Deutsche Bank has said that the European Commission’s proposals for winding down failing banks is “logical and sound”, but faces too much opposition to get off the ground and create confidence (release).
The German bank says that the single resolution mechanism (SRM), which would prepare and monitor the resolution of any bank in countries participating in the single supervisory mechanism with the aid of a €55bn resolution fund, is a sensible idea.
The SRM would have been better if resolution powers lay with a “new EU resolution authority, capable of effective decision making” than the Commission, the bank says, but this was the best outcome without a treaty change.
However, opposition to the SRM from the UK and Germany in particular means the proposals are likely to be watered down to the point of becoming ineffective
While the German government cites legal reasons for this, the truth is that key member states have embarked on inter-governmentalism as the new governance model for the EU. There is, therefore, little support amongst member states for ceding (resolution) powers to the EU level – and there is also little interest in pooling funds and deposit guarantee schemes. Sadly, thus, it is likely that Banking Union will remain a torso and will not instil confidence.
This follows German finance minsiter Wolfgang Schaeuble's comments this morning that the banking union plan shuns economic reality.