What the new EU banks deal means
Published 13/12/2012 | 10:27
* The Frankfurt-based European Central Bank will directly supervise banks with assets over €30bn, or which have assets equivalent to a fifth of their home country's economic output. The three biggest banks in each member state will be covered.
* Although national supervisors will monitor the remaining banks, the ECB can intervene if it sees a problem at any of the single currency area's 6,000 lenders even if they are much smaller. Countries outside the euro are free to join the supervision scheme but so far but none have yet committed to doing so.
* A steering committee will guide the work of the supervisory body, which in turn is answerable to the ECB's Governing Council. This leaves the final say with the ECB.
* Appointing the ECB as supervisor is the first step toward a three-pillar banking union. To complete the project, a pan-European agency will be set up to close down banks that the ECB identifies as failing. But who should bear the costs of any such wind-down is contested.
* Any agency would need to be backed by a fund to cover the costs involved in winding down banks. A resolution fund provides emergency financing so that when a bank fails, those parts of the bank are kept alive to continue payments and lending, while the rest is liquidated. But Germany does not want to find itself on the hook for costs associated with closing a bank in Spain, for example, which will make it difficult to set up such a fund.
* The third and final pillar of a banking union is a combined scheme to protect deposits to stop bank runs. But this has little political backing and there is no prospect of such a framework in the near term.
* The European Banking Authority (EBA) will continue to write pan-EU rules for banks but there will be safeguards on how it takes decisions to avoid the 17-country banking union or ECB ramming through rules over the heads of Britain or others that stay outside the banking union. Disagreements will be handled by a panel at EBA.