Tue, May 14, 2013 - Page 15 News List

German minister suggests two-step banking union


Europe should not rush to establish a central authority to wind up failing banks, but should rely at first on cooperation between national agencies, German Finance Minister Wolfgang Schaeuble said.

Setting out how to shut failed banks is one aspect of a banking union meant to stabilize the financial system among the 17 EU countries that use the euro.

Officials from the European Central Bank have called for the establishment of a strong central authority backed by the financial firepower of a European fund to make decisions on unwinding banks. However, Berlin has argued that setting up such an authority would require changing EU treaties — a time-consuming process.

Schaeuble wrote in yesterday’s Financial Times that Germany will assess “with an open mind” a proposal being prepared by the European Commission, the EU’s executive arm, for the creation of a mechanism to deal with failing banks.

He warned that existing EU treaties “do not suffice to anchor beyond doubt a new and strong central resolution authority.”

He said initial predictions that a single banking supervisor could start work at the beginning of this year “cost the EU credibility.”

Germany was adamant that the supervisor should not be rushed either; it is now expected to start work next year.

Schaeuble said that when a bank is wound up, money and jobs are usually lost, prompting those affected to seek redress — meaning that a new European authority would need a solid legal base.

“Amending the treaties takes time,” he wrote. “Luckily, the alternative is not between a legally shaky resolution authority now and the postponement of repair work on the banks.”

Schaeuble said a mechanism based on a network of national authorities could start work once a European banking supervisor is operating.

He said it would rely on national funds instead of a single European resolution fund, “which the industry would take many years to fill.”

The result “would be a timber-framed, not a steel-framed, banking union,” but that would buy time to create the legal basis for a more ambitious project with strong central authorities, he said.

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