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18 Dec 2013
Ecofin strikes deal on common backstop for failing banks
FXstreet.com (Łódź) - EU finance ministers have agreed on Wednesday to set up a common backstop for financing the winding down of failing banks, which is an important step on the path to the creation a banking union in the area.
"We produced a crucial breakthrough in the building of a banking union for Europe. European Commissioner for Economic and Monetary Affairs Olli Rehn told Reuters. “This will pave the way for an overall compromise in the Ecofin council."
According to the finance ministers' draft statement, until the Single Resolution Fund gathers enough money from bank fees (during a 10 year period), national governments will have the possibility to borrow from the European Stability Mechanism fund, in case they run out of cash to finance the closure of a bank. The resolution fund itself will also be able to raise additional money through borrowing after 2025.
"A common backstop will be developed during the transition period. Such a backstop will facilitate the borrowings by the SRF. The banking sector will ultimately be liable for repayment by means of levies in all participating Member States, including ex-post," Eurozone finance ministers said in the statement.
This outcome is positive for Germany, which was reluctant to use public money to finance the winding down of failing lenders.
"We produced a crucial breakthrough in the building of a banking union for Europe. European Commissioner for Economic and Monetary Affairs Olli Rehn told Reuters. “This will pave the way for an overall compromise in the Ecofin council."
According to the finance ministers' draft statement, until the Single Resolution Fund gathers enough money from bank fees (during a 10 year period), national governments will have the possibility to borrow from the European Stability Mechanism fund, in case they run out of cash to finance the closure of a bank. The resolution fund itself will also be able to raise additional money through borrowing after 2025.
"A common backstop will be developed during the transition period. Such a backstop will facilitate the borrowings by the SRF. The banking sector will ultimately be liable for repayment by means of levies in all participating Member States, including ex-post," Eurozone finance ministers said in the statement.
This outcome is positive for Germany, which was reluctant to use public money to finance the winding down of failing lenders.