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9th May 2021

EU clinches accord on bank wind-down rules

  • Bleary-eyed MEPs and ministers announced agreement on a compromise text following all-night talks (Photo: avail)

The EU is set to complete the final piece of its ambitious banking union after lawmakers agreed a deal on rules for winding down failed banks.

Bleary-eyed MEPs and ministers announced agreement on a compromise text at around 7am Thursday (20 March) following all-night talks.

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  • The end of bank bailouts? (Photo: EUobserver)

The agreement establishes a single regime to wind-down banks alongside a common fund worth €55 billion paid by the banks themselves to cover the costs of resolution. It represents the last big piece of the banking union blueprint drawn up by EU leaders in summer 2012 to break the link between indebted banks and governments. The rules will apply to all banks in the eurozone, as well as to those in countries which sign up to them.

Chief among several limited concessions won by MEPs from governments was a more speedy mutualisation of the fund, which will be composed of domestic bank levies being paid into "national compartments". Forty percent of the fund is to be mutualised in the first year, 20 percent in the second year, the rest equally over a further six years.

They also succeeded in beefing-up the powers of the European Commission in the process. The EU executive will be tasked with drawing up resolution schemes action plans to address a specific case of a failing bank. Members states will be involved only at the commission’s express request. This is meant to avoid a decision on winding down a bank becoming political.

Deputies told reporters that the decision-making procedure, which will be triggered by the Frankfurt-based European Central Bank, should allow a resolution scheme to be approved within 48 hours.

Ministers also agreed that a lending facility will be established to enable the bank-financed single resolution fund to borrow on the financial markets, before the regulation enters into force.  This would allow it to increase its firepower in the first years of the regime when the fund would only have a small amount of paid-in capital.

Even at €55 billion, the bank fund will still amount to a fraction of the over €1 trillion in publicly-funded bank rescues as a result of the 2008 financial crisis.

Portuguese centre-left MEP, Elisa Ferreira, who has led negotiations for parliament on the reforms, described the agreement as "a major improvement on the text we had from the council".

"It answers the three major concerns that the EP had - an efficient and swift decision making process; treating banks equally regardless of location; and would protect taxpayers money using the resolution fund," she said.

However, MEPs had to accept that the governance and use of the fund should be subject to an intergovernmental treaty, the main demand of the German government to assuage concerns that their taxpayers could be left liable for the bulk of the costs of future banking collapses.

For his part, financial services commissioner Michel Barnier said that the new regime marked "a major step towards the alignment of both banking supervision and banking resolution at a central level."

"The Single Resolution Mechanism might not be a perfect construction but it will allow for the timely and effective resolution of a cross border bank in the eurozone thus meeting its principal objective," he added.

The deal now needs to be signed off by the parliament's political groups.

Lawmakers have also agreed common rules to guarantee the first €100,000 of individuals' savings, while the European Central Bank will assume its new responsibilities as the supervisor for the eurozone's banking sector later this year.

Opinion

Banking union's major omission: debt mutualisation

The EU's banking union may turn into a self-fulfilling prophecy, instilling the idea that more banks will fail in the future, but without the necessary firepower to prevent it.

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