(MENAFN- AFP) EU finance ministers finally agreed Wednesday on a new bank regulatory system which will see Brussels gain new powers from member states to prevent reckless lenders from damaging the economy again.
Having agreed there will be a single body with the authority to close failing banks, the main sticking point had been how to fund it, especially in the interim period as the new regulatory system comes on-line.
The European Central Bank will meanwhile supervise directly the biggest of some 130 eurozone banks which account for about 85 percent of eurozone banking assets.
In line with German wishes, it will oversee the 6,000 other banks indirectly via national authorities.
Each country will be required to follow the same rules on bank supervision and closure under the ECB's aegis, establishing a single regulatory system.
HOW WOULD IT WORK?
-- A so-called Single Resolution Mechanism (SRM) is to be set up to decide whether and how to wind up failing banks to stop lenders' troubles spreading into the real economy, as happened in Ireland, Spain and Cyprus.
-- If a decision is made to wind up a failing bank, the national banking authorities would be in charge of carrying out the operation at the behest of the SRM. If the SRM board judges its orders are not being carried out, it can directly issue instructions to the bank concerned.
-- Banks in all eurozone countries as well as in other countries that have chosen to participate in the Banking Union regime would be affected.
-- A fund would also be set up, in time financed directly by the banks, to cover the costs of winding up a bank or to provide emergency liquidity, the idea being to remove the burden of supporting failing lenders from the taxpayer.
-- If banks fail, the financial burden will fall first on shareholders and creditors under a so-called 'bail-in process'. Individual savers' deposits below 100,000 euros ($137,000) would be safe under a deposit guarantee scheme but larger savers could lose some of their money.
-- Wednesday's accord will be submitted for approval to an EU leaders summit Thursday and Friday and it will then provide the basis for talks with the European Parliament which are also likely to be long and difficult. The system is due to be operational from 2015 and phased in over a period of ten years.
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