European negotiators have struck a deal to establish a single resolution mechanism, a system for winding down financial institutions on the verge of collapse. The mechanism is the final piece to Europe's banking union. "The point we've always made [is] that we need a mechanism that is properly funded, and the agreement actually improves the existing funding," European Central Bank President Mario Draghi said. "All in all, we made progress for a better banking union."
Joerg Asmussen, a member of the European Central Bank Executive Board, says the European Council needs to agree on the banking-union initiative by year-end. "In order to do this banking union judiciously, we need a hasty agreement; that means by the end of the year at the level of the European Council of Ministers," Asmussen said. He also says a supervisor for banks should be introduced "relatively simultaneously" with a bank-resolution regime.
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.
As negotiations about Europe's banking union bog down, the key to breaking the impasse seems to be implementing checks and balances on the European Central Bank's authority. Also, while the ECB argues that it should have authority over all euro-zone banks, Germany's Bundesbank has balked at the proposal.
European Commission President Jose Manuel Barroso said intensive work is under way on a euro-zone banking union, and a proposal should be ready in early September. The European Central Bank would be the primary banking supervisor, he said.