EU Lawyers: EBA Can’t Bind Commission on Bank Resolution

The European Commission’s proposed bank resolution system shouldn’t be bound by European Banking Authority decisions, lawyers for the European Union’s 28 member states said.

The legal opinion puts a dent in efforts by the U.K. and Sweden, which are both outside the euro zone, to beef up the EBA’s role in the Single Resolution Mechanism proposed by EU financial-services chief Michel Barnier. The SRM’s main task will be to backstop the European Central Bank’s new role as common supervisor for banks within the 17-nation currency bloc.

EU laws do allow the Brussels-based commission to be subject to EBA decisions under certain conditions, the legal service of the Council of the European Union said in a Nov. 13 opinion obtained by Bloomberg News. Yet the discretion required to make bank-resolution decisions is very broad and therefore outside the EBA’s remit, the lawyers said.

“Since the role of the commission in the context of the Single Resolution Mechanism is to make policy choices entailing a large margin of discretion, the EBA should not be in a position to adopt legally binding decisions affecting the manner in which the commission exercises those powers,” the lawyers said.

EU treaties give precedence to institutions like the commission over agencies like the EBA, to prevent the transfer of major responsibilities, the lawyers said. They also said that “there is nothing preventing the commission from being guided by and taking into account the EBA guidelines and recommendations when exercising certain duties of a resolution authority.”

Central Fund

EU finance ministers are meeting in Brussels today to hash out how to handle failing banks. Barnier’s proposal has met stiff opposition from Germany, which opposes giving decision-making powers to the commission as well as the immediate creation of a central fund to handle bank resolution costs.

The EBA was created by the EU in 2011 as part of the bloc’s response to the financial crisis. The London-based authority is responsible for coordinating the work of national regulators and has legally binding powers to settle disputes between them. The EU is now planning to extend EBA’s mission to include agencies tasked with handling failing banks, in line with proposals Barnier made last year.

As the Single Resolution Mechanism takes shape, Sweden and the U.K. have pressed for changes they say are needed to preserve a level playing field among EU member states. In a Nov. 4 discussion paper obtained by Bloomberg News, they requested a number of amendments to the resolution proposals aimed at applying EBA rules consistently inside and outside of the euro zone.

Lawyers for the 28 nations have considered a variety of legal issues surrounding the resolution mechanism. In a previous legal opinion, they said the proposal needs additional safeguards to protect national budgets.

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