EU banking union too complicated, slow: analysts
By Bryan McManus, AFP
December 23, 2013, 12:02 am TWN
BRUSSELS, Belgium -- An EU system to prevent a repeat of the massive bank bailouts which crippled the economy is a major step but it is also too complicated when speed is absolutely essential, analysts said.
“From the moment a bank is identified as being at risk, up to the moment it is closed, the new system might require approvals from as many as 100 people,” said Annalisa Piazza of Newedge.
The authorities must wind up a failing bank as quickly as possible, and above all, while the markets are closed if they want to limit the fallout and the possibility of a run on deposits.
Fail to do that and the risk is one problem bank will bring down others, setting off a disastrous chain reaction and sucking in governments, as in Ireland, which eventually had to seek an international bailout.
EU finance ministers agreed Wednesday a Single Resolution Mechanism to close problem banks, with the cost covered by a special bank levy to be phased in by 2025.
The SRM will work alongside an already agreed new supervisory regime run by the European Central Bank.
The last element, a common deposit guarantee system to reassure nervous savers, was put in place Tuesday after European Parliament approval.
This banking union system was drawn up in response to the financial and then debt crises which brought down many banks and drove the eurozone into a deep and damaging recession.
It involves possibly the biggest transfer of national sovereignty to Brussels since the euro was created and as a result, required painful compromises which show up clearly in its workings.
For example, some countries such as EU powerhouse Germany were reluctant to give Brussels too much power over their banking system.
France, in contrast, pushed for a fully centralized “single system” covering all eurozone banks, not just the larger ones, arguing that problems often arise first in the smaller lenders.
For Paris, it was the European Commission that should oversee the SRM and so have the last word on a bank closure decision.