Enria Calls for Rules on Cross-Border Bank Loss Sharing

The European Union needs “clear and binding criteria” for sharing losses when cross-border banks fail, European Banking Authority Chairman Andrea Enria said today.

Enria called on the EU to avoid “exclusive reliance” on national budgets and nationally oriented bailouts for banking woes, according to an article prepared for a conference in Dublin today that was obtained by Bloomberg News. That has hurt cross-border banking activity as regulators and banks have retreated within national borders, he said.

The Brussels-based European Commission is developing plans for a single resolution authority to handle bank failures within the euro zone and other nations that sign on for oversight by the European Central Bank, which is due to become the currency bloc’s bank supervisor next year.

Enria urged the EU to broaden the resolution plans to include all 27 EU nations, including those like the U.K. that neither use the euro nor plan to join the ECB oversight regime. He also said the resolution plan needs a unified backstop to prevent a patchwork of national systems from hampering financial stability efforts.

If the single resolution mechanism is more limited, “there is a risk that some degree of segmentations remains in the single market, as a consequence of the different underlying safety nets on which European cross-border banks would rely,” said Enria. The London-based EBA coordinates disputes among bank supervisors and sets technical standards for EU financial regulation.

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