European Council Deals Blow to Single Resolution Mechanism

 

The Single Resolution Mechanism (SRM) proposed by the EU Commission in July has suffered a fresh blow (see this blog for SRM background).  On 7 October 2013, an opinion from the European’s legal service sheds serious doubt on the legality of giving a new agency wide discretion to close troubled banks under EU treaties, potentially undermining a key element of the resolution proposal.

The 26-page document warns of the pitfalls involved in giving a body too many powers and in particular states that “The legal service considers that the powers which would be conferred by the proposal of the board…need to be further detailed in order to exclude that a wide margin of discretion is entrusted to the board”.  The legal opinion may cause the EU Commission to rethink the proposal, causing more delays.  The first stage of the proposal which involves the European Central Bank directly supervising 130 top euro zone lenders has already been delayed to the end of 2014.  The SRM which forms one of the building blocks of the EU Banking Union now needs backing of member states to become law.

This piece is cross-posted from Recovery and Resolution Plans with permission.