The European Union finance ministers agreed on finalizing the details of Banking Union. The said union will be formed to protect the economy from the disasters due to failing banks. Although the ministers make some progress by agreeing on general principles, they have shown their determination to get together again next week.
The German Finance minister told the press that, “We have come a long way, All countries now accept the principle that if banks get into difficulty, the cost should only be borne by investors and creditors not by taxpayers.”
But in order to implement this as practice, all member states need to check few things and finalize it as political accord next week. They would gather again on December 18, on the eve of a two-day EU leaders’ summit for signing of the plan which will subsequently be presented before European Parliament. They are also hopeful that this banking union will also prevent the intervention by governments for saving the failing banks through bail out packages.
The Single Resolution Mechanism (SRM) would step into action to close the bank at risk before it could cause any further damage to the wider economy. The SRM would also have a cash reserve at its disposal to bear the cost involved. This fund would be formed by bank themselves.
The SRM under Single Supervisory Mechanism administer by European Central Bank will cover around top 130 EU zone banks directly and thousands more indirectly through their national banks and authorities. However, the European Commission supported by France, want the SRM to have jurisdiction over 6,000 euro-zone bank; whereas, Germany want it have power over 130 top banks under ECB banks only.
But the main question arises who will control this SRM. Differences have arisen among the member countries over the control of SRM. The EU’s executive commission wants the final say but the Germany wants the member state to have that right. There is also a discord over the control of fund, the commission wants to have total 55 billion euro under centralized European control or under control of member states.