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 The proposal, prepared by Lithuania which holds the rotating
presidency of the European Union, will be discussed at an
extraordinary meeting of senior EU officials in Brussels on Monday.
Separately, several European finance ministers and senior EU
officials will meet again in Berlin on Monday to try to make further
headway on a compromise for rules to wind down stricken banks,
senior euro zone sources told Reuters on Sunday.
The meeting will, in essence, include the same group of finance
ministers and senior officials who met in Berlin on Dec. 6, the
sources said.
After a financial storm that toppled banks and dragged down states
from Ireland to Spain, countries are considering a fresh blueprint
outlining what to do when a bank fails, a critical second pillar of
a wider reform dubbed "banking union".
Sealing a deal ahead of an EU summit in Brussels December 19-20 will
allow Germany's Chancellor Angela Merkel and her peers to trumpet an
important overhaul of banking, although their readiness to share the
costs of failed lenders, a central tenet of banking union, may fall
short of what had been hoped.
Under the proposal, the costs of closing down a bank in the first
year of operation would be fully covered by a fund set up by the
home country where the bank resides.
Such funds would be set up in every euro zone country and each would
be filled from fees paid in by banks in the respective countries,
amounting each year to 0.1 percent of all covered deposits they
hold.
Such funds would reach their full size of 1 percent of all covered
deposits after 10 years, but in the first year each would have only
0.1 percent of all covered deposits in a euro zone country, then 0.2
percent in the second, and so on.
If the accumulated money from bank fees in a home country in the
first year is insufficient to finance the closure of a bank, other
funds in euro zone countries would be expected to contribute up to
10 percent of their accumulated money to help.
In the second year, the home fund would only be obliged to use up 90
percent of its accumulated funds to finance the cost of closing down
a bank before it could call on its euro zone partners, who would be
required to chip in with up to 20 percent of what they hold to help.
The obligation for the home country before it could call on partners
would decrease by 10 percent each year and the potential obligation
for other euro zone countries would rise by 10 percent.
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In this way, by the tenth year, the home country fund would only
have to contribute 10 percent of their funds before calling on its
euro zone partners who, like the home country, would be obliged to
contribute whatever was required — up to 100 pct of their total
funds — to pay for the bank closure.
If the cost of closing down a bank in any of the 10 transition
years turns out to be bigger than the combined home country
contribution and the proportionate percentage help of other funds,
the home country fund could impose an additional levy on its own
banking sector.
If that were still insufficient, the government of the country in
which the bank is located could provide bridge financing, to be
repaid from bank fees later, or if it does not have the cash, it
could ask for a program from the euro zone bailout fund ESM, like
Spain did in 2012.
All the national funds for closing down banks would be merged into
one Single Resolution Fund for the euro zone after 10 years and from
that moment the Single Resolution Fund would finance all bank
closures, fully mutualising risk.
Setting up the Single Resolution Fund and the complex risk and cost
sharing arrangement over the 10 transition years is to be enshrined
in an intergovernmental treaty, which is to be negotiated by euro
zone countries by March 1, 2014, the Lithuanian proposal said.
The use of Single Resolution Fund would be decided by the Board of
the Single Resolution Authority, made of up representatives of euro
zone countries and institutions.
The Board would vote by qualified majority, rather than unanimity,
the Lithuanian proposal said.
(Editing by Sonya Hepinstall)
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