EU Economy
EU banking union moves towards the launch pad
By Finfacts Team
Mar 21, 2014 - 8:23 AM

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José Manuel Barroso, European Commission president, and Angela Merkel, German chancellor, Brussels, March 21, 2014.

European Parliament and leaders of the European Union at a meeting in Brussels Thursday agreed on a compromise for setting up a Single Resolution Mechanism to deal with failing banks.

The draft agreement requires approval by the Ecofin council of EU finance ministers and a full session of the European Parliament.

The genesis of a European banking union is the biggest reform since the euro was launched in 1999 and the European Central Bank will be the bank supervisor from late 2014. with supervision of big banks in the Eurozone and in other member states which decide to join the banking union. 

Centralised decision-making would be built around a strong Single Resolution Board (the 'Board') and would involve permanent members as well as the Commission, the Council, the ECB and the national resolution authorities. In most cases, the ECB would notify that a bank is failing to the Board, the Commission, and the relevant national resolution authorities. 

Banks could be and wound down by this central authority - -  if necessary against the wishes of its home state - - using a €55bn rescue fund, which will be funded by banks.

A compromise was reached on building up the resolution fund over eight years, rather than 10. It also ensures that a bigger proportion of the fund is fully shared at an earlier stage.

Time limits are included to enable wind-up decisions to be taken swiftly over a weekend before markets open. However, the system would still involve more than 100 separate voting decision-makers on multiple panels.

Enda Kenny, taoiseach, welcomed the agreement: “We are moving towards the game of putting structures in place for restructuring, by which matters of recapitalisation can be considered, and which can be applied on case by case basis from the end of the year.”

On Thursday it was agreed that 40% of the rescue fund will be mutualised in the first year, 20% in the second year and the remainder over the following six years. The fund will be able to raise money on the markets.

So after three years, if an Irish bank needed a bailout, 70% of the fund would be available.

The prospect of Ireland getting retroactive direct recapitalisation of Irish banks to refund sovereign support, has receded further.

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