EU Seeks Role in Bank Shutdowns That Goes Against German Plan

The European Commission is seeking to give itself the power to shut down failing euro-area banks as part of a draft crisis blueprint that defies German calls for a more decentralized approach.

The Brussels-based authority is set to propose that decisions to force losses on crisis-hit lenders’ creditors, as well as other steps to prevent a disorderly collapse, should be taken largely out of national hands, according to a document obtained by Bloomberg News. While the system would include a “newly-created central resolution body,” final decisions would be taken by the commission itself.

“Among EU institutions, the commission is best placed to play this role, bolstered by its experience of bank restructuring during the crisis under state-aid control, and given the need to ensure expeditious and effective decision-making,” according to the document.

The move puts the commission at odds with Germany, which has said that a centralized approach to bank resolution in the euro area should only come once the bloc has taken further steps toward common fiscal and economic policies. German Finance Minister Wolfgang Schaeuble has warned that a strong single authority couldn’t be set up under the EU’s current treaties, and that the euro area should opt in the first instance for a networked approach that is reliant on national regulators.

Both the European Central Bank and the commission have, instead, urged rapid progress toward a centralized system in a bid to bolster confidence in the bloc’s banks, and break the financial link between lenders and sovereigns.

Resolution Agency

Under the commission’s draft blueprint, to be discussed by the institution’s 27-member college tomorrow, an executive board at the central resolution agency would prepare draft decisions for the commission. It would also be able to initiate some measures itself, such as authorizing on-site inspections of banks.

This board would be dominated by commission and ECB appointees, with only a “limited number” of national representatives, according to the document.

Representatives from all participating national regulators would sit on a larger board, outside of day-to-day decision-making, that could “oversee and decide on general matters related to the internal functioning of the body.” The national regulator of a bank in distress would have “appropriate involvement” in decision-making “without however giving them a veto over decisions,” according to the document.

Failing Lenders

The draft commission plans also include the creation of a central, bank-financed fund, to cover the costs of winding down failing lenders.

The amount paid into the fund by individual banks would be calculated against how risky their activities are perceived to be by regulators, according to the document. The fund would over time replace national-level backstops and would “have the ability to borrow from the market or third parties.”

The commission proposals are still under internal discussion, and once published would need approval from EU governments and the European Parliament before they could take effect.

The Financial Times earlier reported on the draft plans.

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