* EU leaders want agreement on single resolution mechanism
* Resolution law to be agreed with European Parliament by
* Germany says central bank resolution authority will need
* Mechanism to have funding from bank fees, backstopped by
By Jan Strupczewski
BRUSSELS, June 28 European Union leaders said on
Friday they want agreement by the end of the year on a way to
resolve failed banks at European rather than a national level,
signalling work should go on despite German objections ahead of
elections in September.
German Chancellor Angela Merkel cast doubt on whether that
timetable could be respected, saying the creation of a European
authority with such powers would require a change to the EU
treaty - a lengthy and politically risky process.
EU finance ministers agreed on Thursday on an intermediate
step towards what is known as European banking union, which
involves tighter oversight of banks and coordinated resolution
of any problems. Under the deal, investors and wealthy savers
will share the costs of future bank failures before taxpayers.
That moves the EU closer to drawing a line under years of
taxpayer-funded bailouts that have caused public outrage.
But the law only sets common rules that national authorities
in the 27-nation bloc have to follow when dealing with their own
banks. It does not allow for sharing power or the financial
costs of closing down or rescuing banks at EU level.
It is only a stepping stone to creating a central EU body to
deal with failing banks, including big financial institutions
that operate across national borders.
The European Commission, the EU's executive arm, is to
propose how to create such a central agency, called the Single
Resolution Mechanism (SRM), in July, although some officials
indicate that it could be delayed beyond that date.
Merkel insisted that setting up a central authority with
powers to close down banks in euro zone countries would require
changing the EU's treaty, or else it could be challenged in
Germany's constitutional court.
The European Commission believes no treaty change is needed
and has floated the idea that it could itself take on the role
of the resolution authority, to avoid the need to change laws
for the creation of a completely new body.
But Berlin rejected that too.
"Germany has made clear that under the current treaties the
Commission does not have the competence to run such a central
authority or act as a resolution body. If we want new
competencies then they must be linked to treaty changes," Merkel
told a news conference after the summit.
France said work on the banking union should go as far as
possible under existing treaties before considering any treaty
change, but a treaty amendment could be done if necessary.
"If it appeared legally necessary to amend the treaty, we
would do so, but it would only be from a legal perspective, and
in no case from a political perspective," French President
Francois Hollande told journalists after an EU summit in
"Before we get there I think we must go as far as possible
in the framework of existing treaties," he added.
WORK ON SRM SEEN STALLED BY GERMAN ELECTIONS
In an indication of acute political sensitivity on the
issue, EU officials said Germany tried to have the term "banking
union" removed from the final summit statement altogether.
"In this morning's draft conclusions the term banking union
had disappeared and was replaced with more vague terms. We
re-proposed our commitment towards a banking union," Italian
Prime Minister Enrico Letta told a press conference after the
But there will be little progress on the SRM until after the
September parliamentary elections in Germany, which wants to
avoid discussions that could involve any form of financial
support for institutions in other countries.
Taxpayers across much of Europe have had to pay for a series
of deeply unpopular bank and government rescues since the
financial crisis erupted in Greece in 2010 and spread across the
bloc and even threatened the survival of the euro.
The European Union spent the equivalent of a third of its
economic output on saving its banks between 2008 and 2011, using
taxpayer cash but struggling to contain the crisis and - in the
case of Ireland - almost bankrupting the country.
The SRM is to complement the work of the European Central
Bank as the Single Supervisory Mechanism (SSM), responsible for
looking after all euro zone banks.
"A fully effective SSM requires a Single Resolution
Mechanism (SRM) for banks covered by the SSM. The European
Council looks forward to the Commission's proposal establishing
an SRM with a view to reaching agreement in the Council by the
end of the year so that it can be adopted before the end of the
current parliamentary term," the leaders said, using the careful
legal language employed in summit declarations.
The final version omitted at German insistence a reference
to the features the SRM should have that were enumerated in
The deleted phrase said that the SRM should have "strong
resolution powers, allowing quick, effective and coherent
decision-making at central level".
The European Parliament has its last plenary session in mid
The SRM is to have access to funds that it may need to help
finance the restructuring or closure of banks, if losses imposed
on shareholders and bondholders or even large depositors are not
enough to cover the needs.
The central fund is to be built from fees paid in annually
by banks, just like the national resolution funds created under
the intermediate law. But until enough money accrues over the
next 10 years, it may need to resort to the euro zone bailout
fund for help.
The leaders remained vague on how the fund would work.
"It should include appropriate funding arrangements, based
on contributions by the financial sector itself, and an
appropriate and effective backstop which should be fiscally
neutral over the medium term," they said.