* European Parliament gives thumbs up to centrepiece reform
* New agency will close failed banks under ECB watch
By John O'Donnell
STRASBOURG, April 15 European lawmakers finally
signed off on Tuesday on new laws to make it easier to shut
problem banks after long wrangling over rules for an industry
blamed for triggering the worst economic slump in a generation.
The vote in the European Parliament, shortly before it
breaks up for May elections, gives the final stamp of approval
for an agency to shut weak lenders in the euro zone, the last in
a line of major reforms to create a banking union for the 18
countries sharing the euro.
Almost seven years since German small business lender IKB
became Europe's first victim of the global financial crisis, the
region is still struggling to lift its economy out of the
doldrums and banks are taking much of the blame for not lending.
Unlike in the United States, where regulators and the
central bank acted promptly to stem bank problems, the patchwork
of national interests across Europe prevented countries from
forging a united front to do the same.
A 'union', and the clean-up of banks' books that will
accompany it, is intended to help change that. It begins when
the European Central Bank starts policing the sector this year.
"The EU has lived up to its commitments," said Michel
Barnier, the European official in charge of regulation.
"The banking union completes the economic and monetary
union, puts an end to the era of massive bail-outs and ensures
taxpayers will no longer foot the bill when banks face
Crucially, the scheme introduces new rules making it easier
to shunt losses onto the bondholders and even large depositors
of failing banks although the conundrum of what to do if a very
large bank wobbles remains.
There will also be an obligation for countries to ensure
that schemes are in place to guarantee the first 100,000 euros
($138,000) in any savings account, although no European backstop
is foreseen should they fall short.
The vote represents a success for the European Parliament,
which negotiated with European Union countries to reduce the
scope for political meddling when deciding to shut a bank.
"From now on, taxpayers will not systematically foot the
bill for bank losses," said Martin Schulz, the European
Parliament's president. "Clear rules to resolve a failing bank
will be in place."
But for many, Europe's response has been too slow. Jamie
Dimon, the chief executive of JP Morgan Chase recently
said that European banks lag U.S. peers who had largely
recovered from the financial crash.
Some lawmakers also point to the shortcomings of Europe's
centrepiece reform, in particular the failure to tackle mega
"Too big to fail banks are simply too dangerous to exist,"
said Philippe Lamberts, a lawmaker from the Green party.
"As long as systemic financial institutions are allowed to
exist in their current shape, taxpayers will remain exposed to
paying for the follies of a runaway financial industry."
The accord nonetheless means that the ECB has the means to
shut banks it decides are too weak to survive, reinforcing its
role as supervisor as it prepares to run health checks on the
still fragile sector.
It establishes a common 55 billion euro back-up fund over
eight years - quicker than planned but far longer than the ECB's
watchdog had hoped. Euro zone governments will not, however,
club together to make it cheaper and easier to finance.
The 18 euro zone countries do not intend to cover jointly
the cost of dealing with individual bank failures, a central
tenet of the original plan for banking union.
The fragility and politicised nature of Europe's banks has
been highlighted by ailing Austrian state lender Hypo Alpe
Adria. Vienna will sponsor a bad bank to isolate roughly 18
billion euros of bad loans extended by the bank after Joerg
Haider, the far-right politician who governed its home province,
earlier ramped up its activities.
Despite the bank's impact on national debt, many politicians
feel Austria has little choice. Even if banking union were in
place, the situation would be little different.
($1 = 0.7238 Euros)
(Reporting by John O'Donnell; Editing by Ruth Pitchford)