EU to finalise banking union plan

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IOL BR Jacob J. LewLA Bloomberg US Treasury Secretary Jacob Lew has been touring EU capitals to push for tougher banking regulations that would level the playing fields. Photo: Bloomberg.

Brussels - The credibility of Europe’s efforts to restore confidence in its financial system hangs in the balance as legislators try to broker a deal on a bank-failure authority for the 18-nation euro zone.

As US Treasury Secretary Jacob Lew tours EU capitals to push for tougher banking regulations, European Parliament legislators and officials from Greece, which holds the EU’s rotating presidency, began talks in Brussels yesterday to create a central agency to save or shutter euro zone banks. They hope to reach agreement before elections in May.

When EU finance ministers ended a fractious debate and settled on a blueprint last month, European Central Bank (ECB) president Mario Draghi welcomed the plan, though it diverged broadly from the ECB’s position. The parliament’s stance is closer to the original proposal made in July by Michel Barnier, the EU’s financial services chief. Now the two sides will try to reach a compromise on the legislation.

“With the political clock ticking in Brussels, and with evidence of regulatory fatigue on a number of fronts, it’s all about reaching a position that allows those concerned to claim that plans for a banking union are moving ahead, but at the same time leaving many details to be worked out over the coming months or even years,” Richard Reid, a research fellow in finance and regulation at Scotland’s University of Dundee, said.

The Single Resolution Mechanism Bill is part of an effort to build a banking union that would sever links between lenders and sovereigns that fuelled Europe’s debt crisis.

Barnier’s proposal for a strong central authority backed by a single fund to cover resolution costs met with broad approval from the parliament and the ECB, but faced an initial barrage of German-led complaints from governments, centred on warnings that the blueprint went too far in taking financial decisions out of national hands, and that some of the measures overstepped what was possible under the bloc’s treaties. The final bill must be approved by the parliament and member states to take effect.

“To complete the banking union, a single resolution mechanism must be finalised in the coming months,” Arlene McCarthy of the European Parliament’s economic and monetary affairs committee said. “Negotiations will be tough, as there are fundamental issues on who decides if a bank will be resolved and who pays for it that need to be agreed.”

The finance ministers pledged to create a e55 billion (R797bn) industry-financed resolution fund over the next 10 years, backed an agency to decide on failing banks and agreed on cost-sharing procedures.

Yet they postponed decisions on how to back up the new system. And they split the proposal in two, with the resolution agency created under EU legislation. Financing arrangements would be set up in a separate agreement among nations, cutting out the European Parliament.

Elisa Ferreira, who is leading the parliament’s negotiation team on the draft law, has said that it was “a very serious possibility” that no deal would be possible on the bill, because the plans of the ministers and parliament were “completely different”.

And as the talks begin, Lew is pressing EU officials to follow the US in adopting tougher banking rules to ensure that US lenders are not put at a competitive disadvantage.

Between October 2008 and October 2011, EU governments made available e4.5 trillion in approved bank assistance, according to European Commission data, including e409bn in asset relief and recapitalisation. Barnier has said the bank-failure plan was essential to prevent a repeat of such taxpayer bailouts.

The “most important” aspect “is the operational structure, which seems far too complex” in the version approved by finance ministers, Karel Lannoo at the Centre for European Policy Studies said. “But in practice it means the ECB will have a more important role.” – Jim Brunsden from Bloomberg



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