29 October 2013

Reuters: EU's Barnier ready to compromise on bank resolution

The Commission is ready to compromise on how many banks will fall directly under the scope of the eurozone's banking resolution authority, potentially limiting it to the largest institutions, Barnier said.

Michel Barnier, the European commissioner for financial regulation and the single market, said he was prepared to compromise with Germany, which has strong reservations about a single resolution authority having the power to shut down small local banks, such as its 'Sparkassen' lenders. "We can discuss the scope and which banks are covered, and maybe there could be room to have certain differentiation in how the rules are applied", Barnier told Reuters in an interview.

Such a limiting of the scope would mirror how the supervisory role of the European Central Bank has been curtailed to direct oversight of the eurozone's largest institutions. Barnier did not mention a specific number in relation to the resolution authority, but indicated a similar set up would apply, while also warning that small banks could still cause major problems for the region's banking sector.

"We will be looking for compromises here and I will be open to some differentiation. But what I said is that it's not always the big banks that cause the problems", he said. "We should always remember that the SSM, if it sees a problem in a bank that is not directly under its supervision, it can identify and bring it up for discussion", he said, suggesting a similar process would apply for resolution.

The sort of compromise sketched out by Barnier would remove one major obstacle to setting up the resolution body. But for the resolution mechanism to exist, policymakers also need to agree who should have the executive power to decide on the closure of banks and how to make sure that the costs would not burden eurozone taxpayers.

To avoid a lengthy and risky process of changing the EU treaties to set up a new EU institution especially for that purpose, the Commission has proposed that the EU executive arm itself could take the final decision on bank resolution.

Berlin does not like that idea. But Barnier said there were no other workable proposal for the moment. "We need a European institution to push the button. If somebody gives me a better idea (than the Commission), I'm ready to take it", he said.

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© Reuters