Finance ministers to meet for final push on EU bank resolution authority

EU finance ministers will return to Brussels next Wednesday on the eve of a two-day summit of European leaders in a bid to reach final agreement on the European Union’s new bank resolution authority.

Emerging from a 15-hour meeting on Tuesday night, Lithuania’s finance minister, who chaired the meeting, said that while a legal agreement had yet to be signed, finance ministers agreed on “general principles that seem to be acceptable to everyone”.

These include a reduced role for the European Commission in the new resolution authority, with key decisions instead taken by a resolution board comprised of representatives from member states. Where more than 20 per cent of the fund's resources are involved, European finance ministers would have the final say based on a voting ratio, which is likely to give Germany an effective veto.

The proposed resolution fund – a cornerstone of the European Commission’s proposal for a single EU-authority to wind-up troubled banks – will comprise different national funds that will be responsible for funding bank wind-downs in their own country, although the proposal envisages a gradual move towards “progressive mutuality” over a 10-year period.

EU internal markets commissioner Michel Barnier, who was behind the initial proposal, warned that the new proposal may meet resistance from the European Parliament, who will have to support the deal.

Contentious issues
Among the most contentious issues still to be clarified before member states sign off on the proposal next week is the legal structure of the new body.

At Germany’s behest, the legal underpinnings of the new resolution authority will be an inter-governmental agreement among participating states. Germany has consistently questioned the legal basis for the new authority under the current treaties, rejecting Brussels’ insistence that the structure could be established under Article 114.

Germany said yesterday it was very happy with the outcome of the Brussels talks after securing most of their concerns in the draft agreement, though officially Berlin noted that everything was still open for discussion. “Nothing is agreed until everything was agreed,” one Berlin official said.

“We have understanding that this has to be examined in the capitals and all individual points prepared,” said German finance minister Wolfgang Schäuble after the talks, expressing confidence that a deal could be reached before next week’s EU summit. “We’ve taken a great step forward, we have sought a path that is acceptable for all.”

Berlin secured strong support from the Hague and Helsinki in ensuring that there was a clear political mandate on decisions to close banks, with or without financial support.

They were satisfied, too, that the date for inclusion of senior bondholders in any bail-in was moved forward from 2018 to 2016; Berlin had argued for 2015, in parallel with new resolution rules, the Bank Recovery and Resolution Directive (BRRD).

'Bailed-in' creditors
According to the draft proposal circulated to ministers at the meeting, the SRM resolution function and BRRD bail-in regime should start on January 1st 2016.

The BRRD, which is currently under negotiation with the European Parliament, sets out a hierarchy of creditors to be “bailed-in” in the event of a bank restructuring, including, for the first time, senior bondholders and unsecured depositors with deposits of over €100,000, though the details are still under negotiation with the parliament.