On December 17, the European Parliament Economic and Monetary Affairs Committee voted on the draft EU legislation on bank resolution and the creation of a single mechanism for said banking resolution. The Parliament’s negotiation position on the single resolution mechanism for banks establishes a system aimed to be the central pillar of the European Union’s banking union and seeks to create an EU authority to deal with struggling banks.
MEPs proposed for the power to initiate the winding down of a failing bank to reside only with the EU’s banking supervisor and that all banks of participating countries should fall under the system. The system is designed to give each player a specific role in the resolution process and to keep political pressure out of the picture. The banking supervisor would propose a resolution, followed by an evaluation by the Resolution Board, composed of representatives of national resolution authorities and others. This body would then evaluate the proposal and, if deemed appropriate, suggest for the Commission to start the process. The Commission would then take the official decision to initiate a resolution and the Board would decide on the details for its execution.
Lining up alongside with the European Central Banks’s President Mario Draghi, Elisa Ferreira, the lead MEP spearheading the law through Parliament, said that “the mechanism cannot be single only in name”, adding that “it is appropriate to reflect on whether no deal would be better than a very bad one”.
MEP Sven Giegold, the Greens finance spokesperson, also stressed that “the overarching goal of this crucial banking union pillar on bank resolution should be to limit the exposure of taxpayers and ordinary savers to future bank failures to an absolute minimum”.
The MEPs also proposed a resolution fund to be created by banks within 10 years, representing 1 percent of covered deposits: in the first 10 years, until the fund reaches its target level, it could be financed by loans from a “European public instrument”. MEPs also agreed with the Commission’s proposal to directly include all banks in participating member states that fall under the scope of the resolution system.
Pushing for more accountability, MEPs strengthened the resolution system’s accountability based on the ECB bank supervisor model. Parliament’s approval will therefore be needed to appoint the Resolution Board’s Executive Director and Deputy Executive Director, and it will hold regular hearings with them. Rules on transparency and access to documents will also be modelled on those in place for the ECB bank supervisor.
The Council will approve its negotiating position by the end of this week in order to allow talks between MEPs and the Council’s Greek Presidency to start in January.