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20 March 2014

ECON Committee: Parliament negotiators rescue seriously damaged bank resolution system


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EP negotiators have reached a deal with their Member State counterparts on the SRM to deal with failing banks. The elements agreed will help to ensure that the system cannot become a hostage to political power games, and can deliver swift and credible decisions. (Includes comments from EP, EC et al.)


 
The deal has now also won the seal of approval of Parliament’s political group leaders and will now be tabled for a vote at the second plenary session in April, the last of this legislature.
 
Elisa Ferreira (S&D, PT) who led the talks on Parliament’s behalf, said: "I welcome the deal we have reached today and I can put it to the plenary with some satisfaction. This deal has repaired many of the serious flaws in the initial Council position and I believe it is an improvement not only for the majority of MEPs but for many EU countries too. The mechanism as agreed will, I believe, be able to deliver the key goals for which it was intended. Certainly, this is not the end of the road and we must remain vigilant to ensure that the right implementing rules are laid down and that the fund’s borrowing capacity will be translated into practice as rapidly and effectively as it needs to be". 
 
The deal improves in the following ways on the finance ministers’ initial plans:
  • the ECB supervisor will trigger the whole process, being responsible for deciding whether a bank is on the brink of failing.  The Resolution Board may ask that the ECB takes such a decision and if the ECB declines to do so, then the Board itself may take the decision. The ECB is therefore the main “triggering” authority but the Board may also play a role if the ECB is reluctant or hesitates to act,
  • the Commission will adopt draft resolution schemes, action plans drawn up to address a specific case of a failing bank.  The Council will be involved only at the Commission’s express request. This will avoid pervasive political interference in individual resolution cases, a key concern for MEPs,
  • the time for decisions to be taken on the establishment of a resolution scheme was reduced.  Moreover, the decision-making process was greatly streamlined.  A resolution scheme could therefore be approved within a weekend, from the closing of the US markets to their opening in Asia.  This was also a key requirement for MEPs,
  • a system will be established, before the regulation enters into force, which will enable the bank-financed single resolution fund to borrow.  This will allow it to increase its firepower, an ability MEPs stressed would be particularly crucial in the first years when the fund would only have a small capitalisation, and
  • rapid mutualisation of the “national compartment” setup of the fund. 40 per cent is to be mutualised in the first year, 20 per cent in the second year, the rest equally over a further six years.  The national funds would pool 60 per cent of all their resources by year two. Rapid mutualisation was a key issue MEPs wanted settled before the intergovernmental chapter could be given a green light.
 
President of the European Commission, José Manuel Barroso said: Today's political agreement on the single resolution mechanism completes our Banking Union. This will strengthen confidence and stability in the financial markets and help restore lending to the economy. We promised to do this before the European Parliament elections. I'm delighted we have delivered.

Internal Market and Services Commissioner Michel Barnier said: “Today's compromise allows us to complete the architecture of the Banking Union for the eurozone. This would not have been possible without the assiduous work and spirit of compromise demonstrated by both co-legislators.

It represents a major step towards the alignment of both banking supervision and banking resolution at a central level, whilst involving all relevant national players. Backed by an appropriate resolution funding arrangement, and an acceptable decision-making process, this second pillar of the Banking Union will allow bank crises to be managed more effectively. In case of cross-border failures, it will be much more efficient than a network of national resolution authorities and will help to avoid risks of contagion. The Single Resolution Mechanism might not be a perfect construction but it will allow for the timely and effective resolution of a cross border bank in the eurozone thus meeting its principal objective.

Together with the reforms to the financial sector for all 28 countries, the completed Banking Union will put an end to the era of massive bailouts. It will further contribute to the return to financial stability thus creating the right conditions for the financial sector to once again lend to the real economy which is essential to consolidate the economic recovery and to create jobs.

This political agreement is just in time to allow the current European Parliament to confirm the trilogue agreement in April's final plenary session. I would like to thank all those involved in the negotiations... for this major achievement. Thanks to the strong sense of responsibility demonstrated today, Europe is living up to its commitments."

Press release (including background and key elements of the trilogue agreement)
 
 
EP president Schulz

Following a meeting with the Parliament's negotiators and political group leaders, EP President Martin Schulz stated: "The compromise over the single resolution mechanism is an enormous success. This agreement is another major step towards restoring the stability of the euro zone and making it more immune to the crisis in the future. We need a strong banking union to break the negative feedback loop between sovereign debt and the health of the banking sector.

The group leaders agreed, with an overwhelming majority, to advise their members to endorse the compromise. Three major points were considered as key improvements from the beginning of the negotiations.

First, the decision-making process and the governance were greatly streamlined making it possible to resolve a bank over the weekend. The decision-making process is now not only speedier, but it is also a truly European one allowing for a fair treatment of all banks, whatever their country of origin.

Secondly, the rapid mutualisation covering 60 per cent of the resources in the first two years and the remaining mutualisation in the following six years was hard-fought, but a decent and fair deal.

Thirdly, the credit line from the fund - highly disputed between the Council and the Parliament - is a real step forward.

If you compare these achievements with what was tabled by the Council on 18 December last year, you can easily see how far the Parliament has come in the negotiations. On this occasion, I would like to commend the role of the EP negotiating team, and in particular the lead-rapporteur Elisa Ferreira. I would also like to praise the President of the Eurogroup Jeroen Dijsselbloem and the Greek Council Presidency, for their cooperative style in the negotiations and their respect for the European Parliament's position. This approach was conducive to a successful agreement."

 
In further comments during his speech to the European Council, EP president Schulz said: "For weeks and months the Council of Finance Ministers and the European Parliament wrestled over a system for the resolution and recovery of bankrupt banks. I know that we parliamentarians gave your Finance Ministers a tough time in the negotiations. But this resolution mechanism for bankrupt banks is essential to the success of Banking Union. We could not and would not accept a deal which did not safeguard the interests of ordinary Europeans. If they had come to fruition, the proposals which were on the table for weeks would have represented a denial of the key objectives of Banking Union, namely that the taxpayer should no longer be required to foot the bill for bailing out banks and that the toxic link between bank debt and sovereign debt should be broken.
 
Many renowned economic experts, the Commission and the European Central Bank endorsed almost every aspect of Parliament’s standpoint, a standpoint which, I might add, was adopted by a majority of 441 to 141 - convincing, I think you’ll agree. In the early hours of this morning, after 16 hours of tough negotiations, a breakthrough was finally achieved which represents a major step forward, in particular by comparison with the decisions taken by the Council of Finance Ministers on 18 December, and which clears the way for the establishment of a functioning Banking Union. The key components - a single banking supervisory system, a single bank resolution mechanism and the deposit guarantee system - are in place, so that we can now say: the Banking Union is a reality. It is an historic step.

The proposal put forward by the Council of Finance Ministers would have involved a system under which 126 persons would have had to hold discussions over five days in nine separate forums before being able reach a decision on the resolution of a bank. But such decisions often need to be taken over a weekend, in order to prevent a run on the banks and financial market turbulence! The agreement reached at long last at 5 o’clock this morning makes it possible for a pragmatic, neutral and effective decision to be taken over a weekend.

The proposal put forward by the Council of Finance Ministers would also have involved not a single European resolution fund, but a fund divided into national compartments. What is more, it would have been under-capitalised. Logically, therefore, the countries in which banks are based would have continued to be liable for their losses. This system would have done nothing to implement the basic principle underpinning banking union, namely that banks should bail out banks. Instead, the taxpayer would have continued to foot the bill.

How could the European Central Bank have credibly carried out stress tests to assess the viability of banks if it knew that, should a serious problem arise, there would be no robust and effective resolution mechanism to fall back on? If that had been the system on offer, then we would certainly be better off having no single resolution mechanism at all.

Full speech

Statement by Minister Yannis Stournaras
 
The Hellenic Presidency this morning reached a provisional agreement with  representatives of the European Parliament on the Single Resolution Mechanism regulation. This was done in conjunction with the valuable input and contributions by the Chair of the IGC at Ministerial level, Jeroen Dijsselbloem, on the aspects of the Single Resolution Fund, which was intrinsic in reaching the overall agreement. The agreed text will now be submitted to the Member States, and I hope that they will be able to support it. 
 
The regulation will enable the establishment of a single resolution board with broad powers in cases of bank resolution, as well as a single resolution fund. Approval of the text will enable us to also conclude an intergovernmental agreement on the functioning of the fund. 
 
On behalf of the Presidency, I should like to warmly welcome today's agreement on this key element of Europe's Banking Union. I sincerely hope that it will open the way for approval by both Parliament and Council within the timeframe we have set on account of the forthcoming European elections. 
 
 
President Van Rompuy
 
Van Rompuy called the agreement "a key element of our strategy to fight the economic crisis, reinforce the Economic and Monetary Union and fight financial fragmentation that has been one of the breaks on economic growth". He continued: "I therefore welcome the agreement reached this morning between the European Parliament and the Council on the Single Resolution Mechanism. After the agreement last year on single supervision, the agreement today on single bank resolution is a crucial step towards the completion of the Banking Union. I congratulate the Greek Presidency for this great achievement. I now urge the European Parliament and the Council to formalise the agreement within the deadline set by the European Council - and ahead of the European elections.
 
 
Eurogroup/Dijsselbloem
 
"Together we have made a very important step in restoring confidence in banks as well as in the eurozone. And this at an unprecedented speed. With the Banking Union, risks will be pushed back to where they belong: to the ones that are taking the risks and benefit from the risks - the financial sector - and not to the tax payer", said Eurogroup President Dijsselbloem.
 


© European Parliament


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