The Banking Union: A Slow-food Recipe

Emanuele Barbarossa reports on the Single Resolution Mechanism, a further step towards European Banking Union.

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Proving that sometimes lengthy and suffered negotiations finally pay off, yesterday at a meeting of the Agriculture and Fisheries Council, the regulation establishing a Single Resolution Mechanism (SRM) has been adopted without discussion. Following the European Parliament’s first approval of the draft in occasion of the very last plenary session of the past legislature (14-17 April 2014), the document has undergone a tough tug of war between the Parliament and the Council since its initial proposal, about a year ago.

The SRM is aimed at avoiding the recourse to taxpayers’ money while ensuring the resolution of failing credit institutions in an orderly, coordinated and effective fashion. The main strategy underlying the mechanism combines bail-in contributions of shareholders and creditors on the one hand, and the possibility to access a Single Resolution Fund (SRF) financed by banks themselves on the other (this should happen in accordance with the provisions included in the Bank Recovery and Resolution Directive, adopted on 15 May 2014). The intergovernmental agreement (IGA) ruling the transfer and mutualisation of contributions to the SRF was eventually signed on 21 May by all member-states except Sweden and the United Kingdom; the IGA will enter into force upon ratification by signatories representing at least 90% of the aggregate of the weighted votes of all participants. Ideally, the ratification process should be completed in time to permit the SRM to be fully operational by 1 January 2016 (although a number of provisions relating to resolution planning, collection of information and cooperation with national entities will already enter into force on 1 January 2015).

Along with the Single Supervisory Mechanism (SSM), the control tool for the oversight of Eurozone banks that entered into force last November, SRM and SRF are intended to constitute a crucial building block of the European Banking Union in the next years.

After the adoption of the SRM regulation, Pier Carlo Padoan, Minister for Economic Affairs and Finance of Italy, has commented as follows: “We have established another important pillar of Europe’s banking union, which will contribute to safeguarding the single market and the prosperity of all European citizens heavily hit by the global financial crisis. With the single resolution mechanism, the European Union is radically improving the regulatory framework of the banking sector, which will increasingly be at the service of Europe’s economic development, without shifting private risks onto public budgets.”[1] The act is now awaiting the joint signature of the Presidents and Secretaries General of both co-legislators.

While at first sight we may be discouraged in acknowledging that only a long-term assessment will prove (or deny) the effectiveness of the abovementioned instruments, for the time being it could be argued that a high-quality, patiently prepared slow-food recipe will eventually suit our appetite better than a quick fast-food snack. Otherwise, if history is repeating itself, we might end up hungry again soon.

Image: ‘Euro Denominations’ courtesy of Images Money via Flickr, released under Creative Commons.


 

[1] Banks, the EU Council adopts single resolution mechanism, website of the Italian Presidency of the Council of the European Union

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