Friday

1st Jul 2022

Ministers crawl toward bank resolution deal

EU finance ministers will reconvene on Wednesday (26 June) in a last-ditch attempt to agree on common rules to wind down ailing banks.

Ministers failed to reach a deal despite almost 20 hours of talks in Luxembourg that ran from Friday into Saturday morning.

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  • Ministers failed to reach agreement despite 20 hours of talks in Luxembourg (Photo: The Council of the European Union)

A common position is required before ministers can open negotiations with the European Parliament, which agreed its own stance on the new regime in May.

The bank resolution and recovery directive, tabled by the European Commission in June 2012, was widely seen as a precursor to the single resolution mechanism (SRM) for the eurozone, a controversial piece of legislation expected to be proposed in the coming weeks by the EU executive.

The directive sets out a hierarchy of shareholders and creditors who would be "bailed in" to bear losses if a bank got into serious difficulties, leaving savers as the last in line to lose money.

By forcing shareholders and major creditors to pay for a bank collapse, ministers hope to avoid a repeat of the multi-billion euro taxpayer funded bailouts following the 2008-9 financial crisis.

Although there had been earlier disagreement over the prospect of rules requiring all member states to set up bank-funded resolution funds earlier in negotiations, the main stumbling block was over how much flexibility governments should be granted in making decisions on winding down banks.

The UK and Sweden are among a group anxious to be allowed to invoke a "financial stability" clause to take account of spill-over effects that resolving a single bank could have on the rest of the sector.

However, Germany and the Netherlands are among those believing that too much flexibility would create new imbalances between the bloc’s weaker and stronger economies.

The previous evening, on Thursday (20 June), ministers agreed guidelines on how the eurozone's emergency bailout fund can inject money directly into struggling banks.

Starting in mid-2014 when the eurozone's new bank supervision regime begins, €60 billion out of the European Stability Mechanism's €500 billion lending capacity will be allocated to bank recapitalization.

“I think we can reach a deal if we take a few more days,” said Michel Barnier, the EU's commissioner on financial regulation.

“We are not far off now from a political agreement,” he added.

For his part, French finance minister Pierre Moscovici claimed that "90 percent" of the work has been completed.

However, Irish counterpart Michael Noonan cautioned that there are still “real issues” to be resolved.

“There is no guarantee there will be a solution on Wednesday,” he noted.

EU ministers agree rules on bank collapses

Bank shareholders and creditors will be first in line to suffer losses if their bank gets into difficulties, according to draft rules agreed by ministers Thursday.

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