Business Irish

Friday 6 December 2019

IMF urges Europe to establish single body to cope with fall-out from bank failures

joe brennan

What to do with banks that fail in future? The International Monetary Fund (IMF) urged last week that Europe set up a single body to deal with cross-border banking collapses.

Dominique Strauss-Kahn, head of the IMF, told an event in Brussels last week that the current regime has hampered the economic recovery and made it more expensive.

He argued that a so-called European Resolution Authority should be created with the powers to deal with all banks that run large-scale cross-border operations.

Michael Barnier, who took over from Charlie McCreevy in January as EU Commissioner for Internal Markets and Services, said at the same forum that he is considering making banks pay for an emergency wind-up fund in case one of them goes belly up.

The aim is to prevent another downward spiral in Europe like that which followed the collapse of America's Lehman Brothers in September 2008.

Coping with banks on the verge of failure is now central to the political agenda in Brussels, according to Mr Barnier.

"The financial institutions are going to have to be called upon to contribute to such a fund," said Mr Barnier, commenting on a facility that would be tapped for a bank in serious difficulty. "Why should our citizens be footing the bill?"

Closer to home, it is understood that Finance Minister Brian Lenihan will use his keenly-eyed speech on the future of banking to flag new powers for the Central Bank to seize control of a bank in danger of failure -- and wind them down, if necessary.

Sources have suggested that the law is likely to be along the lines of those established in the UK Banking Act 2009 to deal with collapsing banks, including new insolvency and administration procedures.

There have also been suggestions that banks in this country will be required, as part of the new regime, to draft 'living wills' which would outline how their operations could be wound down in a quick and orderly fashion in the event of failure.

Irish Independent

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