Resolution Fund German-French Accord on Euro Bank Rescue

A deal seems imminent on Europe's new fund to wind down bad banks: The top post of the new resolution authority will go to Germany, while French banks will contribute less.
Grin and bear it: German Finance Minister Wolfgang Schäuble, left, and French Finance Minister Michel Sapin, right, have reportedly agreed on an Italian compromise to set up a European rescue fund for troubled banks.

Europe’s plan for winding down ailing banks is taking shape.

An agreement seems imminent on both the head and the financing of a new agency, known as the European Resolution Authority, which will be responsible for shutting down or rescuing European banks that face collapse.

Elke König, president of Germany’s financial watchdog, the Federal Financial Supervisory Authority, or BaFin, is set to assume the top post at the new European authority, Handelsblatt has learned from sources within the European  Commission.

The European Commission plans to nominate Ms. König for the post and she is expected to start in January. Technically, the European Parliament and the Council of Ministers still have to approve the choice, but their endorsement is considered a formality.

Ms. König beat out Luc Coene, chief of the Belgian central bank, and Philippe Maystadt, former head of the European investment bank, in the run for the position.

France reportedly wants to permit certain banks to just submit a guarantee for the agreed amount, Germany insists on real money being paid into the fund.

If Ms. König takes office in January, she will have to build an entirely new agency.

The joint European Resolution Fund is supposed to organize and finance liquidation and restructuring of failing banks across E.U. borders. It was one of the major responses in Europe to the global financial crisis in 2008 and 2009, when states had to intervene to save or shut down financial institutions using tax money.

 

Quelle: dpa
Elke König, the president of Germany's bank regulator, BaFin, will reportedly become the first head of Europe's new fund to rescue troubled banks.
(Source: dpa)

 

The resolution authority will create a single market for European banks, reducing the bureaucratic hassle of cross-border negotiations and bearing the cost of rescues.

Initially, all 18 countries that use the euro currency will be members of the fund, which is open to other European countries as well. Banks of all member countries have to pay a combined €55 billion into the fund by 2024.

So far, however, there has been a heated debate on how much each country would contribute. But another agreement seems in the making.

According to a commission working paper which Handelsblatt has obtained, German and French banks will shoulder the main burden of the resolution fund, paying almost equal amounts into the pot. German banks will have to pay around €15.35 billion; French banks will pay €15.48 billion.

Germany, a country with many small banks, and France, a country with a few big banks, have been fighting over which institutions should be burdened by the new fund. The German finance minister, Wolfgang Schäuble, originally insisted that small banks be exempt because they do not pose a risk to the system. His French counterpart, Michel Sapin, on the other hand demanded the burden be shared by small banks as well, because they will also benefit from the safety mechanism.

 

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The new compromise proposed by Italian Finance Minister Pier Carlo Padoan now meets some French demands. The Socialist Mr. Sapin succeeded in reducing French banks’ contributions by more than €1 billion.

Other euro states’ banks will have to pay more to take up the slack. Spanish banks will bear the brunt of the increase: Their contribution has gone up by more than half a billion euros to around €5.37 billion. The French compromise will cost German banks about €100 million.

At the same time, the proposal provides a special arrangement for small banks with balance sheets of up to €3 billion. These will have to pay eight flat annual contributions of €50,000. Federal state development banks such as the German KfW bank are exempt.

However, the exemption does not apply to development banks of individual German states. The capital markets component of their balance sheets will be used to calculate their contributions to the fund. Only development loans will be exempt.

According to E.U. diplomats, the latest Italian proposal has a good chance of succeeding. It might even be adopted by the E.U. council of finance ministers when they meet early next week, according to a source in Brussels, who declined to be named. Of course, that is not guaranteed.

Even some banks that will never be able to benefit from the fund are burdened. Markus Ferber, member of the E.U. parliament

One major issue still divides Mr. Schäuble and Mr. Sapin. The French minister reportedly wants to allow some banks to merely submit a letter of guarantee for the agreed amount to the fund, instead of cash. Mr. Schäuble did not agree. "Germany insists on real money being paid into the fund," according to a source in Brussels.

The reactions of E.U. members of parliament from Germany to the financing plans are varied.

"We have achieved a lot for small banks," said Markus Ferber, a member of Germany’s center-right Christian Socialist Union. In general, he welcomes the proposal, but is not completely satisfied, "because even some banks that will never be able to benefit from the fund are burdened.”

Others, like Sven Giegold, a member of Germany’s Green Party, categorically reject the compromise.

"It amounts to daylight robbery of low-risk banks," he said.

The Greens want to prevent the European Parliament’s economic affairs committee from rubber-stamping the two-part proposal relating to E.U. bank contributions before Christmas with little or no debate. Mr. Giegold said that he would argue against such an outcome and demand a roll-call vote at a full plenary session of the European Parliament, where the proposal needs a majority to be enacted.

 

Ruth Berschens has been Handelsblatt's bureau chief in Brussels since 2009, and leads coverage of European policy. Yasmin Osman is a reporter for Handelsblatt's banking desk in Frankfurt. To contact the authors: [email protected]; [email protected].