Brussels to unveil controversial plans for new eurozone banking authority

European Union

The European commission is to unveil controversial draft legislation on a European resolution authority charged with deciding the fate of troubled eurozone banks.

In the proposals, to be released on Wednesday, the commission will reserve to itself the last resort powers to order the closure of a eurozone bank.

The proposals are certain to run into opposition from national governments – particularly Germany – the European Central Bank and eurozone finance ministers, signalling months of power struggles ahead over the key new authority.

Officials say the plan foresees tapping banks to build a warchest of €55bn-€70bn (£45bn-60bn) but that is expected to take a decade, leaving the agency largely dependent on national schemes in the meantime.

"We have seen how the collapse of a major cross-border bank can lead to a complex and confusing situation," said Michel Barnier, the commissioner in charge of regulation.

"We need a system which can deliver decisions quickly and efficiently, avoiding doubts on the impact on public finances, and with rules that create certainty in the market."

The EU's executive will also not, however, call for giving a backstop role to the eurozone's rescue fund, the European Stability Mechanism.

Any suggestion of putting such a safety net in place faced stiff resistance from Germany, which feared that it could be left on the hook for problems uncovered in Spain's banks or elsewhere, when the ECB starts policing the sector next year.

Furthermore, the planned "resolution board" to execute bank wind-downs would be forbidden from imposing decisions on countries if that would result in a bill for that nation's taxpayers.

Analysts were critical. "The key problem is that without the ultimate access to fiscal resources, it will be very difficult to agree to shut down a bank," said Guntram Wolff of Bruegel, a Brussels thinktank.

This scepticism was echoed by Sven Giegold, an influential German member of the European parliament.

"Behind all this is an unholy alliance between Germany, which is scared about talk of common liability (for banks) before elections, and France, scared of giving up sovereignty," he said.

The reform will be presented as the second pillar of a banking union, a scheme designed to underpin confidence in the eurozone and end the previously chaotic handling of cross-border bank collapses such as Dexia.

Powered by Guardian.co.ukThis article was written by Ian Traynor and agencies, for guardian.co.uk on Wednesday 10th July 2013 12.28 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

JefferiesAnd the Best Place to Work in the global financial markets 2017 is...

Register for Financial Markets News Alerts