Fears are growing that the eurozone's proposed new banking regime will be too bureaucratic for the task of handling a sudden collapse of a cross-border institution.
A Financial Times analysis of the full Banking Union resolution process for a lender operating in three countries reveals the labyrinthine procedure that would still be required to wind up a bank. In a worst case scenario, where key officials disagree, this could involve nine panels and up to 143 votes being cast, from its supervisor raising a warning flag to the final wind-up decision. The complexity partly reflects the assurances given to Banking Union members wanting to retain influence over the life and death of their lenders, even after embarking on the biggest surrender of sovereignty since the creation of the euro.
Jörg Asmussen, an outgoing ECB executive board member and early champion of Banking Union, said he has “some concerns” about decision-making. “It has to be guaranteed that a bank can be wound down over a weekend", he said.
One flashpoint is the German demand for a hybrid system involving two EU bodies – the European Commission and the Council of Finance Ministers – in disputed decisions proposed by a Single Resolution Board.
After a marathon negotiation on Tuesday, Michel Barnier, the EU commissioner responsible for the reforms, warned that the emerging deal was “too complex” and called for something that was “a little clearer”. Even when a resolution decision is uncontested and under Mr Barnier’s more streamlined version, a decision would involve around 107 votes from 80-90 people at the ECB supervisory board, the ECB governing council, two committees at the single resolution board and finally the European Commission. With the involvement of appeals and mediation panels and the need to refer a contested decision to the council of finance ministers, the number of voting participants increases by 36.
Nicolas Véron of the Bruegel think-tank said: “What is coming out of this compromise is unlikely to work. The assumption seems to be that any European mechanism, no matter how complex, is better than what we have at the moment, but this is not self-evident." "Put charitably, it may be an inevitable part of the learning curve", he added. “Europeans have to explore the unwieldy intergovernmental options until they realise that it doesn’t work when tested.”
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