Germany has rejected an idea from EU Internal Market Commissioner Michel Barnier to save a proposed banking union. Legal experts recently said the plan likely would violate EU treaties. Barnier's compromise is to make a resolution authority an interim organisation until its duties can be picked up by the European Stability Mechanism.
The European Central Bank's efforts to develop a banking union is facing growing concerns from major governments. France and Germany have proposed keeping national authorities in charge of resolving troubled financial institutions. Meanwhile, the ECB is expected to keep interest rates stable.
Last year, European authorities committed to developing a banking union to prevent another financial crisis and shore up financial institutions. Less than a year later, concerns are emerging about the plan, which has three steps: Develop a single bank supervisor, a resolution entity to unwind failed banks and a single deposit-guarantee scheme. "The two, resolution and supervision, need to go together," AFME CEO Simon Lewis said. "There is a lot riding on it in terms of a positive message for the stability of the system."
The International Monetary Fund is increasing pressures on euro-zone nations to speed up development of a banking union. The IMF recently released a report about banking-union plans, emphasising a need to outline a timetable for developing a bank-resolution authority.
Europe has taken a key first step toward developing a banking union, which is necessary for the region to resolve its financial crisis, Simon Nixon writes. However, the banking union requires a common deposit-guarantee system and a common resolution fund if it is to succeed.