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EU Plan for Bank Resolution Draws Objection on Decision Making

The European Union’s plan for a euro-area bank-failure authority has drawn concerns that it may violate the bloc’s decision-making rules.

EU finance ministers agreed in December on an outline for a Single Resolution Mechanism, a new agency to handle struggling lenders. The plan sets out a ladder of decision-making authority and lays the groundwork for a central fund, filled by bank contributions and set up via an agreement among participating nations.

The Brussels-based European Commission says the SRM draft “reduces the discretion” of the Council of the European Union, which represents member states, “to an extent which is not compatible” with EU case law, according to declarations from a Dec. 18 finance ministers’ meeting that were posted Jan. 9 on the website of European Parliament member Sven Giegold.

The commission also voiced objections to a draft text for when the regulations would enter into force and on a provision affecting how the commission balances its roles on state-aid and bank-resolution decisions. The comments are a standard part of the process, said Chantal Hughes, a spokeswoman for EU financial-services chief Michel Barnier.

“It’s normal for us to make clear any legal concerns we may have with the text and it’s our responsibility to do so,” Hughes said today. On the specific issue of decision-making structures, the commission’s interpretation of EU law “is that the European authority that takes the final decision must have sufficient discretion.”

Financial Crisis

Bank resolution rules are a cornerstone of the EU’s effort to create a banking union and prevent another financial crisis that fuels contagion between nations and private-sector lenders. The European Central Bank this year is taking on new duties as the euro-area bank supervisor, and negotiations on how to handle bank failures aim to reach a deal by mid-year.

Complexity has been one of the chief concerns raised as the bank-resolution framework takes shape. The current negotiations may help the new system become more practical, Chris Buijink, chairman of the Dutch Banking Association, said in an interview.

“We need to cut the ties between banks and states and create a predictable environment with a credible system,” Buijink said.

“If a patient needs surgery, it’s not helpful to have a long debate between doctors on whether to operate or not,” he said. “It’s important that steps have been taken, and that progress continues to be made. A good dialogue with the European Parliament can help sharpen the minds in that process.”

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