Is this really 'banking union'?

 
Two euro coin

It was a banking crisis, in late 2011, that almost destroyed the eurozone - and would have done, if the European Central Bank hadn't weighed in with unprecedentedly cheap loans to struggling banks and a pledge to do "whatever it takes" to keep the monetary-union show on the road.

But the ECB's succour represented short-term emergency treatment, not the kind of long-term reforms that would succeed in breaking the vicious connection between bloated weak banks and individual sovereign states lacking the resources to bail out those weak banks.

Which is why the stakes were so high for the so-called "banking union" being created to accompany "monetary union" and - in particular - the creation of what is known as a "Single Resolution Mechanism", intended to minimise the collateral damage from bank failures.

A successful resolution system has to achieve two things when a bank gets into difficulties, if the damage to all our wealth is to be minimised - there needs to be speedy action to maintain the really essential functions of the bank, and the financial costs of propping up the good bits of the bank and quarantining the bad need to fall as little as possible on taxpayers.

So after all the fraught negotiation to create the Single Resolution Mechanism, will it meet those two criteria - or is it a traditional eurozone plate of fudge and mudge, a breakfast concoction fit primarily for canine consumption.

I will leave you to be the judge of that.

But it is striking that finance ministers have not wholly delegated the decision-making on whether to close or take over an ailing bank to a new resolution board they are creating. They have reserved powers to determine the fate of struggling banks for themselves - which does not augur well for the most speedy action in a crisis.

Equally, for at least 10 years - and possibly forever - it is individual member states that will remain the ultimate underwriters of the costs when one of their banks fail, rather than eurozone members collectively.

So very little has been achieved to reassure the creditors of Spain and Italy, for example, that the resources have been created to rehabilitate their over-stretched banking systems without putting an excessive burden on their respective public finances.

That said, steps have been taken to reduce the burden on the taxpayers of member states - by forcing losses, via a new Bank Resolution and Recovery Directive, on banks' most well-heeled creditors (holders of bank bonds and those with deposits that exceed 100,000 euros).

And there will be a new pan-eurozone resolution fund, created by a levy on individual eurozone banks.

But here is what made me chuckle. After 10 years, by 2026, that fund will contain in its coffers 55bn euros.

Does that sound like a lot of money to you? Well it's a pimple in the context of the monumentally huge balance sheets of eurozone banks.

Here is one way of seeing how little it is.

It is considerably less than the British government spent on propping up one bank, Royal Bank of Scotland.

And it is exactly the same, $75bn, as the US Federal Reserve is still spending every single month on bond purchases, even after last night's historic announcement of tapering, the decision by the Fed to reduce the scale of those bond purchases by $10bn per month.

Or to put it another way, Germany's insistence that nothing should be agreed that could prevent any future German government insulating German taxpayers from the costs of rescuing feckless banks in other parts of the eurozone have resulted in a resolution system whose credibility is - well - questionable.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +3

    Comment number 360.

    re 359---I fully agree.
    Just look at # 358 which is about car insurance and 357 which is about USA ,USA,USA (when this is an article about the Eurozone complexities) are the most recent examples of how a good report from Mr Peston just gets flushed away by mindless postings from the likes of Sally and her ilk.

  • rate this
    +6

    Comment number 359.

    This good article about ECB saving Euro in short term and hopes for a long-term reserve fund for ailing economies started off a decent debate.BTW, the new "reserve" is far too small and ECB will remain crucial.
    But I highlight this Blog as an example of how good articles and decent debate degenerate as soon as Sally,as well as the usual American contingent, arrive on the Blog.Downward spiral.Sad!

  • rate this
    0

    Comment number 358.

    Car insurance works because no one in their right mind wants to be in a car wreck. Insuring financials is different. The directors trouser their salaries, bonuses and share options and if it goes pear shaped then the well run banks and the tax payers, not they, pick up the tab. This kind of scheme results in the bad driving out the good and encourages recklessness. Happy Christmas.

  • rate this
    -1

    Comment number 357.

    353.Ff

    So the US actions around the world, being all about military might, are undemocratic? Ditto, the legalised theft of taxpayer money by the banks (because they're such clever wealth creators)? Democracy offers no such guarantee (sadly).


    354.DA

    Thanks. That explains why British politicians don't like Europe. Banks pay better!

  • rate this
    +1

    Comment number 356.

    What you're not telling people is that the EU has already decided how it is going to rescue busted EU banks. By use of the "template." i.e bail-ins. Anything else is political theatre, attempting to portray how yet another EU fiendishly complicated sounding scheme, (a Bank Resolution & Banking Directive,) is in place, to induce docility in the people. They don't want the people asking questions.

  • rate this
    0

    Comment number 355.

    Alan 360
    Are you really saying that some people can only survive if they have to borrow money.
    Or some people can only survive if the lend money?

  • rate this
    +2

    Comment number 354.

    The EU is dead, everyone is in it for what they can get out of it, including Brussels. a) Germany wants the Euro, but won't fund it
    b) the PIIGS want the Euro because, up to now, they could borrow as though they were Germany c) Brussels, & loads of 2nd rate Politicians want it because they get great salaries & pensions even if rejected by their electorates, only the people don't want it.

  • rate this
    0

    Comment number 353.

    320.Alan
    alan at 340 explined it well.
    Democracy means that I don't use my superior physical abilities to take money from your wallet and in return you don't use your superior intellectual abilities to con me out of money - or vice versa.

  • rate this
    +1

    Comment number 352.

    340.alan

    No, most responsibility lies with the borrower. Borrowing money then blaming the bank for lending it to you is just weak and childish. People need to take ownership of their own actions.

  • rate this
    +1

    Comment number 351.

    C'mon BBC lets have a HYS on that scrote Snowden and the lilly livered treasonists at the Grauniad.

  • rate this
    0

    Comment number 350.

    johncampbell@349
    It depends on what is meant by "had no need."
    If every individual, business and State "had no need" to borrow because they all had loads of dosh then things might proceed as normal.
    But of course that's totally unrealistic.
    Money or capital is a factor of production and scarce.
    Without the availability of loan capital there would be economic meltdown and starvation.
    Alan

  • rate this
    0

    Comment number 349.

    Has anyone ever wondered what would happen if everyone on the Planet,had no need to borrow money from anyone?
    Would the Money Lenders survive?

  • rate this
    0

    Comment number 348.

    A good name for this lot would be " The parasite and fraudsters club"

  • rate this
    0

    Comment number 347.

    339.fTP

    "Sweden is only country that has ever imposed a unilateral Tobin tax; the experiment was an unmitigated disaster."

    So I went away and came back with this:

    http://www.abbl.lu/sites/abbl.lu/files/111111%20FTT%20Swedish%20Case.pdf

    Conclusion: "The Swedish FTT case is good for information, but a weak basis for claiming that the proposed EU FTT could never work."

  • rate this
    +1

    Comment number 346.

    245.LOM

    "...they remove [posts] that both break the house rules AND have been reported as such by A N Other"

    Considering "off-topic" breaks the rules, have you considered how easy that makes censure?

    In complaint once, the mods suggested I do the same to whoever I suspected was responsible. See a problem here?

    Is your post on-topic?

    Let people have thier say. Ignore them if you like

  • Comment number 345.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +4

    Comment number 344.

    Banks rule the world.

    Until usury is made a crime again, people will forever suffer their tyranny.

  • Comment number 343.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    0

    Comment number 342.

    Alan @320
    'explain
    banks any more guilty lending
    than idiots who BORROWED?"

    1. Borrowed expecting continued boom, ignorant of sub-prime offload by 'sharp incentivised'

    2. Money 'given' or promised for rescue / bailout, in expectation of continued macroeconomic sense, caught out by 'some kind of' stunt

    3. To cap it all, ignorance of depths, trashing of confidence, EU & UK, by 2010 electioneering

  • rate this
    0

    Comment number 341.

    339.fTP

    I'd be interested to see details of that. Sweden is not considered a basket case in many circles.

    Do you think that's a realistic figure? I don't. Politicians talking economics - pffftt! I think it will have the other - the intended - effect, of reducing unproductive high-volume trade.

    ...And your assertion that this will hurt pensions - I was after a justification. No more.

 

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