EU Makes Bank-Crisis Push as ECB Says Failure Is Suicide

European Union lawmakers will make a last-ditch effort next week to get a bank-resolution bill on the books, as the European Central Bank warns that failure would be “very close to suicide.”

Negotiations in Strasbourg, France, yesterday yielded “some progress” on the Single Resolution Mechanism bill, though “the crucial issues are still all to be agreed” with a March 19 deadline looming, top European Parliament lawmakers said after the talks.

The SRM is part of an EU effort to prevent future financial crises by pooling responsibility for euro-area banks. A blueprint put forward last year by Michel Barnier, the bloc’s financial-services chief, would create a central board to handle failing banks, backed by a 55 billion-euro ($76 billion) fund financed by industry levies. If the law’s not passed before European elections in May, a delay of a year or more could ensue.

ECB Executive Board member Yves Mersch said in Frankfurt yesterday that not having the SRM “would be very close to suicide.” The ECB assumes full oversight of euro-area banks in November. “I don’t underestimate the difficulty of the subject, also in view of some constitutional constraints that might exist in some countries,” he said.

The European Parliament and EU finance ministers proposed competing visions of SRM in December. They’re now haggling over a compromise text of the bill, which both must approve. “More work has to be done also to explore some possibilities,” Dutch Finance Minister Jeroen Dijsselbloem said after yesterday’s talks.

Rotating Presidency

Dijsselbloem and his Greek counterpart, Yannis Stournaras, led the negotiating team representing EU member states yesterday. Greece holds the EU’s rotating presidency. The parliament’s team is led by Portuguese lawmaker Elisa Ferreira.

Sven Giegold, a German member of the parliament’s team, said one big sticking point is the insistence of member states on putting important elements of the SRM related to the fund into an intergovernmental agreement rather than EU law.

“It’s getting wider and wider,” Giegold said. “The council is putting more issues” into the agreement, he said, referring to the Council of the European Union, the institution that represents the interests of EU governments. Those issues include the rules for forcing losses on bank creditors, he said.

Four-Day Weekend

The most important disagreement is on how the planned bank-resolution authority would make decisions. ECB President Mario Draghi has said the new agency should be able to made decisions “in a matter of hours.”

As originally proposed by Barnier, the SRM could resolve a bank over a weekend, the European Commission said. This “cannot be guaranteed” by the plan designed by finance ministers, under which deliberations begun at 5 p.m. on a Friday could drag on until 1 a.m. the following Wednesday, the commission said.

“There must be a decision over a weekend; otherwise this mechanism is dangerous,” Giegold said. “If you want to wind down a bank and the weekend takes until Wednesday, then you have a catastrophe on the markets and that’s not acceptable.”

Rules for how banks will pay into the fund and how quickly its resources will be pooled are also in dispute, he said.

Finance ministers made few concessions to break the deadlock with parliament during two days of talks earlier this week. German Finance Minister Wolfgang Schaeuble struck a defiant tone.

May Elections

“I can say the European Parliament has to make a lot of move, otherwise we will not get a decision,” Schaeuble said. “And then we will have no regulation.”

EU President Herman Van Rompuy has said that the EU will lose at least a year in setting up the SRM if a law isn’t on the books before the parliament adjourns for elections in May.

“We stressed several times that is it very important” that ECB supervision and the SRM “go hand in hand,” said Klaas Knot, governor of the Dutch central bank. “When you create an imbalance, then for instance the absence of a resolution mechanism can undermine the effectiveness of European supervision.”

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