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E.U. Officials Optimistic on Bank Pact European Officials Agree on Plan for Failed Banks
(about 2 hours later)
BRUSSELS — European Union finance officials kept up their optimism late Wednesday that they would reach a deal on how to wind down failed banks in time to hand an agreement to the bloc’s 28 heads of state, who begin a two-day meeting here on Thursday. BRUSSELS — European Union finance officials agreed late Wednesday on a system for winding down failed banks, an important step toward introducing a banking union.
Finance ministers from the 17 euro zone nations had announced early Wednesday that they had made significant progress on how to structure a rescue fund for failing banks, though they offered no details. Those discussion resumed later in the day, as the euro zone ministers were joined by finance and economic officials from the rest of the European Union, whose signoff on any final deal would be necessary. “This will break the vicious circle uniting banks and their sovereigns,” Michel Barnier, the European Union commissioner who oversees financial services, said at a news conference early Thursday.
An agreement, if reached, would move the currency bloc closer to a banking union to replace the vulnerable patchwork of national regulations that currently characterizes the European financial sector. The system, the Single Resolution Mechanism, is to go into effect in 2015; the details must be completed early next year in negotiations with the European Parliament, which faces elections in May, if the deadline is to be met.
Olli Rehn, the European commissioner for economic and monetary affairs, told journalists early Wednesday that the discussions had “achieved a crucial breakthrough toward banking union.” For all the energy that has gone into creating a resolution authority and fund, the final agreement disappointed hopes that Europe, still a sketchy patchwork of national regulations, would embrace a more robust system for closing failed lenders.
The impending summit meeting by the heads of state added pressure to the negotiations, though officials suggested Wednesday that a partial deal might suffice, with the finance ministers returning on Dec. 29 or 30 to iron out details. Members of the European Parliament and officials at the European Central Bank have been scathing in their assessment that the plan adopted on Wednesday was unnecessarily byzantine and unwieldy, and would make impossible the rapid decision-making that is needed when a bank begins to falter and depositors start withdrawing cash.
“We’ve come a long way,” Jeroen Dijsselbloem, the Dutch finance minister and head of the euro zone finance ministers, said early Wednesday, adding that he was “very optimistic” that a deal was near. “It will be a banking union, full stop.” The agreement, the result of nearly 18 months of negotiations, will create a resolution authority with a common fund for the 17 nations of the euro zone, though all 28 European Union members are welcome to join.
Any final agreement, though, will probably fall short of the hopes of those who want a strong financial backstop put in place in the near term. Euro members are prepared to create a pot of 55 billion euros, or $76 billion, over 10 years, with each nation having access to its own “compartment” of those funds. Officials hope the resolution authority, along with the creation of a banking regulator under the umbrella of the European Central Bank, will help restore confidence in a financial system that has suffered through a global financial crisis and a sovereign debt crisis in the last five years.
But on the question of what would happen if those funds are exhausted — as could quickly happen if more than one big bank toppled at the same time — Germany has flatly rejected the possibility of using the bloc’s main bank-aid fund already in place, the €60 billion European Stability Mechanism, as a backstop. On Wednesday, before the final deal was adopted, Vítor Constâncio, the central bank’s vice chairman, told European finance ministers that if a more streamlined set of procedures was not adopted, “We fear that markets will find the process too complex, and it will not be totally credible that it can work in certain situations with the speed that is required.”
Officials have “agreed that it is not possible and cannot happen,” Wolfgang Schäuble, the German finance minister, said a briefing Wednesday. When banks begin to falter, the central bank will be responsible for identifying them and notifying a resolution board. The board in turn will notify the European Commission, the European executive, of the need for intervention to wind down or sell off the bank. If the commission rejects such a recommendation, national finance ministers will have the last say. Germany and others insisted on that structure as a means of guarding their interests in a political dispute, but it means that more than 100 people could be involved in some resolution decisions.
Melissa Eddy contributed reporting from Berlin. Chancellor Angela Merkel’s government, worried about the possibility that German taxpayers could be on the hook for bailing out banks in other countries, also contended that the legal basis of the resolution authority, which is being created under European Union law, be separate from that of the fund, which is being created by a treaty between euro zone members.
The common resolution fund of 55 billion euros ($76 billion) will be built up over 10 years, with individual member states contributing money raised by bank levies. If it is not able to meet its obligations during that time, it will in theory be able to borrow money.
Mr. Barnier, who had championed a more streamlined and robust system, acknowledged that the plan had shortcomings, but said it was “a positive compromise,” considering that the views of all 28 member states had to be considered.
“We needed an institution, legally, that could push the button,” he said.
Rimantas Sadzius, the Lithuanian finance minister who served as chairman of the meeting, said it was “very important to take the first step, because then you can check it against reality.”