On Monday, May 20, the European Parliament Committee on Economic and Monetary Affairs (ECON), chaired by Sharon Bowles (U.K.), adopted EU Commission's fascist bail-in scheme for banking resolution; the vote was 39-6 with 0 abstentions. The bill goes now to the plenary session for a final vote.
In a press release announcing the vote, ECON says that "Under the draft rules, a struggling bank's own assets and liabilities would be the first used to resolve a crisis or wind it down (the 'bailing-in' system). The recent Cyprus case clearly demonstrated the need for clear procedures to ensure that shareholders, bondholders, and only then depositors, foot the bill. The approved position broadly retains the Commission's proposed order of bank creditors to take a hit. However, it also inserts clauses stipulating that insured deposits of below EU100,000 can never be used, and that uninsured ones, i.e., those above EU100,000, may only be used as a last resort.
The only positive point is the fact that the MEPs opposed a proposal suggested by the EU Commission and already part of French Finance Minister Pierre Moscovici's draft banking reform in France, namely "the diversion of funds from deposit guarantee schemes to help pay for bank resolution measures." In France, the deposit guarantee fund only has EU2 billion, while the deposits of French citizens are close to EU1.8 trillion.
The "bail-in" scheme should be up and running by January 2016 at the latest, says the text, i.e., two years earlier than the EU Commission proposed, but one year later than the directive's other provisions, so as to allow some time for adaptation.
According to the press release, "The approved text details how and when taxpayers' money could be called upon. The rules stipulate that this would be a last resort measure, to be taken only after all capital has been written down to zero and taxpayer intervention is necessary either to prevent "significant adverse effects on financial stability" or "to protect the public interest where the bank would have previously received extraordinary liquidity assistance from the central bank." As is demonstrated in the priority given to "financial stability" and the impossible mass of derivatives and other contracts whose "systemic importance" places them at the front of the bail-in line, such reassurances to insured depositors should not be taken seriously.
The bill can still be changed in the plenary session, but an amendment needs to be sponsored by a faction or by 40 MEPs. However, EIR is already finding MEPs willing to do so, as they react to EIR's exposé of the involvement of the International Swaps and Derivatives Association (ISDA) in formulating the proposals.
The Council of the European Union, comprising the heads of state and government of the 27 EU member states, must now adopt its position, after which MEPs and the Council Presidency will begin negotiations to hammer out a deal. Meanwhile, the Commission is expected to table a further proposal supplementing this system with an EU recovery and resolution authority and fund.
Two days later, on May 22, draft laws setting up a single EU bank supervisory system were voted on, short of a final approval in a plenary session vote. If the vote goes through, the global supervisor will be the ECB of Troika infamy, in charge of direct supervision of the Eurozone's largest banks. The ECB's supervisory arm, the European Banking Authority (EBA), will be tasked with developing convergence of practices among national supervisors.
However, the last step, a vote on the so-called "Legislative Resolution", was not taken, because the German government wants first to have it passed by the Bundestag. The Banking Union is therefore not yet an Act of the European Parliament, and therefore in this case, as well, the text can still be changed.
