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EU propose steps towards banking union

Wednesday, September 12 10:14:35

The European Commission has today published its proposals on steps towards a banking union, a condition for the coming into force of the new EU rescue fund, known as the European Stability Mechanism (ESM).

It is understood that both Irish and Spanish banks would be among the first to be included in the new financial union.

First discussions on them by governments are tabled for Saturday morning next at the Informal "EcoFin" meeting of Finance Ministers in Cyprus.

The proposal comes in 3 parts: Firstly, a regulation on the role of the ECB as the overall supervisor and ultimate authority for the financial stability of Europe's banks. (Governments must agree this by unanimity in the Council). This will be phased in with publicly funded banks affected from January 2013 and "systemic" banks being covered from July 2013. (Please refer to the texts below for more precise information. The Commission urges the Council to take these votes as soon as possible).

Secondly, an amendment to the European Banking Authority (EBA) Regulation - in part to allow the proposal above. (Co-decision with European Parliament and qualified majority vote by governments in Council).

And finally, a proposal for Directives to give a road map towards a single rule book for all EU banks. These contain various far-reaching elements designed to protect tax-payers in the future. (Co-decision with European Parliament and qualified majority vote by governments in Council).

President of the European Commission Jose-Manuel Barroso said: "Today, the Commission has presented proposals for a single European supervisory mechanism, a major step to a banking union. This new system, with the European Central Bank at the core and involving national supervisors, will restore confidence in the supervision of all banks in the euro area. The European Parliament will have a crucial role to play in ensuring democratic oversight. We should make it a top priority to get the European supervisor in place by the start of next year. This will also pave the way for any decisions to use European backstops to recapitalise banks." The President added: "We want to break the vicious link between sovereigns and their banks. In the future, bankers' losses should no longer become the people's debt, putting into doubt the financial stability of whole countries."

Internal Market Commissioner Michel Barnier said: "Banking supervision needs to become more effective in all European countries to make sure that single market rules are applied in a consistent manner. It will be the role of the ECB to make sure that banks in the euro area stick to sound financial practices. Our ultimate aim is to stop using taxpayers' money to bail out banks". He continued: "We have proposed a mechanism to separate supervision from monetary policy within the ECB, and made sure that the ECB will be accountable to the European Parliament for supervisory decisions".