EU states, watchdogs reach deal on cross-border bank failures

LUXEMBOURG (Reuters) - European Union states and central banks have agreed how to handle a cross-border bank failure but were unable to detail what a state would have to pay towards a bailout, a top regulator said on Wednesday.

EU governments and financial supervisors are relieved that banking crises in the 27-nation bloc have been confined to domestic banks, such as the rescues of Germany's IKB and Sachsen, and the British government's takeover of Northern Rock NRK.L.

The banks fell victim to fallout from defaults in the U.S. home loans sector that has snowballed into a global credit squeeze the market expects to last for months to come.

So far, no cross-border bank has failed in the EU and Eddy Wymeersch, chairman of the Committee of European Securities Regulators, said mechanisms for cooperation between national watchdogs in the EU have been sufficient up to now.

Individual watchdogs already have bilateral deals with regulators in other states where a bank they supervise has operations but there is no pan-EU agreement. Cross-border banks have increased in number and make up the bulk of deposits.

Policymakers say privately a cross-border banking failure would quickly highlight how inadequate the EU would be in dealing with such an event.

For example, there are no structures in place for working out how a bail out bill would be paid when a bank has operations in several countries.

OUTLINE AGREEMENT

Wymeersch told a Reuters Funds Summit that talks on forging a deal on how to handle a cross-border bank crisis have been largely successful though it has yet to be signed by EU states.

"There is an agreement, some form of an MOU, which has been agreed between all banking supervisors, all central banks, securities and insurance supervisors and all treasuries, lining up some of the general ideas in burden sharing," he added.

"It is not an agreement on precise burden sharing percentages. We feel that's impossible," Wymeersch said, who is also chief of Belgium's CBFA, which supervises the country's financial sector.

"But what is possible is that you say we have procedures, we have objectives, and we know what to do. That is already a big step. Perhaps later on we will be able to go into a more precise scheme, but don't forget that this is playing with your taxpayers' money and it's not small money," he added.

The hard test for EU and national authorities will be a real bank collapse and the new MOU would not avoid tricky negotiations among the stakeholders.

"We would have some hard discussions and it will depend on what the situation is," Wymeersch said.

(For summit blog: summitnotebook.reuters.com/)

(Reporting by Huw Jones; editing by Keith Weir)