09 October 2013

Commissioner Barnier says ESM could take on banking resolution

Partially translated from the German

Barnier, told the German paper Handelsblatt that he was ready to compromise to bring momentum to the stalled Banking Union project, which aims to establish a framework to deal with stressed European lenders and break the link between indebted countries and their banks. The European Commission first proposed that it and a related board should have the authority to close banks, but Germany and others are worried about Brussels getting too much power. The proposals will need the backing of Member States to become law.

"We could agree from the start that the Commission would only take on the task of banking resolution for a limited time and we would find another solution for the longer term", Barnier said in the interview with Handelsblatt. "The bailout fund ESM could take over banking resolution as soon as it has become a European institution. But for that we would need to change the EU Treaty", he added.

However, a German finance ministry spokesman wasted little time in knocking down the idea, saying that would still pose legal problems. "Any temporary solutions must be legally sustainable and legally workable", said the spokesman at a regular government news conference. "Barnier's proposal does not clear up the legal concerns, nothing has changed in Germany's position", he said. "It is a possible option to have the ESM as a wind-down authority in the long term, but temporary solutions must be legally sustainable and they also must be practical", quotes the WSJ.

The Commissioner also indicated that he might be willing to compromise on another point: He proposed that the EU should only assume responsibility for dealing with the 130 largest banks. For the settlement of any other financial institutions, the national authorities would continue to remain responsible. While even small banks could collapse and consequently undermine the entire financial system and he thus didn’t consider it a great idea to leave the settlement of smaller banks to the national supervisory authorities, Barnier said that it was "still true that we have to find a compromise".

He dismissed an idea raised by German Finance Minister Wolfgang Schäuble on Tuesday for the bank resolution agency's remit to be limited to the largest systemically relevant banks - the way the European Central Bank will operate in its new role as supervisor of banks, the first pillar of Banking Union.

Barnier said he remained confident a deal could be struck on banking resolution by the end of the year. Political impetus has already slowed with the return of market calm, delaying progress on the second pillar of Banking Union - the creation of the banking resolution agency and a fund to pay for the clean up. A mechanism to wind down failing banks should enter into force by 2015, said also European Central Bank President Mario Draghi on Wednesday, as Reuters reported.

Full Reuters article (English)

Full Handelsblatt article (German) © Handelsblatt

Full interview (German) © Handelsblatt