31st May 2023

Ministers at odds on bank rescue rules

Eurozone finance ministers remained far apart on Monday (14 October) in the latest stage of negotiations on a banking union.

Eurogroup chair Jeroen Dijsselbloem asked "how much time do you have" when questioned about the hurdles facing the regime, adding that concerns existed about the creation of bank resolution funds and upcoming reviews of bank balance sheets.

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Talks on the single resolution mechanism (SRM), tabled by the Commission in July, are at an early stage but have already courted controversy.

Earlier this month, an opinion by EU lawyers representing governments questioned the legality of the proposal.

Germany is leading a group of countries keen to avoid the creation of a single fund, potentially backed by the EU's bailout fund, the European Stability Mechanism, to cover the costs if a bank get into difficulties.

France takes a different line.

"France defends the possibility of using the European Stability Mechanism as a backstop within the banking union," said finance minister Pierre Moscovici.

Dijsselbloem mooted the possibility of the ESM offering "bridging finance" to countries unable to finance their own bank rescue programmes.

Meanwhile, an EU official commented that the ESM would probably be allowed to pay loans to national funds but downplayed the prospect of a swift decision on the matter.

"We are still some way away from having to do something to reassure markets," he said.

Some governments are anxious that the long-awaited review of eurozone banks, set to take place in the coming months, will reveal large funding gaps on their balance sheets prompting more market panic about the financial stability of the bloc.

However, an EU official working on the reforms told this website that the stress tests would not uncover "major surprises".

"The situation is much better than it was at the beginning of 2012," the official said, adding that "banks should be able to raise capital on the markets and those that can't should have been identified by now."

For their part, MEPs on the Economics committee debated their draft report on the bill on Monday (14 October).

Under the proposal by centre-left deputy Elisa Ferreira, who has been tasked with drafting the Parliament's position, the legislation would set up a "public loan facility" to provide a credit line to both national and European funds.

A majority of MEPs is also keen to ensure that the EU's 6,000 banks are all covered under the regime.

The parliament aims to keep up the pressure on governments by voting their position on the bill in November.

Ministers were aiming to reach agreement on the rules in December, said Dijsselbloem, while economic affairs commissioner Olli Rehn added that it was "essential to maintain the momentum on banking union" by concluding the resolution mechanism.

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