German Finance Minister Wolfgang Schaeuble and his European Union counterparts are under pressure to get a bank-crisis law on the books after European Central Bank President Mario Draghi spelled out the consequences of failure.
Negotiators for the European Parliament and EU member states have made scant progress on a compromise text of the Single Resolution Mechanism bill, with time running out before the assembly adjourns for elections in May. The two sides made proposals for an SRM late last year, and both must approve any final legislation for it to enter into force.
Parliament negotiators said last week that they would make a “last attempt” to broker a deal withGreece, which holds the EU’s rotating presidency and represents the interests of member states in the talks. Greece has set a March 26 deadline for an agreement. Finance ministers begin two days of deliberations on the bill in Brussels today.
“We cannot sign off on a deal which establishes a mechanism which is unfit for purpose,” Elisa Ferreira, the parliament’s chief negotiator on the SRM, said on March 5. “A potentially unworkable resolution system will jeopardize banking union and leave taxpayers exposed.”
The SRM is part of an EU effort to prevent future financial crises by pooling responsibility for euro-area banks. A blueprint put forward last year by Michel Barnier, the bloc’s financial-services chief, would create a central board to handle failing banks, backed by a 55 billion-euro ($76 billion) fund financed by industry levies.
‘Misalignment of Responsibilities’
The ECB assumes full oversight of euro-zone banks in November, and Draghi made clear that the central bank wants to work with a single resolution agency when lenders get into trouble.
“If we do not have one SRM, the responsibilities for resolution will remain national, and so we will have a misalignment of responsibilities,” Draghi said on March 6.
On one point of contention between the EU parliament and member states -- how to streamline the resolution authority’s decision-making process -- the ECB has insisted that a fast-acting agency is crucial.
As originally proposed by Barnier, the SRM could resolve a bank over a weekend, the European Commission said. This “cannot be guaranteed” by the plan designed by finance ministers, under which deliberations begun at 5 p.m. on a Friday could drag on until 1 a.m. the following Wednesday, according to the commission, the EU’s executive arm.
‘Matter of Hours’
ECB Vice President Vitor Constancio said on Feb. 18 that if the new agency “cannot take decisions in 24 hours,” supervisors might hesitate to send banks to resolution.
Draghi subsequently upped the ante. “As we all know, to resolve a bank is a decision that is often taken in hours,” he said. “So the governance of this new institution should be such that it could decide in a matter of hours.”
Ministers hold talks today on an international agreement on rules for pooling money in the resolution fund. They meet again tomorrow to discuss other aspects of the SRM. Greece will hold its next negotiation meeting with EU parliament lawmakers on March 12.
Herman Van Rompuy, the EU president, has said that the bloc will lose at least a year in setting up the SRM if a deal isn’t reached before the May elections.
While the parliament has largely backed Barnier’s approach, finance ministers substantially redrafted it in a German-led push to reinforce the decision-making role given to national governments and regulators.
Resolution Backstop
Their position also foresaw that the fund would be divided into national compartments that would be steadily removed over 10 years, meaning that money would be pooled gradually.
“The ECB view is that the mutualization process should be sped up,” Draghi said. “In order to have this gradual but not too slow mutualization, one has to have a backstop. And on the backstop, we have always been very open: it could be a credit line from the ESM or it could be borrowing from the markets with joint government guarantees.”
Ferreira said the two sides are “close to finding compromises on many technical aspects of the regulation.” Yet on the “essential issues” -- the decision-making machinery and the common fund -- “we remain far apart,” she said in the statement, which was co-signed by the other members of the parliament’s negotiating team.
Lawmakers last week published a set of compromise offers and red lines that they said could be a blueprint for a deal, if national governments were prepared to yield ground.
‘Last Attempt’
This constitutes a “last attempt” at a deal, Ferreira said. The parliament will vote on this package in April if no compromise has been reached with member states, she said.
The compromise package put forward by lawmakers foresees that national compartments in the fund would be removed after three years, with 50 percent of reserves to be pooled in the first year.
Parliament’s demands include that decisions on handling a stricken bank should always be taken by the “executive” version of the SRM board, rather than a larger plenary format, and that the ECB should be the sole authority able to pronounce on whether a bank is in crisis, so starting a resolution process.
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