The Commission's SRM proposal is logical and sound. But there is little support amongst Member States for ceding (resolution) powers to the EU level. Sadly, thus, it is likely that Banking Union will remain a torso and will not instil confidence.
The European Commission's proposals for a Single Resolution Mechanism (SRM) would incorporate a Board to prepare and monitor the resolution of any bank in countries participating in the Single Supervisory Mechanism (SSM) with the final decision resting with the Commission.
The Commission’s SRM proposal is logical and sound. To avoid moral hazard, pan-European supervision by the ECB requires that resolution is also at the EU level – and at the same time, credible pan-European resolution requires pan-European funding to break the bank-sovereign nexus and disruptive flows in times of tension.
It would be better for resolution powers to rest with a new EU resolution authority, capable of effective decision taking, rather than with the Commission and an unwieldy "board", but the establishment of such a new authority would have required a Treaty change, which is why the Commission, in the interest of timely solutions, has settled for its proposal. In any case, the SRM proposal will be subject to intense and long debate, as key Member States, including the UK and Germany, object to it.
While the German government cites legal reasons for this, the truth is that key Member States have embarked on inter-governmentalism as the new governance model for the EU. There is, therefore, little support amongst Member States for ceding (resolution) powers to the EU level. Sadly, thus, it is likely that Banking Union will remain a torso and will not instil confidence.
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