Saturday 20 January 2018

New EC bank rules despite German doubts

European Commission President Jose Manuel Barroso
European Commission President Jose Manuel Barroso
Colm Kelpie

Colm Kelpie

THE European Commission has unveiled new rules to deal with failed banks that potentially put it on a collision course with Germany.

The EU's executive wing yesterday announced proposals for a so-called single resolution mechanism (SRM), giving the Brussels-based body the powers to decide when banks need to be saved or shut.

The plan would insist that losses fall on bank shareholders and junior bondholders before a lender can receive public support.

The SRM proposal forms the second part of the planned banking union, and follows agreement on a single bank supervisor for the eurozone earlier this year and political agreement on a common set of bank resolution and recovery rules set out last month.

European Commission President Jose Manuel Barroso (right) said that all the elements are on the table for a banking union to put the sector on a sounder footing.

"We have already agreed common European supervision for banks in the euro area and other member states who wish to take part.

"The proposal complements that with a strong and integrated single system for dealing with failing banks. We cannot eliminate the risk of future bank failures, but with the Single Resolution Mechanism and the Resolution Fund it should be banks themselves – and not European taxpayers – who should shoulder the burden of losses in the future."

The specific SRM text was not available yesterday as it was still being viewed by the EU legal experts.

The Commission's plans put it on a collision course with Germany, which has warned that a single authority risks breaching the existing European treaty.

On the eve of the proposal's launch, German Finance Minister Wolfgang Schaeuble called on the Commission to ensure that the proposals "stick to the limited interpretation of the (Lisbon) Treaty".

Under the rules, the European Central Bank (ECB) would signal when a bank was in difficulties and needed to be resolved.

A €55bn single bank resolution fund would be set up to ensure the availability of medium-term funding while the bank was being restructured. (Additional reporting Bloomberg)

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