ECB battles Germany on pace of EU plans to handle failing banks

‘Clear Message’

“With respect to the bail-in, we should try to send a very clear message that deposits will be properly protected,” Guindos said. “If banks suffer a run on deposits above 100,000 euros, the deposits below 100,000 euros will also suffer, so this is a bit artificial and we should try to concentrate on the proper protection of all the deposits.”

Nations outside the 17-nation euro area sought to protect their financial systems from strict rules under consideration for euro states, where common supervision will apply. Finance Minister Anders Borg said Sweden needs to keep the ability to inject equity capital into its banking sector, which is highly concentrated and faces systemic levels of foreign-exchange risks.

Osborne foreshadowed further debates on the bank-failure rules by calling for changes to planned requirements for national bank resolution funds. He said it would be “totally useless” for the U.K. to set up a fund in advance and endorsed his nation’s current system of absorbing costs after the fact.

Single Pool

While EU nations managed to overcome German treaty concerns about common supervision for the euro area, Schaeuble has taken a tougher line on the bank-resolution arm of the project. Schaeuble said last week that money to pay for winding down troubled banks won’t come from a single pool until decision- making powers in the bloc are more centralized.

A network of national resolution authorities and backstops could form a first stage of the project, until treaty changes and further EU integration in other areas of policymaking are completed, he said.

Nations are split over whether some freedom should be left to national regulators to grant ad hoc exemptions from writedowns to some unsecured bank creditors, including uninsured depositors.

“There will be some exclusions in any resolution,” Irish Finance Minister Michael Noonan said.

‘Wealthy Member States’

While the U.K. and France have advocated a so-called discretionary approach, arguing that it’s the only way to make bail-ins work in practice, some other governments, and the European Commission, have warned that this threatens to hand wealthier EU nations an advantage in attracting savers.

“We need to have a system that is clear,” Olivier Guersent, head of cabinet for Michel Barnier, the EU’s financial services chief, said last week.

A system with lots of flexibility would mean that “wealthy member states could exclude a lot of things, but not-so-wealthy member states will not be able to afford” to do the same, he said. “There you will create a very unlevel playing field. Guess where depositors will prefer to put their money. Where they are likely to be excluded or where they are likely to be included.”

Finance ministers will tackle the bank resolution rules again in June, with an eye toward agreeing on a negotiating position for discussions with the European Parliament.

Bloomberg News

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