EU Bank-Failure Plans May Give Member States Power to Act Alone

European Union governments may be allowed to act alone to handle a failing bank if they can’t reach an agreement with the bloc’s central resolution authority, according to draft plans.

Revised proposals give the European Commission the power to object to a plan for intervening at a stricken bank, and thereby refuse access to a central crisis fund, according to an EU document. The national resolution authority would then have to accept this or decide to revert to its own “national law.”

An EU country could take this step if it decided the commission’s approach could have “material negative impacts” on financial stability or on its system for insuring bank deposits, according to the document obtained by Bloomberg News on the EU’s proposed Single Resolution Mechanism.

The EU is designing a common system to handle failing banks to accompany the European Central Bank’s new role as supervisor in the euro area. Plans presented in July by Michel Barnier, the EU’s financial-services chief, have met with a barrage of complaints from Germany and other nations reluctant to cede national powers or provide system-wide financial backup.

Under the proposed compromise, the ECB and national regulators would cooperate with a central resolution board to design plans for restructuring or shutting down banks. These plans, drawn up in advance, would go to the Brussels-based commission for approval when a lender is on the brink of failure. The commission would get the final say on whether this central plan takes effect.

State Aid

National powers to act alone would kick in after the commission blocked suggested alternatives. Any national assistance would have to comply with EU state-aid rules, according to the report, prepared as an addendum to a document that sets the stage for talks before a Dec. 10 meeting of the bloc’s finance ministers.

The proposed SRM is part of an effort to break the financial links between sovereigns and banks by centralizing oversight and crisis management of failing lenders, and follows an effort to standardize national rules. Germany has warned that elements of the plan may violate the bloc’s basic laws. Many nations including Luxembourg and the Netherlands have sought revisions to limit banks’ access to taxpayer funds.

EU leaders reaffirmed last month that nations should agree on a common stance by the end of this year, in order for negotiations to start with the EU parliament on the final version of the law. The initiative will cover the euro area and any other EU nations that decide to participate.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE