European leaders will call for swift progress on banking union at next week’s summit of leaders in Brussels, after two days of talks between finance ministers in Luxembourg failed to yield any concrete proposals.
With next year’s European banking stress tests to the forefront of EU policymakers’ minds, discussion yesterday focused on backstops that could come into play if capital injections are needed following the reviews.
But countries remained divided on whether a centralised euro zone fund should be established to deal with troubled banks, with a network of national resolution funds now emerging as a more feasible option. Euro group chief Jeroen Dijsselbloem said that countries were agreed that the hierarchy of bail-in envisaged in the new banking resolution and recovery directive (BRRD) under discussion would come into play in the event that capital injections are needed.
This would mean that private sources would first be tapped in the event of a capital shortfall, followed by a bail-in of junior bondholders and shareholders.
Only if a government is deemed to be unable to meet the funds from its own resources, would the ESM’s direct recapitalisation instrument come into play.
However, the EU’s proposal on banking union received a boost after the UK agreed to lift last-minute resistance to elements of the single supervisory mechanism over concerns about voting rights, and gave the final sign-off for the SSM, the so-called first “pillar” of banking union, which paves the way for the ECB to take over supervisory responsibility for euro zone banks.
Internal markets commissioner Michel Barnier said the agreement heralded a new era for the supervision of euro zone banks, and thanked the Irish, Lithuanian and Cypriot presidencies for their work on the legislation.
A UK spokesman welcomed the agreement noting that it “puts in place strong protection for those member states not taking part and ensures that the single market of 28 countries is not harmed, something that we will continue to press for in future negotiations”.
The formal backing for the SSM means that the ECB will take supervisory control over approximately 6,000 euro zone banks, though only 130 banks will come under direct ECB supervision.
ECB executive board member Jörg Asmussen said yesterday the Frankfurt-based institution will hire about 1,000 supervisory staff, about 700 of whom will work in direct supervision as the bank prepares to take on a supervisory role next year.
The ECB will announce before the end of the month details of its plans for its asset quality reviews of euro zone banks next year.
While consultancy Oliver Wyman has been contracted to co-ordinate the reviews, the tests will be undertaken in close collaboration with national supervisors.
EU commissioner Olli Rehn insisted yesterday that the asset quality reviews would be stringent and transparent. He said that, previously, in the case of countries such as Ireland and Spain, national supervisors had no incentive to highlight problems. In contrast, the ECB had a strong incentive to not let excessively impaired assets into their hands, the commissioner said.
