06 March 2014

German finance minister Schäuble: Starting the Banking Union with healthy banks

For the members of the eurozone, the Banking Union provides for even deeper integration of the banking sector, initially in the form of a Single Supervisory Mechanism. The European Central Bank (ECB) will begin its work as the European banking supervisor in the fourth quarter of 2014. In my opinion, two things are particularly important here: Firstly, we need a strict separation of monetary policy and supervisory activities in day-to-day operations. I would have preferred it if we did not have to try to achieve this separation within a single institution. But setting up a new, separate European supervisory authority would have required us to amend the European treaties. Secondly, I feel it is important that direct supervision by the ECB focuses on significant banks in the participating Member States. National supervisors will generally continue to be responsible for the remaining banks. We will keep insisting on this compliance with the principle of subsidiarity.

The next step is a common resolution mechanism. At the end of 2013, we paved the way for negotiations on this issue with the European Parliament and also for negotiations on an inter-governmental agreement regarding a European resolution fund. If we design the mechanism the way that European finance ministers have agreed, then its foundations will be legally sound. You cannot achieve financial stability if you have legal uncertainty.

We are making sure that the structure is viable through a combination of Article 114 of the Treaty on the Functioning of the European Union and the inter-governmental agreement. Just as with supervision, there will be a clear separation of functions for the Single Resolution Mechanism: In each case, decisions on large banks that are subject to direct supervision by the ECB, as well as banks that operate internationally, will be taken centrally. As a rule, national resolution authorities will be responsible for the other banks.

The Single Resolution Mechanism needs to have efficient decision-making processes. The resolution of a bank cannot be allowed to be delayed by national interests and conflicts. For this reason, we want resolution decisions to be made by the European resolution board, as far as possible, because that is where the expertise is. In most cases, the five executive members of the board will be able to take resolution decisions. If, however, they want to deploy a significant proportion of the fund’s resources (more than €5 billion), then representatives of all the national resolution authorities will be involved in the decision, for which a qualified majority is required. Otherwise the fund, which is supposed to protect all banks, would be emptied too quickly when dealing with individual cases.

Additionally, the participation of one of the European institutions is formally required, unless the European treaties are changed. In its draft procedure, the European Commission only granted the board the right to make proposals, while giving itself the right to adapt the board’s proposals to its own ideas as it sees fit. In a situation like this, there is the risk of conflicts of interest and politically motivated intervention. The Council therefore favours a different solution: The board’s decisions will take effect automatically after a short period of time, unless the Commission and the Council together request an amendment. Such a procedure may, admittedly, look complicated on paper. In practice, however, it is highly unlikely that the Commission and Council would agree on a change in the short period prescribed. For this reason, this kind of structure would mean that the board would in fact usually make definitive decisions – and this would be the best solution.

To finance the resolution of a bank, a Single Resolution Fund will be built up over the next 10 years using contributions from the banking sector. The national bank levies will be collected in national compartments which will then be gradually mutualised over 10 years. In terms of the levy, smaller institutions will be better off than large banks which pose a high level of systemic risk. Our national levy in Germany will be transferred to this European system.

Member States will be able to lend each other money from the national compartments. Up until the point when the resolution fund has sufficient means at its disposal, the Member States must remain responsible, because, under current European law, only they have the authority to collect levies. If the fund’s resources are not sufficient, then the Member State in question has to take responsibility. Should the country be unable to provide the necessary assistance by itself, then it can apply for help from the European Stability Mechanism (ESM) – in accordance with the existing rules. In this case, strict conditionality would apply – in other words, requirements would be imposed that address the problems at their source.

The key thing now is for all the parties in the trilogue to negotiate constructively, so that we can get this important project under way before the European elections in May 2014. We will also conduct in-depth negotiations on the direct recapitalisation of banks using funds from the ESM. This instrument can only be used on the basis of the existing treaty arrangements. Direct recapitalisation by the ESM is only possible after the comprehensive involvement of shareholders and creditors.

Full press release

© Bundesfinanzministerium