Update “First Major Banking Union Milestone Completed” (October 14, 2013)

As we previously informed you, the European Parliament (EP) green-lighted the Single Supervisory Mechanism, one of the pillars of the EU Banking Union.  However, it now seems that the proposed integration might be boxed in a corner.

The main dispute involves the Single Resolution Mechanism (SRM), which will create a Single Resolution Board. The Board would submit a proposal to the European Commission (EC) to wind-up or to salvage a troubled bank. The Board would also manage the Single Resolution Fund. The Fund, created from contributions from the banking sector, would provide medium-term funding support during a troubled bank’s restructuring. The Board would be also able to borrow money. Nevertheless, national regulators would execute the EC’s resolution on banks with oversight of the Board.

The Council Legal Service opined that the significant delegation of power given the Board might violate EU Treaty. Any changes thereto are often opposed by some countries or are subject to lengthy referenda. The whole process may take years.

What next?

The Board was expected to begin operating in early 2014, although this obviously may not happen. New discussion regarding the Banking Union will continue at the EU Council’s meeting in the presence of the ECB’s president on October 24- 25, 2013.

Stay tuned for more information.