ECB's Draghi says trusts bank resolution mechanism in place by 2015

Wed Oct 9, 2013 6:01pm EDT

Oct 9 (Reuters) - A banking union is vital for the proper functioning of the euro zone and a mechanism to wind down failing banks should enter into force by 2015, European Central Bank President Mario Draghi said on Wednesday.

As a first step towards the closer integration of the euro zone's banking system, the ECB is set to start supervising the bloc's banks from next year. A single mechanism to wind down failing banks is in the works.

The EU Commission in July outlined plans to set up an agency to rescue or shut non-viable euro zone banks, to begin work in 2015 if agreed on by EU states, which would eventually be able to impose losses on creditors of a stricken bank.

"We trust that a single resolution mechanism will enter into force by the beginning of 2015," Draghi said in remarks prepared for delivery at the Harvard Kennedy School, which did not contain any reference to the outlook for monetary policy.

Banking union was crucial partly because more than two thirds of firms' external financing came from bank loans, he said.

Draghi said euro zone countries had made welcome progress in bringing down budget deficits, noting the average primary fiscal deficit stood at around 0.5 percent of gross domestic product in 2012 compared to about 6 percent in the United States.

Policymakers gathering in Washington for meetings of the International Monetary Fund, which Draghi will also attend, have warned the current impasse in the U.S. Congress over the budget would pose a major risk to the global economy if it leads to a U.S. debt default.

Draghi said new European budget rules, including giving the European Commission the right to inspect national budgets before they go before national parliaments, conferred "a power the U.S. federal government does not have over the states."

"We look forward to a full and transparent implementation of this new regime," he said.

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