Agreement has been reached between the European Parliament and member states on the single resolution mechanism (SRM), which gives the European Central Bank (ECB) the tools to shut banks that are too weak to survive.
This is the so-called second pillar of the banking union which starts at the end of this year when the European Central Bank takes over as watchdog, Reuters reports. The agreement reinforces the ECB’s role as supervisor as it prepares to run health checks on eurozone banks.
A €55bn back-up fund, to be built up over the next eight years – is part of the agreed package. However, this sum would be quickly spent, according to the ECB, so the fund has the ability to borrow more money if needed.
Eurozone countries will not, however, be collectively funding the scheme, nor underwriting the cost of individual bank failures or protecting customer deposits.
“The point we've always made that we need a mechanism that is properly funded and the agreement actually improves the existing funding,” said ECB president Mario Draghi. “All in all we made progress for a better banking union.”
Michel Barnier, the European commissioner in charge of regulation, said the arrangements would “allow bank crises to be managed more effectively”.
Deloitte noted in a recent blog post: “By centralising decision-making and information exchange across a large bank’s eurozone operations the SRM will in principle be able to more easily plan and execute a resolution, certainly across the operations located within the eurozone.”
The Reuters story can be read by clicking here.
The Deloitte blog can be read by clicking here.