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EU finance chiefs spar over pace of pooling bank fund

January 28, 2014

European Union finance ministers sparred over the pace of pooling bank levies in a planned euro- area resolution fund as they seek to break a legislative deadlock on a new agency for handling failing lenders. Facing pressure from the European Central Bank to accelerate the creation of a common fund to cover the cost of saving of shuttering banks, ministers including Ireland's Michael Noonan said contributions to the pot could be merged in five years, possibly before it's full, instead of the decade foreseen in current plans. Germany's Wolfgang Schaeuble and others countered that money in the planned 55 billion ( $75 billion ) fund shouldn't be pooled faster than banks can pay it in. Austrian Finance Minister Michael Spindelegger supported this link, saying a shorter pooling period, supported by ECB President Mario Draghi , would be counter-productive. "The more you have to pay into a fund the less is available to lend to the economy," Spindelegger told reporters on Tuesday before a meeting of EU finance ministers. "To do it in five years would probably overwhelm the banks." EU countries are trying to reach an agreement with the European Parliament on the proposed Single Resolution Mechanism before the assembly adjourns for May elections. The bill, which needs support from parliament and member states, would create a euro-area bank-failure agency, backed by a single fund, to accompany ECB bank oversight, which begins November 3 . "It's important that we send a signal to parliament today that we are willing to negotiate," said Dutch Finance Minister Jeroen Dijsselbloem , who leads the euro-area finance ministers' group. He cautioned on Monday that "you can't get 55 billion on the table at once," and endorsed plans to pool national contributions gradually. Resolution has taken on new importance now that the ECB is examining bank balance sheets as it prepares for its supervisory role. Current plans for the Single Resolution Fund call for keeping bank contributions in national compartments while the fund ramps up, with a gradual transition to allow cross-border access. Ministers are sidestepping the core issue of joint resources when they raise concerns about the pace of bank fees, said Sharon Bowles , chairwoman of the parliament's Economic and Monetary Affairs Committee . Half a fund would be better than none, she said. "How fast the fund is mutualized and how fast it is filled are different things; full mutualization at five years even if the fund is half-full is possible," Bowles said. "There is no need to use the excuse of banks not being able to pay faster, alongside building capital, as an excuse." Schaeuble indicated on Monday that he'd tie any acceleration to the pace of lenders' contributions. "The question is what kind of levy can the banks pay in what time frame," Schaeuble said. "If there's a readiness to say it should go faster, then the banks will have to pay more in a shorter period of time. I don't think it will be easy to reach an agreement on this." ECB Executive Board member Benoit Coeure said last week that the 10-year transition period is "too long and should be shortened, possibly to five years." A day later, ECB President Mario Draghi underscored this assessment. Noonan said he supported the ECB's call for the fund's resources to be merged into a single pot more quickly. He suggested Germany could soften its opposition in response to Draghi's concerns. "Obviously President Draghi has started a new debate," Noonan said.

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Source: Khaleej Times (United Arab Emirates)

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