Banking Union approved in final Strasbourg session

European Parliament debates and votes on key legislative work for the completion of Banking Union

By Dods EU Political Intelligence

Leading provider of EU parliamentary and political intelligence, delivered by an expert team of specialist researchers

15 Apr 2014

Please note that this does not constitute a formal record of the proceedings of the meeting. It is dependent on interpretation and acts as an unofficial summary of the debate.

On April 15 2013, the European Parliament held a joint debate on the Framework for the recovery and resolution of credit institutions and investment firms and on deposit guarantee schemes. Following the debate, the Parliament voted on both reports, which were the result of a compromise deal with the Council in trilogues. MEPs approved the compromise on deposit guarantee schemes without a vote, while the compromise on the Framework for the recovery and resolution of credit institutions and investment firms was adopted with 584 votes in favour and 80 against.

Gunnar Hokmark (EPP, SE) began by saying that this concerned the banking recovery and resolution directive (BRRD). A political agreement was found on December 11 2014. This legislation stipulates what should happen when a bank needs to be resolved and how to protect tax payers. The bail-in proposal is established as the framework for how home and host authorities should deal with each other. Bail-in will be the main way to resolve the crisis. No-one should presume the involvement of tax payers, but this should not be precluded. BRRD also lays the foundation for the banking union and the SRM. The BRRD will apply to all member states and this is very important as it means that the single market is protected. This is essential for the future. The banking union cannot undermine the ability of the EU to act in a unified fashion. He then said that the vote on this and the other financial services texts will bring to a conclusion a large amount of legislation. Now it is important to sit back and study the impact of all of this. The legislation combined should lay the ground for a stable banking sector. The management of banks should now be controlled. If banks know that they will not be automatically saved, they will be forced to take responsibility. When all the legislation is examined together, the EU can see that it has achieved a lot. He stressed the need for a dynamic financial market. The litmus test of all of this will be whether the EU can start growing again.

Peter Simon (S&D, DE) noted that this file has taken 5 years to complete. A result has been found just in time as the tax payer has been taken out of the firing line. It was fundamental to ensure that tax payers are not forced to save the banks. There is now supervision and resolution in place. The deposit guarantee scheme (DGS) has faced a number of stumbling blocks, but it was positive to find a deal. The Parliament has achieved lot and much more than the Council initially wanted. A few years ago, the Council wanted the resolution fund and DGS to be around half of what has finally been agreed. Two years ago, it was believed to be impossible to have quick access to deposits in the event of a banking collapse. However, it was also necessary to ensure that the SDGS is used less than it would have been in the past. Risk must come with liability for the banks. He then said that this has to stand the test of practice and things will have to be improved as it develops. He then welcomed the courage of the Lithuanian Presidency that put the DGS back on the agenda.

Evangelos Venizelos, Greek Presidency of the EU, said that this all represents a major step forward towards banking union. The speedy completion of the banking union shows that the EU is able to exit the crisis and break the links between the banks and sovereign debt, which is the hallmark of the crisis. It is essential to ensure that there is liquidity in the market. These two texts provide a regulatory framework on which the banking union can be based. The DGS should help avoid instability as it will protect depositors. He then said that the directive on DGS should begin the shift to an EU DGS system, which is essential for the banking union. Speaking about the BRRD, he said that this text should ensure that the basic functions of a bank should be able to continue in a crisis. The costs of failure must be borne by the banks and their shareholders. He then said that the banking union supervision system will ensure a level playing field and equal levels of supervision. He then said that it has been a long protracted process to find a compromise on these texts, but the final agreements should be acceptable to both. The necessary guarantees have now been created for both tax payers and depositors.

Commissioner Barnier said that these texts build the regulatory and financial stability that the EU needs. The crisis is ongoing and has destroyed growth and caused social, economic and political problems. The Commission has put forward around 40 proposals to deal with the crisis. One of the central texts was the BRRD and the strengthening of the single rulebook. These two texts are important for the whole single market and the creation of a single rulebook to manage crises throughout the EU. It should no-longer be necessary for tax payers to bail out the banks. The financial crisis became a sovereign debt crisis in 2010 and this was especially serious in the Eurozone, thus necessitating the SSM and banking union. He welcomed the role of the European Parliament that has pushed forward these reforms beginning with the own initiative report in 2010 calling for a single framework to deal with crises. This has now become a reality. The ECB has also worked very hard to ensure that the SSM can be delivered on time and has gotten involved in stress tests. The SRM has perhaps been more complicated than the supervision questions. A great deal of pragmatism has been required to ensure that a deal could be found. He then said that all of this should make European banks more robust and thus ensure greater confidence in the financial system. Bank resolution will be funded by bail-ins and resolution funds, which will be funded by the banks for the banks. He argued that if this system had been in place, the tax payer would have had to bail-out far fewer banks during the crisis and the sovereign debt crisis would also be far lighter. The EU is also seeking to introduce preventive powers to foresee crises. A prepared response to a crisis is always cheaper than an improvised response. He then said that the rules will be effectively applied to all banks in the banking union. The centralised resolution system is complex, but it will be based on credible financing. He also argued that the coherence of the single market has been preserved with these two texts. He then stressed that now the important element is the return of growth and competitiveness in the EU.

Burkhard Balz (EPP, DE) said that the banking union is the project of this Parliament. As regards to DGS, he said that he is relieved that a compromise has finally been found. Two years ago, the Parliament set out its stall in first reading, but negotiations then stalled for one and a half years. Depositors are now protected to €100 000 with no strings attached. As regards to BRRD, the EU has shown its ability to act in a difficult situation. The system should help prevent future crises.

Elisa Ferreira (S&D, PT) said that the Parliament is due to adopt three blocks in managing financial crises. The refunding of the banks has cost 26 percent of EU GDP. Things could have been done differently. In 2010, the Parliament called on the Commission to bring forward these texts. The banks are the lifeblood of the EU economy and as such, EU rules were required to deal with bank crises. Bail-in rules were fundamental as is the resolution fund. The DSG should also help consumer confidence. For the Eurozone, the banking union will establish the SSM and SRM. The ECB will be able to declare that a bank is no longer viable and the mutualised part of the resolution fund will be mutualised far faster than the Council wanted. She then stressed the need to keep a close eye on implementation. The IGA should be ratified before January 2016 and a credit line for the SRM should be available from the start. She then called for a single system of DGS, which is the third pillar of the banking union.

Wolf Klinz (ALDE, DE) said that the financial sector argues that it has been drowned in a tsunami of legislation, but the EU has done what needed to be done. As regards to SSM, he said that this should contribute to the avoidance of regulation shopping. The AQR should stand the ECB in good stead. The banking sector needs to be consolidated without political influence. The application of bail-in should help in this respect. The link between risk and responsibility has been re-established in the SRM.

Philippe Lamberts (Greens/EFA, BE) noted that “never again” is often the phrase, but it is only with these texts that this ambition should become a reality in the protection of tax payers. Tax payers should no-longer have to bail-out the banks. However, the member states and Commissioner Rehn have blocked a preventative recapitalisation clause from being put into the text. This will allow the member states to intervene and recapitalise the banks prior to resolution. He then warned that banks cannot be transnational when they are alive and national when they get into difficulty. He then warned that the text on too big to fail was published far too late.  

Vicky Ford (ECR, UK) said that the BRRD should allow for the orderly wind-down of the banks with the protection of tax payers. The DGS is a good way forward. Banks and not tax payers should be forced to pay the bill. She welcomed the fact that the legislation does not prescribe how the DGS should be achieved as different states have opted for different models. As regards to the banking union, she welcomed the creation of a firewall between those inside and those outside.

Marisa Matias (GUE/NGL, PT) noted that 26 percent of EU GDP was required to bail out the banks. The EU has not even started the implementation of legislation. A real framework for regulation of the financial sector must be introduced. The ECB has been made into a super bank, but it is a non-democratic institution. The resolution fund will only be in place in 8 years, but a lot can happen in 8 years and people may no-longer support it then.

Corien Wortmann-Kool (EPP, NL) said that the agreement on the banking union provides a cornerstone meaning that EU banks can be handled at the EU level, which is fundamental for confidence. Bail-in will make shareholders more responsible in their analysis of risks.

Antolin Sanchez Presedo (S&D, ES) welcomed the protection of both depositors and tax payers. The fragmentation of credit should be resolved by the banking union. He then welcomed the SRM, which will accelerate progress towards a common fund. He stressed the need to continue work of a structural reform of the system and on taxation.

Olle Schmidt (ALDE, SE) said that the banking union is the most important vote of this Parliament. Currency union has been an important factor since the beginning of the crisis as it has always overcome the lack of faith in the system. Europe is overcoming the crisis and the EU has shown its strength in difficult times. He then called for Sweden to join the banking union, as its influence will be weakened in the EU.

Sven Giegold (Greens/EFA, DE) said that the banking union represents a huge step forward and should create financial responsibility. He then called for the completion of the FTT and the problem of too big to fail. The Commission proposal on this should be debated and implemented. As regards to the inter-governmental agreement, he said that this is a breach of the EU’s rules by the Council. He said that the ECOFIN is trying to undermine the progress made. The Commission must ensure the full application of the agreement.

Ivo Strejcek (ECR, CZ) said that the banks should be punished for their over-reliance on lending money to governments as opposed to businesses. The banking union should separate government debt from the banks, but it will not force the member states to behave rationally.

Nikolaos Chountis (GUE/NGL, EL) said that Greece has been sacrificed on the altar of banking profit. The banking union will only strengthen zombie banks.

Roger Helmer (EFD, UK) said that without a joint DGS for the Eurozone, there is no real banking union. The underling cancer is the euro and this has not been resolved. The euro should be dismantled.

Jean-Paul Gauzes (EPP, FR) said that these were brave proposals and the work done on them shows the political will to achieve more effectiveness in economic actions. Faith must be restored in the banking system and these texts should help in this respect.

Pervenche Beres (S&D, FR) said that these are essential dossiers. Shareholders and bondholders will now be forced to take the losses of financial institutions. Concerning the DGS, she said that this should mean that deposits are insured. As regards to the SRM file, she said that the Parliament has fought very hard on this text for a European dimension and this should break the link between sovereigns and the banks, meaning that investment can be started again.

Jurgen Klute (GUE/NGL, DE) stressed the need to resolve the "too big to fail" question, which will have to be dealt with by the next Parliament.

Markus Ferber (EPP, DE) said that tax payers will be protected in the event of a future financial crisis. He then spoke about the MiFID report, saying that the solution should ensure that a model is created for the future that could be copied by other parts of the world.

Leonardo Dominici (S&D, IT) criticised the fact that the implementation times for BRRD and DGS are too slow. In this respect, he also criticised the delay in the too big to fail legislation.

Anni Podimata (S&D, EL) said that the banking union should help resolve the problem of fragmentation in the EU. Healthy banks lay the ground for lending to the real economy. She then called for the common DGS not to be forgotten as this is the third pillar of banking union. The next Commission must maintain its work.

Marianne Thyssen (EPP, BE) welcomed the ambitious but feasible plan. The banks should now be resolved in the space of a weekend without tax payer involvement. The banks should now be able to play their real role which is supporting the real economy.

Othmar Karas (EPP, AT) said that the EU has kept its word. The banking union is an insurance for EU tax payers. The EU’s banks should be more stable and crisis resistant. The creation of a proper DGS should protect depositors and there should be no more tax payer money used to save weak banks. He then asked about the rules on banker’s bonuses and the delegated act put forward on this subject. The legislators created clear rules and the ESAs and the Commission should do everything in their power to implement their rules. There should be ex ante notification to the competent authorities saying that a person is not a risk taker in the bank. There must not be loopholes in the rules and he called for a clear statement from the Commissioner that he will work to ensure that this is the case.

Diogo Feio (EPP, PT) said that these texts send a clear signal that banking union will protect tax payers and reduce the interest to be paid on loans in many member states. He then called for a single DGS to be introduced to protect depositors.

Werner Langen (EPP, DE) said that the banking union will not be a panacea. He called for a European system, but warned that those member states with high savings rates should not be forced to bail-out more irresponsible member states.

Commissioner Barnier said that the EU has come a long way and the unity of the internal market has been preserved. The City of London is an asset for everyone. He also regretted the fact that it took a long time to put the banking union in place, but the question of supervision had to be dealt with first. The stability of the Eurozone is the stability of the EU as a whole and the banking union is thus a fundamental point. Joint provisions to prevent tax payers from having to bail-out the banks lie at the basis of BRRD. Responsibility must be borne by those who take the risks. The Commission has sought to shed light on those who have avoided it in the past. He then stressed the need for an ethical approach. Concerning the question of banker’s remuneration, he said that there are risk takers to whom the CRD IV rules will apply to. He supports the concern that authorities should be informed ex ante about the application of the rules and he will send a letter to re-enforce this point.

The world of finance must not believe that it is a law to itself. It must serve the real economy as opposed to its own invested interests. He has sought to protect citizens with numerous texts including DGS, PRIPS, access to a basic bank account, the mortgages directive, investor compensation and payment services. These also help citizens. Other texts included that on derivatives, which is estimated to represent €600 billion, and was previously lacking transparency, as well as market abuse. He welcomed the work of the Parliament on all these texts and others. Much remains to be done and the Parliament will have to keep up its work on other texts including financial reporting, structural reforms for the banks and benchmarks. He accepted that the too big to fail proposal was late in the day, but other things had to be resolved first. The 30 biggest European banks pose a systemic risk and thus require structural change. He thus called for the texts to be implemented properly to ensure a level playing field. The EU pushed the regulatory agenda at the G20 and must now see with its international partners that work is also done in other jurisdictions. The Commission has proposed 41 texts and this shows that there was a serious amount of deregulation that was the contributing factor to the crisis. He warned that now is not the time for complacency. The EU must now work to re-launch growth and competitiveness.

Evangelos Venizelos, Greek Presidency of the EU, said that the decisions to be taken today are of historic importance as the link between the financial crisis and the sovereign crisis will be broken. He then warned that a SSM and a SRM are not enough on their own as a common DGS is also required for the banking union. The biggest imbalance in the EU at the moment is in interest rates as this impacts the levels of growth in the member states. Some SMEs are forced to pay up to 6 percent more in interest rates in Greece than in Germany and this strains the internal market. The banking union should help to resolve this problem. The flight of capital between member states would be resolved by a common DGS. He noted that there remains a major question mark and this is the European elections. The people of Europe need the banking union, if growth and competitiveness are to return to the EU. The banking union is a question for the real economy. The short-termism of the financial sector should be resolved by these texts and this is essential for future EU growth. There are systemically important banks in the EU and the AQR and stress tests should help separate the bank and sovereign debt. The banking system needs to be sound with a healthy portfolio. The lessons of the crisis must be learnt to create a virtuous cycle. This has to be explained to EU citizens.

Gunnar Hokmark (EPP, SE) said that the EU has tried to find the right balance between public finances and the real economy. Now it is essential to ensure that stability can contribute to jobs and investment. The bail-in system should ensure more stability in the next crisis. He then stressed the need for the legislation to be credible to ensure that there can be investment and growth. Investment in banks should mean the same risks as investment in any other business. The measure must now be properly implemented.

Peter Simon (S&D, DE) said that it is important to send a signal that something has been achieved. He noted the critical voices, but stressed that the EU has succeeded in finding a solution. Tax payers will be protected in any future banking crisis, which should be more manageable in the future. He noted that the next Parliament will still have a lot to do. Now is not the time to rest on our laurels. The EU has gained strength in the crisis and the final stone in the project has now been laid. However, the fight must go on.

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