MEPs call for tighter coordination and planning to avoid future banking crises
07 July 2010
In the ECON committee resolution adopted in Plenary in Strasbourg, MEPs urge the European Commission to submit draft laws relating to the management of cross-border crises in the banking sector. They also call for an EU crisis-management framework, EU financial stability fund and a resolution unit.
A special system should be set up to ensure that crises are resolved earlier and to avoid rushed, weekend bank bailouts costing the taxpayer hundreds of billions of euros, says the European Parliament in a resolution passed on Wednesday. The growing size, complexity and interconnectedness of banks means that such a system must be established at the European level.
In the resolution, drafted by Elisa Ferreira (EPP, PT) and adopted by a show of hands, MEPs urge the European Commission to submit by the end of the year one or more draft laws relating to the management of cross-border crises in the banking sector. In particular they call for an EU crisis-management framework, an EU financial stability fund and a resolution unit within the European Banking Authority to deal with insolvencies of cross-border systemic banks.
’Risks cannot and should not be eliminated from the market, but we do require regulation which will make risks more transparent and prevent the emergence of bubbles,’ said Ms. Ferreira in a debate on Tuesday. ’It is not our job to prevent banks going bankrupt, but it is our job to ensure that the way in which they are liquidated or reorganised is done in an orderly fashion, and also to limit collateral effects elsewhere in the system to ensure that it is not the taxpayer who picks up the tab.’
EU crisis management framework
The crisis management framework proposed in the resolution would, in the event of a crisis, preserve financial stability, minimise the cost to taxpayers, preserve basic banking services and protect depositors. It would also encourage banking sector players to act more responsibly.
The proposed framework would provide a common minimum set of rules, foster the convergence of national resolution and insolvency laws, and ultimately establish an EU resolution and insolvency regime. It would grant more crisis management powers to supervisory authorities, including the powers to wind up a bank or impose a total or partial sale. Considerable coordination powers would be vested in the nascent European Banking Authority (EBA).
A ’Risk Dashboard’, based on a set of indicators to be designed by the Commission, is also proposed, with a view to rating the risk levels of individual banks and providing early warning of possible instability. Each bank would be required to have its own ’resolution plan’ which would detail the steps to be taken should it run into difficulties, so as to avoid rushed decisions.
Financial stability fund and resolution unit
Furthermore, the framework would include an EU financial stability fund to preserve banking stability in difficult times, and also a resolution unit within the EBA in charge of restructuring cross-border systemic banks which run into difficulties.
Next steps
On Tuesday, Michel Barnier, European Commissioner in charge of financial services, welcomed the Parliament's suggestions as a ’very credible toolbox’ and assured MEPs that the Commission would reflect these suggestions in the consultation paper it is to launch in October, as well as in the legislation to be submitted next year.
According to the EC Treaty and the Parliament's Rules of procedure, MEPs have a right to request the Commission to submit any appropriate proposal for the adoption of a new law. To this end they have to adopt a resolution which must be backed by a majority of MEPs. At the same time, they may set a date by which such a proposal should be submitted. Should the Commission decide not to follow this recommendation, it has to give its reasons.
