Schäuble to host emergency talks on bank wind-down fund

in Brussels

France and Germany have convened an emergency meeting of a select group of finance ministers in Berlin today, in a bid to reach agreement on a European fund to wind down banks, ahead of a series of key meetings in Europe this week.

As senior officials meet in Brussels to consider the latest proposal on the Single Resolution Mechanism ahead of tomorrow and Wednesday's meeting of finance ministers, Wolfgang Schäuble – who is to remain as German finance minister following the formation of a new government in Germany – will host talks in Berlin.

'Exchange of ideas'
While the meeting is no more than "an exchange of ideas" according to a senior EU source, ministers are under pressure to secure agreement on a complex set of EU-wide rules on bank wind-downs before a two-day summit of EU leaders which begins on Thursday.

While agreement was reached last week on the structure of a single resolution authority, which will be managed by a resolution board with limited powers for the European Commission, focus is now turning to the resolution fund.

Under the proposals being considered, banks in each member state will contribute levies eventually equating to 1 per cent of total deposits, though this could potentially be formed using a combination of 0.5 per cent in cash and the remainder in pledged liabilities, according to EU officials. This will be built up gradually over 10 years, during which time the fund will gradually move from being a network of national funds, to a single, pooled fund.

Bank failure

While a country would be obliged to use its own fund in the event of a bank failure, it would have access to the rest of the funds from the outset if its own resources

were insufficient. An inter-governmental agreement – rather than an EU treaty – will set out how the funds will be pooled together.

Ministers have pledged to reach agreement on the single resolution mechanism – the second “pillar” of the European’s plan for a banking union – by the end of this year.

Last week the European Parliament reached consensus with member states on the Bank Resolution and Recovery directive, a connected piece of legislation that introduces the concept of creditor 'bail-in' for the first time.

Ministers will also try to forge agreement on “backstop” measures for the fund, including a possible role for the European Stability Mechanism in plugging any capital hole that may emerge in financial institutions. Germany has insisted the ESM should only be used as a last resort.