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Germany Proposes “Two-Step Approach” to EU Bank Resolution

In an opinion piece published in Monday’s Financial Times, German finance minister Wolfgang Schäuble, discussed the urgent need for a European banking union and stressed that in its present state it would only be ‘timber-framed, not steel-framed’.

The first step towards EU banking union was the development of a single supervisory mechanism, currently scheduled to commence operation in mid-2014.  This is to be followed by a proposal for a single resolution mechanism which includes a resolution authority and resolution fund.  The third (and least likely) pillar of EU banking union to be implemented consists of a common deposit guarantee scheme.

Schäuble believes that the steps taken to date are insufficient and existing EU treaties do not provide a solid foundation for the new supervisory and resolution agencies.  He argues that the single resolution authority in particular, requires a strong legal basis since it is more intrusive in its nature.  To address this situation, bail-in should be implemented as soon as possible rather than in 2018.  In addition, a “two-step approach” to bank resolution should be adopted based, initially, on a network of national authorities and national funding which would be quick to implement and would not require treaty change.  This would buy time to allow EU legislators to erect the long-term ‘steel-framed banking union’ via treaty change.

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