- Deal includes planned statement on move to permanent backstop
- Bridge finance plans needed in place by Jan. 1 SRM start
European Union nations have reached a deal on how they would provide bridge financing to the bloc’s new bank resolution agency during its eight-year start-up phase, according to three EU officials.
Bridge financing is needed by Jan. 1. That’s the official start of operations at the Single Resolution Board and its accompanying Single Resolution Fund, which gain oversight powers next year over failing banks within the euro area’s banking union. Banks are due to build up the SRF gradually between 2016 and 2024, with funds staying tied to individual nations until the fund reaches its full strength of a projected 55 billion euros ($60 billion).
Countries will set up national credit lines based on the deal, which was provisionally agreed by finance ministry deputies, according to the officials, who asked not to be identified because talks are private. The deal, which is due to be discussed by finance ministers in Brussels next week, also will include a statement on the timeline for designing a permanent backstop, and it addresses concerns raised by Germany, Finland and France, one of the officials said.
Under the deal, nations will be able to lend money to the SRF if needed based on two sets of procedures, one for countries whose laws require national legislative action before making such outlays, and another for countries who don’t, the official said. The deal also includes a provision for making bridge-finance payments in tranches, if sought.
In the long term, nations will need to decide how to proceed toward creating a permanent backstop in case the resolution fund’s needs exceed its war chest. In the past, officials have debated whether the European Stability Mechanism firewall should be available for this purpose, without reaching agreement.
The Danish Finance Ministry told national lawmakers that it expects broad support to use the ESM as backstop fund, and that some countries want to move forward a 2024 deadline while others want to maintain it. The finance ministers are expected to say they’ll revisit the backstop deadline after all participating countries have implemented the new Bank Recovery and Resolution Directive, required of all 28 nations, and when all participants in the euro area’s banking union have ratified the resolution fund.
In the meantime, any bridge financing loans would need to be repaid with interest, the Danish ministry said in its briefing note to lawmakers. It said the credit line of any country may only come into use if a financial institution of that country become distressed and the funds of the SRF are insufficient for the concrete operation.
Ministers are scheduled to “hold an informal session to approve a statement on bridge financing for the EU’s single resolution fund,” according to the agenda for Tuesday’s EU finance ministers’ meeting. German Finance Minister Wolfgang Schaeuble said last month that any bridge financing should only be made available through national compartments -- meaning countries would only backstop their own contributions to the resolution fund rather than other nations.