The EU Commission has unveiled another key part of its banking union, proposing steps to deal with failing banks. The ambitious plan gives the EU executive arm powers that have caused controversy among member states.
The EU Commission's draft proposed setting up a centralized scheme, called the Single Resolution Mechanism (SRM), under the auspices of the European Central Bank (ECB) to deal with troubled banks, EU Internal Market Commissioner Michel Barnier announced Wednesday.
The resolution mechanism should be made up of a resolution board and a resolution fund worth up to 70 billion euros ($90 billion) which would take action once the ECB sounded the alarm on any of the EU's 6,000 banks, Barnier said.
The board would comprise representatives of the ECB, the European Commission and the national resolution authorities and be charged with issuing a recommendation to the Commission on how a bank should be wound up.
The fund was going to be under the control of the resolution board and funded by mandatory levies on the banking sector, Barnier said, adding that the EU executive Commission would have the right to make a final decision.
On Wednesday, EU Commission president Jose Manuel Barroso said with the new proposals it would be the banks themselves and not European taxpayers who would shoulder the burden of losses in future.
At an EU summit in June, EU leaders decided that taxpayers should no longer be made to pay for failing banks and agreed that shareholders and customers should be the first to contribute to a bank rescue.
However, some member states are reluctant to give the Commission the final say over closing a bank, citing constitutional concerns over eroding sovereign national rights.
Moreover, notably Germany is unhappy with the idea of a single resolution fund, fearing that German bank customers would be required to foot the bill for the rescue of weaker eurozone banks.
There is also controversy over the timing of SRM as the mechanism itself is planned to come into effect in 2015, while the rules guiding its actions are not scheduled to be in place before 2018.
Nevertheless, the French finance Minister Pierre Moscovici on Tuesday called for an agreement to be reached at ministerial level by the end of the year.
uhe/mz (AFP, dpa, Reuters)