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26th Nov 2022

Ministers edge toward bank resolution deal after marathon talks

  • The Lehman Brothers bank fell in 2008, heralding the start of the financial crisis (Photo: sachab)

EU finance ministers have edged closer to a deal on rules to wind up stricken banks, following more than 12 hours of talks in Brussels.

After a marathon meeting went on well into the early hours of Wednesday (11 December), ministers emerged with the outline of a compromise that would accommodate German concerns about the prospect of a common eurozone fund to cover bank resolution costs.

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They also addressed the question of whether the European Commission will be given sweeping new powers to place a bank into resolution proceedings - opting for a half-way house that would give the commission some say in the process.

Speaking with reporters following the meeting, Lithuanian finance minister Rimantas Sadzius, who is brokering the talks, said that ministers had made "a huge leap forward" and would reconvene next week.

Michel Barnier, the EU commissioner responsible for the banking union, added: "Ministers have done a lot of the work that is needed but we are not at the end of the road yet."

Under the commission proposal, governments will be required to set up national resolution funds to cover the costs of bank failure, to be funded by bank levies, which will eventually be worth around €60 billion.

But Germany is anxious at the prospect of pooling the national funds into a single eurozone pot.

"There has to be both a single resolution fund and a role given to national input," French finance minister Pierre Moscovici said earlier in the week.

"That is not a contradiction. It is an articulation between them that we are seeking.”

The plan mooted by ministers could see the creation of a new intergovernmental treaty, similar to the EU's fiscal compact on national budgets, to allow national resolution funds to access another country's resources.

However, national contributions would only be merged gradually into a central kitty.

“On the fund, the main thing is that it’s going to be progressively mutualized,” said Italy's finance minister Fabrizio Saccomanni, following the meeting.

“It was a compromise, we had to take into account Germany’s worries, but we obtained that at some point it will become a common fund, that will be supported by backstop mechanisms.”

Meanwhile, the compromise plan would also establish a resolution board charged with making decisions on whether to recapitalise or wind-up eurozone banks, answerable to the commission and to governments.

The plan will almost certainly annoy the European Parliament, which has to agree to the legislation for it to become law.

MEPs have previously voiced their displeasure at the use of similar procedures to marginalise them in the creation of the EU's bailout fund and the fiscal compact treaty.

"I can imagine the parliament will not be enthusiastic about such a situation and neither is the commission,” warned Barnier.

But there are still several big sticking points before a deal can be reached.

Germany is still opposed to the EU's bailout fund, the €500 billion European Stability Mechanism, being allowed to serve as a "backstop," while the national funds build up their capital.

Berlin also wants guarantees that national funds and bank senior creditors would take on most of the burden, leaving the taxpayer-funded route only as a last resort.

MEPs and ministers are expected to conclude a deal on the bank resolution and recovery directive before the end of next week.

The accord is to include a hierarchy of how creditors should be "bailed in" to take losses when a bank becomes insolvent.

Bank rescue fund to rely on big lenders

Europe's biggest banks will foot almost all of the bill for a new EU rescue fund for stricken lenders, according to a plan published on Tuesday.

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