Europe Reaches Deal On Resolution Mechanism For Banks | MNI

By Simon Marks--Resolution to take place over course of a weekend--70% of Single Resolution Fund to be mutualised inside 3 years--Role of members states has been greatly reduced--Member states will have ability to decide on resolution cases over E5 billion

BRUSSELS (MNI) - Europe has reached a deal on the last piece of its Banking Union Thursday, paving the way for failing lenders in the euro area to be resolved over the course of a weekend and making sure taxpayers will never again foot the bill for defunct banks.

"The group leaders agreed with an overwhelming majority to advice their members to endorse a compromise. We found in three major elements a compromise improving enormously what was on the table," European Parliament president Martin Schulz said, adding that the ability to have resolution take place over the course of a weekend "is one of the key elements that in our eyes is now possible."

Negotiators that included Greek Finance Minister Yannis Stournaras and Eurogroup President Jeroen Dijsselbloem also agreed to mutualise the Single Resolution Fund for failing lenders in 8 years as opposed to the original 10 years. Substantially, 70% of the SRF will be mutualised in the first 3 years and a credit line will be made available so as not to include tax payers money when SRF funds run dry.

"The credit line for the fund, highly disputed between the Council and the parliament, [is] now accepted by the Council [and] is in our eyes a real step forward," Schulz said.

Addressing reporters after record-breaking talks that lasted more than 16 hours, Portuguese lawmaker Elisa Ferreira said the decision-making capacity of member states in bank resolution had been heavily restricted under the new deal. She also said that resolution decisions would be treated equally irrespective of where the bank is located and that taxpayers money would be protected "through uniform application of bail in and the use whenever necessary of a resolution fund funded by banks."

The talks on the final piece of Europe's Banking Union went down to the wire with German Finance Minister Wolfgang Schaeuble being woken at dawn in order to acquire his approval on major aspects of the SRM, according to German lawmaker Sven Giegold.

Schaeuble had voiced strong objection to member states being excluded from the decision-making process in resolving banks, though lawmakers said such an eventuality would prevent resolution from taking place over the course of a weekend.

In the end member states will be able to vote on resolution during a plenary session only if the amount of money being used from the SRF exceeds E5 billion. Furthermore, member states will have to express their wish to vote on resolution within three hours of the SRM's executive board coming to a decision.

What is more, if the resolution of one bank results in the need to resolve another bank, then members states will also have a say in the decision, Ferreira said.

"The executive board will be responsible for the normal majority of the cases," she said.

Lawmakers were unclear as to say where the money would come from to establish a credit line, though all sides agreed for it to be in place by the time the SRM is officially implemented.

"The board and member states will accordingly take the necessary steps to develop the appropriate measures and modalities for meeting to enhance the borrowing capacity of the Single Resolution Fund that should be in place by the date of the application of the regulation," Ferreira said.

It was also unclear Thursday if the credit line would be in place by the time the European Central Bank's asset quality review of euro banks is complete in November.

One outstanding issue for lawmakers is the inclusion of an inter-governmental agreement between member states on the SRM.

"Inter-governmental agreements in competition with the community method is something that we cannot tolerate. We are addressing it politically," Ferreira said.

--MNI London Bureau;tel: +44 207-862-7499; email: smarks@mni-news.com

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