As European Union lawmakers race to create a bank-failure agency so it can take action outside market hours, they’re battling to streamline a German-backed plan that may need the weekend to last four days.
As originally proposed by Michel Barnier, the EU’s financial-services chief, the Single Resolution Mechanism could resolve a bank over a weekend, the European Commission said in a document obtained by Bloomberg News. This “cannot be guaranteed” by a plan subsequently designed by finance ministers, under which deliberations begun at 5 p.m. on a Friday could drag on until 1 a.m. the following Wednesday.
The European Central Bank, which assumes full oversight of euro-area lenders in November, insists that the authority must be able to move fast. ECB Vice President Vitor Constancio said on Feb. 18 that if the new agency “cannot take decisions in 24 hours,” supervisors might hesitate to send banks to resolution.
In talks with the European Parliament on a final version of the SRM bill, EU member states will have to compromise on the decision-making rules for the agency to be workable, said Sven Giegold, a German member of the assembly. As it stands, the ministers’ plan would only work “if they extend the weekend for stock exchanges till Wednesday,” he said.
The planned resolution authority, backed by a 55 billion-euro ($75 billion) industry-financed fund for covering the costs of saving or shuttering lenders, is a key part of an EU project to prevent future financial crises by pooling responsibility for banks. The legislation to establish it must be approved by national governments and the parliament.
Under pressure from Germany, finance ministers altered Barnier’s proposal to give national regulators and national governments more of a say in the SRM decisions. Parliament negotiators have resisted this move, saying it renders the process cumbersome and exposes it to political interference.
“Certainly on the decision-making process, there is serious room for improvement,” Dutch Finance Minister Jeroen Dijsselbloem, who also leads the group of euro-area finance chiefs, said on Feb. 20.
The urgency of the talks on SRM were underscored by EU President Herman Van Rompuy, who warned that at least a year would be lost in setting up the system if no deal is reached before parliament adjourns for elections in May.
Koos Timmermans, vice chair of ING Groep NV, said prolonged wrangling over a central euro-area bank-failure authority would create problems for the industry, since national regulators would continue to handle resolution in the meantime.
“The worry we have is that you might have resolution plans which become a bit too nationally orientated, which means you have to deal with preparing your company so that it can be broken apart along national lines,” he said in an interview in Brussels on Feb. 20.
“You are taking steps in a direction which you may later on have to reverse,” he said. “So that’s my worry.”
Nations including France, Spain, the Netherlands, Finland and Ireland backed some moves toward simpler decision-making at a gathering of ministers in Brussels on Feb. 17-18, as nations reviewed possible areas for compromise in the draft law.
The commission said “situations in which it is necessary to decide and implement resolution over a weekend will be exceptional,” though there will be times when “such swift action becomes necessary,” according to the paper obtained by Bloomberg News.
‘Margin of Maneuver’
EU states’ willingness to consider a compromise on SRM decision-making is welcome after two months of deadlock, key parliament members said. Feb. 19 talks with Greece, which holds the rotating presidency of the EU, held out “the light of hope,” said Elisa Ferreira, the parliament’s chief negotiator.
Greece had a margin of maneuver to negotiate, and that was “completely new,” she said.
Under the ministers’ plan, the full SRM board would need to pronounce when an intervention at a bank would soak up more than 20 percent of the fund, or when the accumulated use of the fund is set to exceed 5 billion euros in a calendar year.
The parliament and Barnier have called for raising or partly scrapping these thresholds.
Nations including Ireland and Belgium also backed calls from parliament to rewrite the planned voting majorities required when the SRM board takes decisions in its plenary format.
The December agreement foresaw that, in some cases, decisions would have to be approved by a two-thirds majority, and that majority would have to include nations whose banks account for at least 50 percent of fund contributions.
The 50 percent requirement would be unworkable in practice and could skew the system in favor of large countries by making it possible for as few as two or three nations to block a decision, according to a second commission paper.