Ecofin locked in talks on new rules for winding down failed banks

European finance ministers were last night locked in talks on new rules on banking resolution, as member states worked to reach consensus on how to wind-down troubled banks.

Yesterday's meeting – the last time finance minister gather under the Irish presidency of the European Council – focused on the bank resolution and recovery directive, with Irish negotiators keen to secure a common approach on the proposals.

But significant differences remained between member states on bank resolution, a key strand of the EU's proposal on banking union, with Britain and Sweden raising concerns ahead of the meeting.

Single supervisor
The EU is keen to introduce a pan-European approach to winding down banks, which would align with proposals to create a single supervisor for EU banks and a common deposit scheme.

It also wants to shift the burden of future bank collapses away from taxpayers and on to private creditors, in effect moving from a “bailout” to a “bail-in” model. This could include hitting depositors with more than €100,000 in an institution as well as various classes of bondholders.

A compromise proposal, devised by the Irish presidency, sets out a clear hierarchy of creditors to be bailed-in in the event of a bank wind-down, with large deposits over €100,000 the last in line.

For euro zone banks, it is envisaged that the ESM's direct bank recapitalisation fund would be used after all options in the bank resolution and recovery process have been exercised. Britain, Sweden and France were among those countries calling for member states to have greater flexibility in implementing the rules.

France's finance minister Pierre Moscovici, however, indicated that France would be prepared to make concessions.

“France wants flexibility but it is willing to agree to some limits,” Mr Moscovici said ahead of the meeting. “Nothing is insurmountable.”

Cautious note
However, Sweden's finance minister Anders Borg sounded a more cautious note on his way into the discussions.

“The fact that the euro zone countries are trying to push a solution is very dangerous for the rest of us,” he told reporters.

Britain is also against the establishment of a single resolution fund that would fund the cost of a bank wind-down, arguing that it already operates its own bank levy. EU sources suggested that a compromise solution on the single resolution fund was possible last night.

Earlier on in the day, finance ministers agreed on a proposal to combat fraud related to value-added taxes, a package that had been prioritised by the Irish presidency of the council of the European Union.