Business & Economy

EU reaches preliminary agreement on banking union

21 March, 2014

After 16 hours of negotiations, the Greek Presidency, representing the Member States, the European Commission and the EU Parliament reached a preliminary agreement on the European banking union, which will be finalized on April 15, with the approval of the plenary of MEPs.

The negotiation was attended by Greek Finance Minister Yiannis Stournaras, the chairman of the Eurogroup Geroun Nteiselmploum, Commissioner Michel Barnier, the EU Parliament and represented six MEPs coming from the political groups in the House.

Greek Finance Minister Yiannis Stournaras, Eurogroup President Jeroen Dijsselbloem, Commissioner Michel Barnier and six MEPs coming from the different political groups of the European Parliament participated in the negotiation.

The compromise reached, provides that the money of the single resolution mechanism will be collected in advance by the contributions of the banks and will become available earlier than expected, something that helps countries with smaller banks and fiscal constraints, such as Cyprus and Greece.

There was also an important agreement for a decision on the resolution of a bank in about 48 hours, in the period between the close of the U.S. stock market on Friday evening until the opening of Asian markets on Monday morning.

The agreement provides a single resolution mechanism regulation that will intervene when there are problems in a financial institution. It will establish a single resolution board, which will have broad powers in cases of bank resolution, and a single resolution fund.

The single resolution fund will be endowed with contributions from the banks according to their size, reaching 55 billion euro over eight years. The compromising agreement provides that 40% of the fund will be shared among countries from the beginning and 60% after two years until it reaches 100%.

From 2016, when a bank enters into resolution regime, the shareholders of the bank will be the first to contribute, while creditors will follow. Large depositors will also contribute, but the European Parliament has achieved a special treatment for individuals and SMEs, as in many cases their contribution will follow the contribution of the national and European resolution fund, but also of national deposit guarantee funds.

Under the agreement a possible "haircut" excludes: 1) guaranteed by Community law deposits under 100,000 euros, 2) secured obligations, 3) obligations with an original maturity of less than one month.

It also concerns obligations : a ) to employees regarding accrued salary , pension rights or other fixed remuneration , variable remuneration except any form b ) a trade creditor or supplier , in connection with providing the foundation for goods and services necessary for the daily operation, such as telecommunication services, and utilities c ) to tax authorities and social security authorities , if these obligations are privileged under current bankruptcy law .

" Today`s compromise allows us to complete the architecture of the banking union for the eurozone It will further contribute to the return to financial stability thus creating the right conditions for the financial sector to once again lend to the real economy which is essential to consolidate the economic recovery and to create jobs”. said EU Commission President Jose Manuel Barroso.

"On behalf of the Presidency, I should like to warmly welcome today`s agreement on this key element of Europe`s banking union. I sincerely hope that it will open the way for approval by both Parliament and Council within the timeframe we have set on account of the forthcoming European elections," said Greek Minister for Finance Yannis Stournaras.

"Together we have made a very important step in restoring confidence in banks as well as in the eurozone. And this at an unprecedented speed. With the banking union, risks will be pushed back to where they belong: to the ones that are taking the risks and benefit from the risks - the financial sector - and not to the tax payer, " said Eurogroup President J.Dijsselbloem.