German threat to stop EU bank power grab plot

Tim Wallace
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THE EUROPEAN Commission’s (EC) attempt yesterday to set itself as the regulator in charge of winding up failing banks looks set to fail in the face of French and German opposition.

Under its plans, the European Central Bank would decide when a bank needed the be resolved, and a new Single Resolution Board under EC control would take control of the process.

The Commission would monitor national authorities actions in resolving the bank involved, and would control a fund worth one per cent of insured deposits to run the process.

The fund would be comprised of contributions from other banks, and would take over from the national funds already planned.

The EC argues the scheme will help break the link between sovereigns and banks, as well as protecting taxpayers by making lenders and their investors pay for failures.

But analysts do not expect the rules to make it into force.

“The proposal is very unlikely to be adopted in its current format by member states given that it states that the Commission itself is the resolution authority, i.e. the authority eventually endorsing the decisions of the resolution,” said Barclays’ Philippe Gudin.

“This clearly contradicts the Franco-German proposal put forward at the June European Council, where the resolution authority would consist of a board comprising only national resolution authorities and would be separate from the Commission.”

German officials added the plan poses a range of legal challenges.

This “gives the Commission powers that we believe it cannot have according to the current treaties,” said a government spokesperson.

The EC also pushed for further clarity on how much investors in banks would have to pay before the centralised fund gets involved.

Depending on the severity of the bank’s problems that may include rights issues, the bail in of junior bondholders and the sale of assets.


■ The European Commission wants to have the final say over what happens to troubled lenders.

■ The European Central Bank will do more of the day to day monitoring of the biggest lenders, and will decide if they need to be resolved.

■ But the task itself will fall under the control of the EC.

■ Legally it needs some input from the national regulator of the bank in question.

■ However the decision will largely be made by the EC, and it will control the nation regulator’s actions in the process.

■ The hope is the cost of banks failure will be covered by investors – shareholders, bondholders and depositors.

■ However that may not be enough, if a bank is in very deep trouble.

■ The governments have so far agreed to set up national funds which will pay for insured depositors, like normal savers. It will be funded by a levy on the industry.

■ But the Commission yesterday revealed it wants to be in charge of that.

■ The scheme is likely to run up against complaints from nations which feel they are losing too much control.

■ And in any case the fund might not be big enough to bail out all of the insured depositors if a large bank fails.

■ That could mean the taxpayer would still be on the hook in a really big bank failure.

■ The EC wants the plan to come in 2015.