Euro-area nations did what was once said to be politically impossible—sign an agreement on pooling money to deal with crisis-hit banks.
All European Union (EU) governments except the U.K. and Sweden signed the plan, which sets out how nations should transfer monies raised from levies on their banks to a central fund that could be tapped in crises. The fund is part of a broader move to joint supervision and crisis management of euro-area banks that other EU nations can sign up to voluntarily. The signing took place at a meeting of ambassadors today in Brussels.
“The resolution fund will ultimately provide a degree of stability in times of financial stress,” David Ereira, a partner at law firm Linklaters LLP in London, said by e-mail. “It completes the development of the European banking regulatory framework.”
Michel Barnier, the EU’s financial-services chief, has said the project to build a banking union is the bloc’s most ambitious step since the creation of the euro. The first plank of the system will take effect on Nov. 4, when the European Central Bank (ECB) assumes oversight of about 6,000 euro-area banks. The putting in place of a common resolution system for banks will follow next year. The single fund, underpinned by today’s agreement, will be filled over eight years to a target of 55 billion euros (US$75 billion.)
The genesis of the banking union goes back to a June 2012 meeting of EU leaders at which it was agreed that the step was vital to untangle the financial ties binding banks and governments, and so to tame the bloc’s fiscal crisis.
Previous attempts at such pooling of money and decision-making were rejected by EU governments.
A bid by the European Parliament in 2009 to put in place common bank funds was shot down by finance ministers. An EU group led by Jacques de Larosiere, a former governor of the French central bank, said also in 2009 that the “political implications” of setting up a single banking supervisor made the idea unrealistic at that time.
While eight non-euro nations signed the inter-governmental agreement, doing so doesn’t commit them to joining the planned banking union. That would require ratifying the agreement, and taking a further decision to take part. The U.K. and Sweden have said that they have no plans to be involved.
The U.K. is one of two EU nations along with Denmark to have a formal opt-out from joining the euro. Other nations are expected to adopt the single currency once they meet the economic criteria set out in the bloc’s treaties.
Legislation to put in place the banking union was adopted in record time by the European Parliament and Council of Ministers, the EU institution that represents national governments. Talks on the supervision plan were concluded last year, while negotiations on resolution culminated in an all-night session featuring a 5 a.m. call by Dutch Finance Minister Jeroen Dijsselbloem to his German counterpart, Wolfgang Schaeuble.
Schaeuble said last year that a common fund would require changes to the EU’s treaties, leading to the alternative approach of making an inter-governmental agreement.
Barnier called on the 26 signatory nations to ratify the agreement by 2016, when transfers to the common fund are scheduled to start.
“Together we have turned the idea of a banking union into reality in less than two years,” Barnier said. “We must now keep up this momentum to make it fully operational without delay.”
While agreements have been reached on the key legal planks of the Single Resolution Mechanism, issues remain unresolved, including how to calculate the size of the levies that individual banks should face.
The European Commission will make a proposal on this “in the coming months,” it said today. The plan will need approval from national governments to take effect.