Commission limited to observer status in new EU bank restructuring body

The European Commission will only have observer status in the running of the new Single Resolution Mechanism, under proposals being discussed by European finance minister last night.

A document circulated to ministers last night, and seen by The Irish Times, proposes that the board would be the "key decision-maker" on bank wind-downs, with the European Commission sitting on the board as an observer.

If the European Commission disagrees with a board’s decision on a bank wind-down, it would then refer matters to member states through the Ecofin council.

The involvement of national governments in the decision- making process is widely seen as a concession to Germany, which has consistently opposed the European Commission being invested with the power to restructure banks.

While the voting system would be based on a simple majority, decisions on the use of substantial funds would be decided by two-thirds majority, with the votes of member states weighted in accordance with the ECB capital key, according to the proposal.

The draft proposal also envisages the establishment of a Single Resolution Fund, as originally planned in the European Commission’s proposal, which would be built up over 10 years.

This fund would be comprised of different national “compartments”, which would then fund the resolution of banks in the corresponding member states should problems arise.

The creation of a fund comprised of different pots of money for each individual country is likely to assuage German concerns about the mutualisation of liability – the proposal make no mention of the euro zone’s joint fund, the ESM fund.

While political agreement on the proposals was expected to be reached overnight, a final decision is likely at the summit of EU leaders next week.

The Single Resolution Mechanism will implement rules laid out in the Bank Resolution and Recovery Directive the legislation on winding down banks, which was originally expected to come into effect in 2018, but which may now be implemented earlier.

EU Commissioner for Internal Markets Michel Barnier yesterday suggested that the rules could be implemented from mid-2016 to align with the Single Resolution Mechanism, though the draft proposal expects the rules could be in place by the beginning of that year.

While finance ministers agreed a common approach on the directive rules in June – which includes a strict hierarchy of creditors to be "bailed-in" in the event of a restructuring, including deposits of over €100,000 – the European Parliament is now considering the rules.

Mr Barnier updated finance ministers on the progress of the directive ahead a key meeting between the European Parliament and representatives of the European Council today.

Addressing ministers, the head of the euro group Jeroen Dijsselbloem warned member states should not compromise on "bail-in" rules agreed on in June – including plans to bail-in depositors with over €100,000 – during the negotiations.

With the implementation of the Single Resolution Mechanism and the directive rules still some time away, state aid rules introduced in August now apply to any banks that run into difficulty.

Under the rules, banks must tap junior bondholders and shareholders before taxpayers’ money can be used, though unsecured depositors are not included.