November 16, 2012 / 6:46 AM / 7 years ago

Banking union needs power to wind down banks - ECB's Weidmann

FRANKFURT, Nov 16 (Reuters) - Europe’s new planned banking union will need mechanism to wind down and restructure banks, which should be funded by the banks themselves, European Central Bank Governing Council member Jens Weidmann said.

“The funds that are needed for restructuring or winding down should be supplied by a sufficiently endowed fund that is financed by the supervised banks and should only use national or European tax funds on a subsidiary basis or in exceptions,” he wrote in a column published in German daily Handelsblatt on Friday.

It is also of concern, he said, that on the one hand banks and governments are interconnected and on the other hand banks were encouraged to buy bonds issued by their debt-laden home countries.

Banks should hold sufficient capital to balance the risks of government bonds, and the volume of sovereign debt they hold should be limited, he said.

Weidmann said while a banking union could support a stable currency union, it was more important to get its design right than to put it in place quickly.

“There is no point in building a new supporting pillar quickly, but on sand,” he said. He added that putting the European Central Bank in charge of banking supervision risked compromising the primary goal of price stability. (Reporting by Maria Sheahan)

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