Courtesy of Mish.
On December 12 the Financial Times reported EU reaches landmark deal on failed banks with a “common rule book for handling failed banks”.
Gunnar Hökmark, the lead negotiator for the parliamentary side, said: “We now have a strong bail-in system which sends a clear message that bank shareholders and creditors will be the ones to bear the losses on rainy days, not taxpayers. At the same time we also established clear rules to deal with the most exceptional cases in which overall financial stability is in danger.”
The next day, a friend commented the banking union agreement proved me wrong. I replied “wait for the details”.
Laughable Details Now Pouring In
Let’s start with a look at Eurozone Red Tape in the Financial Times just three short days later.
Fears are growing that the eurozone’s proposed new banking regime will be too bureaucratic for the task of handling a sudden collapse of a cross-border institution.
The latest proposals could see up to 126 people being consulted on how to wind up a bank, even though agreement might need to be reached over the course of a weekend while financial markets are closed. Some senior officials are warning the proposals are too cumbersome.
A Financial Times analysis of the full banking union resolution process for a lender operating in three countries reveals the labyrinthine procedure that would still be required to wind up a bank. In a worst case scenario, where key officials disagree, this could involve nine panels and up to 143 votes being cast, from its supervisor raising a warning flag to the final wind-up decision.
Germany Backtracks on Banking Union
MarketWatch reports Germany appears to backtrack on EU banking deal
EU finance ministers have promised to agree on a so-called single-resolution mechanism–consisting of more centralized decision-making and financing for the shuttering or downsizing of failing banks–before the end of the year. But a letter sent by Wolfgang Schäuble to some of his counterparts sets clear limits on how far Europe’s biggest economy is willing to go.
Mr. Schäuble’s letter, dated Dec. 12 and seen by The Wall Street Journal, was described by German officials as reiterating Berlin’s concerns expressed in recent talks.
At the heart of the disagreement is what to do when so-called bank resolution funds, financed by the banking sector, run out of money.
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