BRUSSELS (MNI) – The European Union outlined plans on Wednesday to
supervise cross-border banking crises within the EU framework, as part
of its wider bid to beef up regulation across the 27-nation bloc.
“No bank should be ‘too big to fail’ or too interconnected to
fail,” European Commissioner for Internal Markets Michel Barnier said.
“That is why we need a clear framework which ensures authorities
throughout Europe are well prepared to deal with banks in difficulty and
handle possible bank failures in an orderly manner.”
“We are proposing a set of emergency tools and we are doing this
because we realised we don’t have the same tools all over Europe to deal
with cross-border banks if they run into trouble,” an EU diplomat said.
“The aim is to allow the authorities to deal with the bank without
jeopardising financial stability.”
The plans — outlined by Barnier — would see newly created EU
supervisors cooperate with national supervisors on a range of issues,
allowing them to intervene if cross-border banks breach international
capital requirement rules and in cases where banks are deemed to be on
the brink of failure.
In extreme cases, EU supervisors could parachute in special
managers to run the banks, an EU diplomat said.
The plans outline two sets of tools, one for prevention and one to
be used in the case of failure.
“The preventive tools allow authorities to deal with a situation
beforehand, for example, living wills and resolution plans,” the
diplomat said. “Then when the bank is failing, we are proposing a number
of tools, to make the bank disappear, with an aim to wind down the
entities,” he added.
Among the plans is a mechanism for writing down debt that would
make sure that creditors of cross-border banks bear the losses if a bank
fails, even if the bank is bailed out by national governments in a
period of crisis.
“In the last crisis, debt wasn’t written down when banks were
bailed out, and one of the results was that the creditors didn’t bear
the losses; the government and the taxpayer did,” an EU diplomat said.
The mechanism outlined in the current plan would “make absolutely
sure that creditors would suffer the losses that they expect,” the
diplomat said. “We want to make sure that the creditors do bear the
losses, not the governments or the taxpayer.”
The Communication published on Wednesday sets out the Commission’s
basic ideas, ahead of a Consultation paper due to be published in
December and legislative proposals due in Spring 2011.
“This is just a framework for crisis management — it is not a
legislative text, but the ideas that the Commission will work on
further,” the diplomat said.
He said the plan was to outline “credible and effective tools which
the market believes could be used in any case.”
National supervisors would still take precedence in normal times,
but in cases of emergency, they would be expected to work together with
the EU supervisors, the Commission said.
–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com
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