9th Dec 2023

EU in new bid to broker bank closure deal

  • Eurozone finance ministers will be back in Brussels on Tuesday to broker a deal (Photo: Leonid Mamchenkov)

EU officials have a new proposal on the table as they try to agree on rules to wind up ailing banks this week.

Eurozone finance ministers will meet in Brussels on Tuesday (17 December) to discuss the fresh compromise, which was prepared by the Lithuanian government in its role as the EU's current presidency.

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Under the text, the costs of closing down a bank in the first year after the deal would be fully covered by a fund set up by the country where the bank resides.

All the national funds for closing down banks would be merged into a single resolution fund for the eurozone after 10 years.

The Lithuanian proposal would also require a new intergovernmental treaty to be drafted and agreed in spring 2014, to allow national resolution funds to access one another's resources in the interim nine years.

The idea, which was engineered by German finance minister Wolfgang Schaueble, risks prompting a fight with the European Parliament, however.

MEPs have already made clear they would not agree to a regime that shuts them out of the decision-making process.

Under the original proposal tabled by the European Commission, governments will be required to set up national resolution funds to cover the costs of bank failure. The national funds would then be pooled into a single fund.

The national funds would be composed from annual bank levies, which would be worth 0.1 percent of the total amount of deposits in a country's banks.

The final single fund would be worth around €60 billion.

The commission proposal has raised concerns about how to cover the costs of a bank failure if the size of the resolution fund is insufficient, however.

Meanwhile, the German government has baulked at the prospect of a single resolution fund, fearing that, as the bloc's biggest member state, its taxpayers would be made liable for the lion's share of all debts of all banks in the eurozone.

But an intergovernmental treaty, using a similar procedure to the one used to create the eurozone's bailout fund, the European Stability Mechanism (ESM), would give it special safeguards.

Ministers are under pressure to agree their negotiating position before the end of the year, with a view to a final deal with MEPs before next May's European elections.

For their part, deputies on the parliament's economic affairs committee want to set up the ESM as a potential credit line for the resolution funds.

They want decisions on whether to take a bank into resolution to be taken by the board of the Single Resolution Authority, a new EU body, which is to be composed of representatives of eurozone countries and the EU institutions.

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