A single bank resolution fund should have crowned the banking union process. Instead, it triggered some serious push-back, especially from Germany, which questioned its legality. How much of this is pre-election posturing is debateable, but Europe may find that the current SRM proposal has already been fatally undermined. A robust preparation for the SSM itself should mean that no significant bank need be resolved for some years – assuming any necessary re-structuring has been done in the next year or so – and then only under the existing national systems. That preparation is all about the Asset Quality Review (AQR), which is intended to nail down the degree of loan impairment at Europe’s banks.
The proposed SRM would apply the substantive rules of bank recovery and resolution. At the June European Council, leaders set themselves the target of reaching agreement on the mechanism by the end of 2013 so that it can be adopted before the end of the current European Parliament term in 2014. This would enable it to apply from January 2015, together with the Bank Recovery and Resolution Directive. That would dovetail with the SSM. The SRM is to be controlled centrally by the European Commission under powers flowing from Article 114 of the existing Treaty on the Functioning of the European Union. Although current problems identified can be treated within this framework, Commissioner Barnier said he would not exclude treaty change at a later stage. Reactions from the European Parliament were supportive of this timetable.
However, German Finance Minister Wolfgang Schäuble referred to the Commission's proposal for Banking Union as a project with "feet of clay". “What we need now is a credible and legally viable solution. If a bank has to be closed, this decision has far-reaching consequences and cannot be made solely from Brussels, especially as it might involve national taxpayers' money. It may happen that the taxpayer has to step in – and in that case we do not want Brussels to decide and the Member States to pay. Responsibility and decision-making have to go hand in hand”, said Schäuble.
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