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."
The moment of truth is coming for euro-zone leaders as they work to establish a banking union, Simon Nixon writes. "The creation of a banking union is the centerpiece of the currency bloc's efforts to draw a line under its debt problems, an attempt to address the splintering of the European single market that threatens to pull the euro zone apart," Nixon writes.
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."
A series of up-and-down and sometimes tense talks this month led to agreement on banking supervision that gives Germany a good deal of what it wants. Part of that is an accord that could keep the European project on track, although Berlin might not be happy with the possibility of paying cleanup costs for other nations' banks.
European finance ministers hammered out a deal on a banking union that removes an immediate threat to London's financial centre. The deal gives oversight authority to the European Central Bank, but it includes crucial concessions that protect London's status as a global financial hub. AFME's Andrew Gowers called the accord a "big step forward" that will improve the single market for financial services. "We think the safeguards [for nonparticipating countries] are adequate," Gowers said. "We wanted to see a fair and balanced way of reaching decisions, particularly on the European Banking Authority ... We think this does that."