aside to handle bank resolution, and those funds also would be permitted to tap markets.
In materials distributed to reporters, the commission said that until the common fund is ‘‘sufficiently capitalized,’’ it could ‘‘levy additional funds from the banking sector. It could also borrow funds on the market. Under the draft Bank Recovery and Resolution Directive, member states would be free to decide what to do in this respect.’’
If the common fund takes shape as proposed, it would be managed by an EU board and could borrow backed by the assets of the banks it covers, the EU official said. The official predicted that there would be plenty of market demand for debt issued by the fund.