Sharon Bowles, chair of the European Parliament’s economic and monetary affairs committee, with its important role in banking regulation, declares that Europe is now in a better place in terms of financial system soundness than before the crisis.
True, the moves towards higher capital levels and bail-in bonds mean that banks are safer and further away from ever needing taxpayer support, but it is hard to feel as optimistic about the resolution process and the critical question of who pays.
At present, a huge argument is going on over the resolution structure and where any funding will come from. The Banker’s sister publication, Global Risk Regulator (www.globalriskregulator.com), reports in its January issue: “According to one analysis, the decision to shut down a bank could require 126 people to vote on nine committees.”
Ms Bowles described – at a London press conference organised by Equiniti, the UK’s largest share registrar – the complicated “tri-alogue” that takes place between the European parliament, the council comprising of finance ministers and the European Commission in order to settle regulatory issues.
In reality there is a fourth more powerful actor involved – Germany. Germany has scuppered proposals for a common deposit guarantee scheme, according to Ms Bowles. It is also blamed, according to GRR, “for bulldozing its vision of banking union through the council, insisting on maximum fiscal autonomy and limited mutualisation of costs”.
It is difficult to believe that any structure which emerges from this mess could ever have the confidence of the markets to take fast and tough decisions in the midst of a banking crisis.
So keen are powerful national forces to have their way on resolution and bail-outs that the European Commission’s proposal for a Single Resolution Mechanism has developed, at the behest of the council, into a regulation and a separate inter-governmental agreement (IGA). Under the IGA, the eurozone ministers will work out the critical formula by which funds are put into and taken out of the fund underpinning future bail-outs.
The UK is often criticised for being the odd-country-out in the EU and for going its own way against the wishes of other members. Last week it lost another case in the European Court of Justice (ECJ) against EU powers to ban short-shelling – the fourth such loss since 2011.
Germany by contrast appears able to shape the rules to its own agenda, and with little regard to the wishes of the democratically elected European parliament, so that it has less need to go down the ECJ route. It also benefits from having a written constitution – which the UK does not have – as a vital check and balance against creeping EU legislation.
Small wonder that the EU plays better with the German electorate than it does with UK voters. In another setback, Ms Bowles will not be standing for re-election in May, which will further weaken UK influence on legislation that is critical to finance, the country’s biggest industry.
