Exclusive: EU lawyers warn of limits in building banking union

Tue Oct 8, 2013 9:05am EDT
 
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By Huw Jones and John O'Donnell

LONDON/ BRUSSELS (Reuters) - Parts of Europe's proposals for a banking union may fall foul of European Union law, lawyers have said in a fresh setback to plans aimed at strengthening the financial system after the debt crisis.

The opinion from the European Council's legal service is a blow to efforts to break the link between indebted European countries and their banks via the creation of a banking union that would jointly deal with stressed lenders.

Setting up such a system raises an array of political and legal complications, including who should decide when an ailing bank must be closed and who pays the bill, an issue of particular concern to Germany, the euro zone's largest economy.

In their second piece of legal advice to member states, dated October 7 and seen by Reuters, the lawyers warn of the pitfalls of giving a new agency or board too many powers to close or salvage troubled banks.

In particular, the 26-page legal opinion underlines the need to limit the "margin of discretion" and extent of any powers given to a body that will decide about the closure or 'resolution' of a bank in a euro zone member state.

The opinion lends support to the idea of giving responsibility to the European Commission or another EU institution rather than an external agency, since otherwise the arrangement could not be compatible with the EU's treaty or basic law.

That view is likely to rankle with Germany and others who are worried about the Commission being granted too much authority. The proposal to give the Commission and a related board the power to close banks was made by the Commission and now needs backing of member states to become law.

"The Legal Service considers that the powers ... need to be further detailed in order to exclude that a wide margin of discretion is entrusted to the board," officials write in the document.   Continued...

 
The Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt April 4, 2013. REUTERS/Lisi Niesner