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At the heart of the proposal for a “single resolution mechanism” is a powerful board, which would prepare any decision to wind up an ailing bank and submit it to the European Commission for a final confirmation. The opinion from the Council Legal Service takes issue with some important powers vested in this board – such as raising money for the central resolution fund – that are not explicitly approved by an EU institution such as the Commission. “The legal service considers that the powers which would be conferred by the proposal on the board . . . need to be further detailed in order to exclude that a wide margin of discretion is entrusted to the board”, the opinion circulated on Monday states.
While the legal service’s opinion is non-binding, its views can be decisive in debates. Most notable are its concerns over the creation and deployment of a joint resolution fund, particularly in the transition period when the pot is short of its €55 billion target level.
In a paragraph that will be important for the Commission, it adds that these powers can be exercised as long as “the legislator decides to involve in the exercise of those powers an institution of the EU vested with executive powers”. This suggests that the concerns can be overcome with a greater role for the Commission. However the solution may be unacceptable to Member States, which have already voiced deep concerns about centralising these powers in Brussels.
The specific measures that are found to be in violation of EU law include the board’s remit to oversee banks establishing resolution plans, which would include setting minimum requirements for debt that can absorb losses.
Other areas of over-reach include the board’s primary powers to raise funds for the single resolution fund. This includes its ability to set the framework for a levy on banks, borrow from the market, invest funds or deploy the money during a resolution. Specifically, the lawyers note “a risk that the framework [for the use of the fund] established by the Commission would be an empty shell that would leave a wide margin of discretion to the board”.
Finally, the legal service argues that the board should not be able to determine the level of fines or penalty payments imposed on national authorities to ensure that its decisions are respected.
As there are no clear guidelines on fines, the service concludes there is “a risk that those guidelines, even if they are not legally binding, would set the punitive policy of the Union in the field of resolution”.
Speaking at the Allianz Forum in Berlin, German finance minister Wolfgang Schäuble also renewed his attacks against the European Commission's proposal for common banking resolution, arguing against the Commission housing a new resolution authority and insisting that any future deal be on firm legal ground. The EU Commission's proposal "cannot work as it stands", Schäuble said, arguing that giving the Commission responsibility both for aiding banks and for winding them down would be a "conflict of interest".
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Further reporting © MNI