Deal reached on banking union
By Nicholas Hirst
Compromise on bank resolution fund should bolster confidence in EU banking sector.
Plans to stabilise the European Union’s banking sector took a big step forwards this morning (20 March) as negotiators representing the European Parliament and member states brokered a deal after months of intense negotiations.
The compromise, which was clinched after talks went through the night, will create a single European bank resolution authority and fund and is the final building block in the EU’s planned banking union. The agreement still needs to be approved by the member states and MEPs.
MEPs squeezed limited compromises from member states negotiators. Just to make these concessions, Yannis Stournaras, the finance minister of Greece, which currently holds the rotating presidency of the EU’s Council of Ministers, and Jeroen Dijsselbloem, the Netherlands’s finance minister and president of the Eurogroup of eurozone finance ministers, had to call their German counterpart, Wolfgang Schäuble, at 5am so that he could give his approval.
MEPs had been very vocal over concerns that the fund would lack the necessary funds to deal with winding up larger banks and that the decision-making process would be too slow and too politicised.
Under one compromise, the single European resolution fund will be fully capitalised after eight years. This means that banks will have less time to contribute to the fund’s €55 billion than previously envisaged. In addition, MEPs also increased the pace at which this money, paid first into national resolution funds, will be pooled at the European level. The resolution fund will also be allowed to raise funds on the market, against its own capital, giving it greater firepower and flexibility.
Under another compromise, the resolution authority’s executive will have greater powers to dispense funds without needing approval from the so-called plenary, which will contain representatives of national regulators. The plenary will become involved if the executive intends to spend €5bn or more in a single decision. Both Germany and France will have almost enough votes in the plenary to exercise a veto.
“This is a credible system that we can be defend and be proud of,” said Corien Wortmann-Kool, a Dutch centre-right MEP. Sven Giegold, a German Green MEP, said that the compromise would make the resolution process “simpler, more economically efficient and quicker”.
But MEPs failed to overturn member states’ decision to base the single resolution fund on an intergovernmental agreement. MEPs described the move, which took a crucial part of the proposal out of the legislative process, as contrary to EU law. Member states insisted that the fund could not be based on EU law.
This is unlikely to be the end of disputes over banking union. Sylvie Goulard, a French Liberal MEP, suggested that MEPs may consider challenging the intergovernmental agreement before the court in order to prevent it from becoming a precedent for future legislation. In addition, MEPs are also intent on reviewing detailed rules to be published by the Commission that will decide lesser but significant issues, such as the contributions to be paid by different member states’ banking sectors.
Under the proposed rules, the European Central Bank will recommend that the resolution authority intervene in an ailing bank. The authority’s decision to intervene will need to be approved by the Commission. If the latter disagrees with the decision, member states have the final say.
The single resolution fund and authority, together with the single supervisor, new rules on rescuing banks and mandatory deposit guarantee schemes, make up the EU’s banking union, an ambitious plan to bring the eurozone’s banks as well as some large non-eurozone banks under a single regulatory system.
Banking union is also part of a wider-overhaul of the EU’s financial sector. As part of this overhaul, banks are subject to new capital requirements, while the largest banks could be broken up by national regulators under rules proposed by the Commission.
Michel Barnier, the European commissioner for the internal market and services, estimated that the new rules would mean that, going forward, there would be less than a dozen cases of banks needing to call on public money. This is a far cry, he said, from the situation following the economic crisis, where member states put up about 13-14% of the EU’s gross domestic product to support failing banks.
Goulard said it was important not to underestimate the progress made in recent years in overhauling the banking sector. To suggest a single European bank supervisor or resolution authority only five years ago would have been unthinkable, she said. The completion of banking union itself is perceived as key for ensuring markets’ confidence in the eurozone’s banking sector. Yet it hung in the balance after member states refused to grant concessions in earlier rounds of negotiations and MEPs threatened to delay the proposal into the next parliament.
Germany, in particular, held a strong line both during negotiations with member states and in the ensuing negotiations with MEPs, determined not to relinquish some control over the fund and authority and to prevent its banks paying for the shortcomings of foreign banks.