"From supervision to resolution: next steps on the road to European banking union"
The steps needed to achieve the timely creation of the banking union represent a marathon run in which Europe cannot afford to fail
Brussels, 19th February 2013 - Bruegel, the Brussels-based international economics think-tank, today publishes “From supervision to resolution: next steps on the road to European banking union,” an External Publication prepared for the Economic and Monetary Affairs (ECON) Committee of the European Parliament.
The paper, written by Nicolas Véron and Guntram Wolff, addresses the decisions by the European Council in mid-December on moving forward towards a European banking union. After foreseeing three successive steps in the policy agenda -including the Single Supervisory Mechanism (SSM); the Bank Recovery and Resolution (BRR) Directive and the European Stability Mechanism (ESM); and the Single Resolution Mechanism (SRM)-, they provide the following recommendations to balance short-term, medium-term and long-term objectives.
- Granting the European Parliament a right of consent over the appointment process of the Chair, Vice-Chair and two other members of the supervisory board of the SSM;
- Finalising the Capital Requirements Regulation by removing its elements of material non-compliance with the international Basel III Accord;
- Finalising the BRR Directive with enhanced discretion for national authorities to take prompt corrective action on weak banks and impose losses on creditors in bank restructurings;
- Abandoning the provisions for binding mutual lending arrangements among national funds in both the BRR and DGS Directive;
- Finalising an operational framework for direct recapitalisations by the ESM while leaving it substantial discretion for future intervention, including the assumption of some risks (but not of losses or near-certain losses) incurred under past supervision by national authorities;
- Creating the SRM with a central body at its core, either within the European Commission, with appropriate governance design to ensure sufficient independence, or as a new temporary or permanent organization;
- Empowering the SRM to make binding decisions that are implemented through national resolution regimes;
- Creating mechanisms to mobilise an adequate mix of national and European financial resources to the extent needed for the implementation of SRM decisions;
- Delaying radical decisions on banking structure regulation, at both the national and the European levels, until after the creation of the SRM.
According to the paper, the programme that was outlined by the Council in December 2012 entails a large number of policy questions of considerable complexity. The challenge remains to explore all these matters in due time and in a reasonable sequence.
Bruegel is an independent economic think tank. It contributes to European and global economic policy-making through open, fact-based and policy-relevant research, analysis and debate. Membership is composed of EU governments, leading international corporations and institutions.