EU states move toward clash with parliament on bank failures

European Union finance ministers headed toward a showdown with the bloc’s parliament over a proposed bank-failure fund as they struggled to put together a blueprint to present to leaders next week.

In more than 15 hours of talks that ended inconclusively early on Wednesday, ministers in Brussels sketched out a plan to set up the fund using an agreement among participating states, not EU law, a move European Parliament lawmakers say keeps too much power in national capitals and undermines the legislative process. The finance chiefs return on the eve of a Dec. 19-20 summit to hammer out a deal before a year-end deadline.

The EU assembly “has all the tools in its hands to stop such an intergovernmental approach, which would weaken the democratic-control rights of the European Parliament,” Sven Giegold, a German lawmaker who deals with banking-union issues, said by telephone. Ministers should remember that the parliament’s approval is needed on a range of related laws intended to increase financial stability, giving lawmakers leverage, he said.

EU leaders made the plan for a Single Resolution Mechanism a top priority for next week’s summit, with the goal of getting the law on the books before the parliament goes into recess for elections in May. EU financial-services chief Michel Barnier’s proposal would create a central authority backed by a single fund financed by levies on banks.

By splitting Barnier’s bill and proposing separate legislative procedures for creating the bank-resolution authority and its common fund, finance ministers sought to overcome German legal objections.

Yet by opting to pursue an intergovernmental agreement on the fund — an option previously used for the European Stability Mechanism, the euro area’s firewall fund — the ministers effectively cut the parliament out of the process.

German Finance Minister Wolfgang Schaeuble won plaudits for his efforts from two banking industry lobby groups on Wednesday. “We can be proud the finance minister is continuing to fight for German positions,” said Stephan Rabe, deputy general manager of the VOeB association of public banks.

Schaeuble is correct to doubt the legal basis for the fund in Barnier’s proposal, said Michael Kemmer, general manager of the BdB bank association.

While Schaeuble’s approach may play well back home, it could backfire by slowing progress on other German priorities for reforming the financial industry. The parliament has already shown that it’s ready to withhold approval of key EU bills to assert its authority.

Legislators last year year successfully demanded that they be given a full say in preparing legislation to turn the European Central Bank into a supervisor, warning that they would use their binding power over an accompanying bill as a means to influence the debate.

After the finance ministers’ talks broke up earlier on Wednesday, EU financial-services chief Michel Barnier, who proposed the Single Resolution Mechanism, and finance ministers including Schaeuble said the bank-failure talks had laid the foundations for an agreement. Finland’s Jutta Urpilainen cautioned that nothing had been decided.

“This is a package, so nothing is agreed until everything is agreed, so we can say everything is in a way open,” Urpilainen said. “Because so many things are on the table at once,” Lithuania, which hold the EU’s rotating presidency, “made a wise call to not push it through into the night, but to take some time, prepare more and we’ll continue next week.”

If the ministers continue to pursue an intergovernmental agreement to create the common resolution fund, they’ll get a frosty reception when they begin negotiations with the parliament on a final bill.

“It’s a matter of great concern if we we end up with any sort of intergovernmental agreement on such a sensitive issue as banking union,” Elisa Ferreira, the parliament lawmaker leading talks on the SRM, said by telephone. “We really have got to keep the management of banks, and the management of failing banks, away from both taxpayers’ money and political interference.”

In their deliberations, the ministers also moved toward amending Barnier’s plan for the European Commission to be the key decision-taker in the SRM with a system in which the Council of the European Union, an EU institution representing national governments, would have more of a say — a key German demand. Germany has led the opposition to Barnier’s plan.

The new draft plan would also introduce safeguards into the planned central fund so that national contributions would merge only gradually into a central pot. Under this approach, nations would each have a compartment in the fund into which their banks would pay levies, with limits on cross-border use of the money to be steadily withdrawn over 10 years.

“On the fund, the main thing is that it’s going to be progressively mutualized,” said Fabrizio Saccomanni, Italy’s finance minister. “It was a compromise, we had to take into account Germany’s worries, but we obtained that at some point it will become a common fund, that will be supported by backstop mechanisms.”

The plans would leave a greater role to national regulators in dealing with smaller banks without cross-border operations, and advance the start date for tougher rules on creditor writedowns.

Rules placing senior unsecured creditors at a failing bank in line after junior creditors for compulsory writedowns would take effect at the start of 2016, compared with a previous 2018 deadline.

In parallel to the talks on the SRM, nations also agreed on an updated negotiating position on bank-crisis rules, known as the Bank Recovery and Resolution Directive, that would apply throughout the 28-nation EU, ahead of talks tomorrow with parliament lawmakers.

Nations including Germany, the Netherlands and Spain called for a tough line against parliament moves to weaken planed creditor-loss rules. Talks continue with lawmakers today on the BRRD bill.


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