Latest EU Banking Pact Update: EU’s Latest Nail In Its Own Coffin

The New Agreement Still Isn’t Good Enough, Same Obstacles, Same Inadequate Results. Conclusions On How To Protect Yourself And Profit

Summary

• The first SRM deal was a failure, too slow, too underfunded
• The EU Parliament Sought To Remedy These Faults
• The Final Compromise Deal Struck With Representatives Of Member States Is Better
• However It’s Still An Existential Threat To The EU, Here’s Why

In late December 2013 EU member states agreed on an EU banking union plan. It was widely criticized as too slow implement and too underfunded to provide a credible guarantee of EU banking stability in case of bank failures. It also left individual member states without any outside aid for many years to come.

Late Thursday March 20^th the European parliament and EU member states finally settled terms on the unified system for handling  bank failures and potential banking crises that partially addressed the faults of the original version of the member states.

The final EU Parliament approved version is still too slow and underfunded to consider the EU banking system as stable as that of the US or Japan. It remains a ticking time bomb under the EZ and EUR, only now it’s a smaller bomb, and one that may be easier to disarm if times of potential bank crises.

Changes From The Original Agreement

We covered the terms of the original single resolution mechanism (SRM) here back in December.

Here are the changes from the original agreement of the EU finance ministers of December 2013.

The EU parliament wanted and got:

1. More and faster mutualization, i.e. aid from wealthier nations to bail out banks in poorer member states.

a)      The new deal accelerates the build-up of a common bank-paid fund from 10 to 8 years.

b)      It also makes the common funds available sooner. Under this provisional deal, 40% of the donations are mutualized after first year and 60% after the second. The original deal limited the growth in the percent of funds available to all to the percentage growth of the fund. Ten percent of the final 55 bln EUR fund was to be contributed each year, therefore after the first year only 10% of that amount was available to all members, 20% after the second year, and so on.

1. More centralization (more real power to close banks and disburse common EU funds) in the central EU bank regulator rather than committees of member states. In the original deal, a resolution board comprised of EZ member representatives would make the proposals for dealing with the problem bank, and the central EU commission would only have a veto power, which could be overruled by a majority vote of banking union member states.  Now, the Commission is given a formal role to approve resolution decisions recommended by an independent board. Finance ministers would be able to overturn the decision, but only in limited cases.