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Deadlock on ECB’s Bank-Crisis Plan in Focus of EU Meeting

The ECB begins to supervise euro-area banks next November, and wants a “strong and independent” resolution authority with a central fund to cover the cost of saving or shuttering lenders. Photographer: Ralph Orlowski/Bloomberg
The ECB begins to supervise euro-area banks next November, and wants a “strong and independent” resolution authority with a central fund to cover the cost of saving or shuttering lenders. Photographer: Ralph Orlowski/Bloomberg

Dec. 9 (Bloomberg) -- European Union finance ministers are racing to break a deadlock on a euro-area bank-failure authority that the European Central Bank says is vital to the bloc’s efforts to prevent future financial crises.

German Finance Minister Wolfgang Schaeuble today indicated a softening of his opposition to a key element of the European Commission’s plan for centralizing the handling of struggling euro-area banks. Ministers convene in Brussels tomorrow morning to discuss the proposal, facing a year-end deadline set by the bloc’s leaders for an agreement.

Schaeuble, who has driven the pushback against EU financial-services chief Michel Barnier’s proposed Single Resolution Mechanism, opened the door to an agreement on giving the commission, the EU’s executive and regulatory arm, a role in saving or shuttering banks. He had previously rejected such a role, citing a conflict of interest for the commission, which also polices state aid.

“We all know what the European legal situation is,” Schaeuble told reporters as he entered a meeting of euro-area finance chiefs. “There is a limitation that an agency can’t take a final decision. We need a formal confirmation. But that has to be done in a way that avoids a conflict of interest within the commission. I think there are solutions for that.”

‘Large Majority’

“A large majority” of EU nations consider that the final decision-talking role should be given to the commission, according to a Lithuanian note published on the EU’s website, and dated Dec. 6. Lithuania holds the EU’s rotating presidency. “The Council is seen as the less efficient alternative due to a number of legal, procedural and timing constraints.”

The ECB begins to supervise euro-area banks next November, and wants a “strong and independent” resolution authority with a central fund to cover related costs. EU nations have made scant progress toward a compromise since Barnier introduced his plan in July. The most contentious issues they face are the common fund, the scope of the mechanism and the question of who’ll have the final say in ordering a bank closure.

Schaeuble hosted Barnier, ECB Executive Board member Joerg Asmussen and finance ministers from France, Italy, Spain, the Netherlands and Lithuania in Berlin on Dec. 6 to discuss the plan before tomorrow’s EU meeting. The same group meets again in Brussels this evening, according to an EU official.

‘Great’ Pressure

“The pressure to reach an agreement before the end of the year is great,” Finnish Finance Minister Jutta Urpilainen told reporters. “Many questions remain open before decisions can be made.”

Progress has also been stalled by the prolonged coalition talks in Berlin since Chancellor Angela Merkel’s party won a Sept. 22 election. Dutch Finance Minister Jeroen Dijsselbloem, who chairs meetings of his euro-area counterparts, said last month that no bank-failure deal could be reached until Merkel formed a government.

On the second point of contention, the common resolution fund, Schaeuble has challenged Barnier’s reliance on Article 114 of the Treaty on the Functioning of the European Union, which he says provides “no stable basis” for winding down banks. He has proposed Article 352 of the same treaty, which requires unanimity, as the basis for a fund.

A German official today said the government’s core demands remain the same: an economically sensible solution that protects taxpayers and is robustly grounded in EU law.

National Compartments

Dijsselbloem last week proposed splitting talks on the fund from the rest of Barnier’s plan, possibly offering a way to overcome German resistance. This option was on the table in Berlin, he said today. “Various countries were open to it, but whether it leads to a solution we’ll see tomorrow.” Schaeuble hasn’t publicly commented on the Dutchman’s idea.

Dijsselbloem also laid out a new proposal for how the fund would work, calling for a system where each country’s banks pay into a national compartment that would be tapped first in time of crisis.

In the policy agreement reached by Merkel’s Christian Democrats and the Social Democrats, the two parties backed “a unified European resolution fund” filled by levies on banks. Until it’s up and running, national resolution funds -- and ultimately national governments -- would be responsible for their own banks, with the possibility of seeking a Spain-style bailout from the European Stability Mechanism.

‘Cross-Border Banks’

On the third divisive issue, the scope of the resolution authority, the German coalition platform, which must still be approved by the Social Democrats rank and file, supports the creation of “a European resolution authority” that would cover “systemic, cross-border banks.”

Barnier’s proposal would place all euro-area banks within the SRM, though he has indicated a willingness to consider limiting its scope to cross-border institutions.

The difficulties in reaching an agreement on this point were revealed last month when Lithuania put forward revised texts that would give national regulators responsibility for drawing up resolution plans for smaller and non-cross border banks, only to then withdraw them in response to opposition from other governments.

Other outstanding issues in the talks include how soon the EU should activate planned tougher rules on creditor losses at failing banks, with Germany among nations calling for an earlier start-date.

Ministers also need to tackle concerns raised by the U.K. and Sweden, two countries outside the euro area, that they could face unfair costs or be discriminated against unless safeguards are built into the text.

“A situation where regulation is happening in Frankfurt, but the repair or the recovery of a bank takes place in the 18 countries of the euro, will not go well for long,” Jan Sijbrand, director for supervision at the Dutch central bank, said Nov. 25. “That is a recipe for disaster.”

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net; Rainer Buergin in Brussels at rbuergin1@bloomberg.net

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

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