European Commission update on the banking union
22 June 2012
The Commission could make proposals as early as autumn 2012. It also wants the Council and Parliament to accelerate the decision-making process on key legislation which is already in the pipeline.
The President of the European Council will present a report in close collaboration with the President of the European Commission, the Chair of the Eurogroup and the President of the European Central Bank to the next European Council (28-29 June). In the context of the preparation of this report, the main building blocks towards a deeper economic and monetary integration including the banking union and the fiscal union will be extensively discussed, as well as the working methods. Once this vision is agreed at political level, the Commission will propose the necessary measures for implementation. The Commission could make proposals as early as autumn 2012. It also wants the Council and EP to accelerate the decision-making process on key legislation already in the pipeline.
2. Proposals expected to enter into force shortly
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Proposal on resolution tools for banks in crisis: The Commission's proposal on recovery and resolution tools for banks in crisis, adopted on 6 June, is the last in a series of proposed measures to strengthen Europe's banking sector and avoid the spill-over effects of any future financial crisis, with negative effects on depositors and taxpayers. To ensure that the private sector pays its fair share in any future bailouts, the EU has proposed a common framework of rules and powers to help EU countries intervene to manage banks in difficulty. Repeated bailouts of banks have fuelled a public perception of deep unfairness, increased public debt and imposed a heavier burden on taxpayers.
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A common EU-wide framework of tools for bank recovery and resolution would offer tools to prevent crises from emerging in the first place and address them early on if they do. This will provide a set of tools allowing for the managed resolution of banks and financial institutions where necessary.
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What instruments will the European Stability Mechanism (ESM) offer for the banking sector? The European Stability Mechanism (ESM) will have a lending capacity of €500 billion. For euro area Member-States not subject to a programme, the ESM will have the possibility of providing a loan for the specific purpose of recapitalising financial institutions. The granting of such financial assistance is subject to a positive decision of the Board of Governors of the ESM, i.e. the finance ministers of the euro area Member States. The conditionality attached to financial assistance shall be detailed in a Memorandum of Understanding and will include institution-specific as well as horizontal conditionality. Recapitalisations can also be conducted under a loan accompanied by a fully-fledged macro-economic adjustment programme. The ESM Treaty does not currently foresee direct lending by the ESM to a financial institution.
3. Measures considered for medium-term action
The Commission is ready to come in autumn with key proposals to introduce more integrated and direct banking supervision at EU level, common deposit guarantee and resolution funds, based on the political orientation of the European Council.
The following elements should be part of the same overall framework as the basic principle is clear: the sharing of risk in guarantee scheme calls for an integrated, strong supervision of the banking sector that can ensure mutual trust between all countries concerned:
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An integrated system for the supervision of cross-border banks: While the current role of the European supervisory authorities is mainly to oversee the functioning and convergence of national supervisory systems, the Commission intends to propose the creation of banking supervision at EU level. The system is too fragmented to face current challenges, which is not conducive to the necessary trust between Member States. This requires political agreement on more and independent EU supervision.
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A single deposit guarantee scheme (DGS): In the context of the DGS proposal in 2010, the Commission proposed the possibility of mutual borrowing, in case one of the schemes is depleted. The Commission is examining different options to build on that. In addition, it considers the deposit guarantee scheme and the resolution fund as part of the same framework, as successful resolution of a bank avoids having to call on deposit guarantees.
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An EU resolution fund: The Commission's proposal on recovery and resolution tools for banks in crisis can be a first step towards an EU resolution fund. The Commission proposes the setting up of funds at national level which would interact and have to lend to each other under certain conditions and when necessary in order to constitute a European system of resolution funds. Furthermore, the closer integration of supervisory and resolution arrangements for cross-border institutions will have to be organised in advance. The proposal foresees the mechanisms to make sure that national authorities and EBA cooperate for cross-border bank that face problems. Member States are offered the option instead of creating separate resolution funds, to merge the DGS and the resolution financing arrangement. The proposal has to go through the decision making process and is now on the table of the European Parliament and of the Council.
4. Other ideas feeding reflections for the future
As to the prospects of allowing the EFSF and/or the ESM to offer aid directly to banks, this is also an important issue. The possibility of avoiding or breaking the link between the sovereigns and the banks may be considered as an alternative for direct bank recapitalisation, which is not part of the ESM Treaty for the moment in its present form. It should nourish reflections in the future in order to go to the roots of this current debt crisis.
© European Commission
