On 12 February 2014, the European Central Bank (ECB) published a speech by Mario Draghi, ECB President, on financial integration and EU banking union.
Mr Draghi conceded that there were improvements that could be made to elements of the Council’s proposal on the Single Resolution Mechanism (SRM) which, if implemented, would help break the nexus between bank funding costs and the fiscal condition of their sovereigns. Reducing uncertainty about resolution financing arrangements is one area of improvement. Specifically, Mr Draghi would like to see:
- The protracted time period (10 years) over which national resolution financing measures are currently to be mutualised into a single resolution fund to be reduced. The preference was to see a genuine European resolution fund in place within 5 years, albeit that it would not reach its target level of funding for ten years;
- Clarification over the nature of the backstop arrangements which will be in place in the event that private sector solutions do not suffice. Specifically, Mr Draghi would prefer resolution authorities to have the ability to temporarily borrow from the market backed by guarantees from participating Member States, or access to a credit line (potentially from the European Stability Mechanism). Any such borrowing would be recovered by way of additional future levies on the banking sector.