{{The European Commission proposed on Wednesday creating an agency to salvage or shut failed banks, but the absence of an immediate backstop fund to pay for a clean-up means it may struggle to do its job.}}<\/p>\n
Working in tandem with the European Central Bank as supervisor, the new authority is supposed to wind down or revamp banks in trouble. It constitutes the second pillar of a ‘banking union’ meant to galvanize the euro zone’s response to the crisis.<\/p>\n
If agreed by European Union states, the agency will be set up in 2015 and will eventually have the means to impose losses on creditors of a stricken bank, according to the blueprint.<\/p>\n
But the new authority will be handicapped by the fact that it will have to wait years before it has a fund to pay for the costs of any bank wind-up it orders. In practice, this means it could be very difficult to demand any such closure.<\/p>\n
Officials say the plan foresees tapping banks to build a war chest of 55 billion to 70 billion euros ($70 billion to $90 billion) but that is expected to take a decade, leaving the agency largely dependent on national schemes in the meantime.<\/p>\n
“We have also seen how the collapse of a major cross-border bank can lead to a complex and confusing situation,” said Michel Barnier, the commissioner in charge of regulation.<\/p>\n
“We need a system which can deliver decisions quickly and efficiently, avoiding doubts on the impact on public finances, and with rules that create certainty in the market.”<\/p>\n
The EU’s executive will also not, however, call for giving a backstop role to the euro zone’s rescue fund, the European Stability Mechanism.<\/p>\n
The lack of initial funds or recourse to the ESM undermines a central goal of banking union – to sever the ‘doom loop’ that forms as banks buy ever more government bonds from their home states.<\/p>\n
{reuters}<\/p>\n","protected":false},"excerpt":{"rendered":"
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