Mon, Dec 30, 2013 - Page 15 News List

Eurozone set for volatile 2014

CATCH 22:To instill confidence in the eurozone’s banking system, the ECB needs to review the region’s top banks, but its findings may provide a cause for concern

AFP, PARIS

OVERLY COMPLICATED

The agreement reached by eurozone leaders this month on banking resolution has been widely criticized as being an overly complicated collection of half measures.

Not only will it take a decade for the joint resolution fund to fill up, at 55 billion euros, it “looks too small to deal with major systemic crises,” economist Christian Schulz at Berenberg Bank said.

Germany also refused to hand over decisions on closing down banks to the European Commission. Instead, when the ECB recommends a bank should be closed, a mixed committee of EU and national officials will make the decision, but the Commission and the Council (EU member states) can overrule the decision.

The European Parliament must also approve the resolution mechanism, and its president, Martin Schulz, has warned the system is too complex to close failing lenders quickly.

“If a bank cannot be wound up within a weekend in order to prevent a run on the banks, the system is too complicated,” he told EU leaders at their summit earlier this month.

A banking union built on this basis “would be the biggest mistake yet in the resolution of the crisis” and could even “jeopardize financial stability,” the parliament leader said.

However, Schulz said there may be methods behind the imperfections.

“Tough bail-in rules and a shaky backstop should incentivize the ECB as a supervisor as well as national governments and the banks themselves to do everything to avoid a new crisis in the first place,” he said.

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