Charlie,
Interesting this isn't being talked about in our North
American news...
Surprising Cotton didn't catch this one!
Cheers! Christmas Presents for all!
"European media reaction
"An important transfer of sovereignty and a decisive
element in the integration of the eurozone." Beda
Romano, Il Sole 24 Ore, Italy
"Excellent news for the euro. It really was high time to
take power away from national supervisory authorities
because they were under the influence of politicians."
Ruth Berschens, Handelsblatt, Germany
"By agreeing to this major pooling of sovereignty... the
Europeans demonstrate that they are ready to stick
together to support bailouts of bankrupt banks."
Renaud Honore, Les Echos, France
"Perhaps those who most understand the underlying
ambition are the British, sensing danger for the City,
and for that reason they are threatening to escape."
Xavier Vidal, El Pais, Spain"
From BBC News:
"What is the "banking union"?
It consists of three parts:
A common banking supervisor (or "single supervisory
mechanism"): This job goes to the European Central
Bank, which will be given the power to monitor the
health of and the risks taken by all the major banks
within the eurozone, and intervene if any gets into
trouble.
A common resolution framework: If a bank anywhere
in the eurozone gets into trouble, the process of
bailing it out - or, in a worst case, letting it go bust -
would be managed by a common "resolution
authority", with the cost borne by the eurozone
governments collectively.
A common deposit guarantee: Anyone who puts
money in an ordinary bank account anywhere in the
eurozone would have their money (up to a limit,
expected to be 100,000 euros) guaranteed by a
common eurozone fund.
Only the details of the common banking supervisor
has been agreed at the summit.
What powers will the supervisor have?
According to the proposal, the eurozone central bank
will "have direct oversight of eurozone banks, although
in a differentiated way and in close cooperation with
national supervisory authorities".
The ECB, in its new role as supervisor, will monitor the
health of banks within the eurozone (but not the UK),
and be able to intervene when a bank is in trouble.
Countries such as the UK and Sweden, outside the euro
area, can enter into "close co-operation arrangements"
with the ECB if they choose to.
In contrast to the European Banking Authority, which
sets the rules under which all banks in the EU
(including the UK) must work within, the ECB would be
able to impose its will on the national banking
regulators.
A compromise agreement was reached giving the ECB
direct oversight of banks with assets greater than
30bn euros ($39bn; £24bn).
There was some debate about whether the ECB should
be directly responsible for all 6,000 eurozone banks or
just for the biggest banks.
The European Commission wants the ECB to be
responsible for all the banks, arguing that during the
financial crisis, even relatively small banks such as
Dexia and Northern Rock got into trouble and
threatened the entire financial system.
The German government wants the ECB to have a more
limited role. German Finance Minister Wolfgang
Schaeuble does not want the ECB to have powers over
his country's savings banks (Sparkassen) or the
regional Landesbanken, which play an important role
in public policymaking in Germany.
The German Chancellor, Angela Merkel, is also
concerned not to overburden the ECB with too many
responsibilities too quickly. The ECB may, for example,
delegate a lot of the day-to-day supervision work to
the national bank regulators.
Another concern for Germany is that the ECB's new
supervisory powers should be strictly separate from its
existing monetary policy powers - so that, for
example, the ECB won't be tempted in future to set
interest rates too low in order to help out banks that
are in trouble.
Under the compromise, the ECB will oversee banks
representing more than a fifth of a state's GDP.
How will the "common resolution framework" work?
Spanish investors were not happy when they were told
they must bear some of their banks' losses
If a eurozone bank got into trouble, the process of
rescuing it - or, in the worst case, putting it though a
kind of bankruptcy procedure - would be carried out
by a pan-European "resolution authority" - potentially
the ECB, or an agency reporting to it.
As part of any rescue, the eurozone governments
would require the bank's existing shareholders and
lenders to take a lot of the losses - as was the case
with Spain's recent bank bailout.
All eurozone banks would also be required to
contribute annually to a common fund that could be
used to absorb the cost of a bailout - and therefore
reduce the cost to taxpayers.
To the extent that taxpayer money is also needed to
absorb losses, or has to be put at risk by buying new
shares in a troubled bank in order to provide it with
more capital, then this would be provided by the
eurozone governments collectively, irrespective of
which country the bank is based in.
This taxpayer money is expected to be provided by the
eurozone's recently inaugurated permanent bailout
fund - the European Stability Mechanism.
What is bank capital?
When banks make losses on their loans and
investments (their "assets"), it means that they have
less money to repay their investors.
These "investors" include ordinary people who have
put their savings in a deposit account at the bank,
other financial institutions who have lent the bank
money, and the bank's shareholders.
The bank's capital is the value of its shareholders'
investments, based on the bank's financial accounts.
It is calculated by taking the value of all the bank's
assets, and subtracting from it the value of everything
the bank owes to its depositors and lenders.
The shareholders are the first in line to take losses on
their investments. Each time the bank makes a loss on
a loan it has made, the shareholders suffer an equal
loss on the value of the bank's capital.
If the losses are so big that they eat up all of the
bank's capital, the bank is insolvent - its assets are no
longer worth enough to repay all of the deposits and
loans that the bank owes.
For this reason, the bank's capital is a measure of how
much loss the bank can potentially absorb without
going bust.
How will the common deposit guarantee fund work?
Currently each eurozone country operates its own
national deposit guarantee scheme. During the crisis,
all EU countries agreed to raise the amount of each
deposit that they guarantee to 100,000 euros.
The summit discussion paper - put together by the
EU's various bigwigs - talks about a "harmonisation" of
these national schemes, which presumably involves
setting the same rules in each country for who gets
guaranteed how much and when, and what the banks
in each country must contribute to the scheme.
It is unclear if, and how much, these national schemes
will then be guaranteed by all of the eurozone's
governments collectively.
A maximalist version might create a single deposit
guarantee scheme with an blanket guarantee from the
eurozone. A minimalist version may retain the existing
national schemes, and give each one a limited
guarantee from the eurozone's bailout fund.
Whatever the case, the eurozone banks will also be
required to make big regular contributions to the
scheme (on top of their contributions to the common
resolution fund), in order to minimise the cost to
taxpayers.
When will all this happen?
The eurozone governments want to have the legal
framework for the common banking supervisor in
place by 1 January 2013.
The ECB will then have up to 12 months to put in place
its new supervisory department, and take over active
duties by 1 January 2014.
Some kind of common resolution arrangement should
also be in place by then, backed by the eurozone's
bailout fund.
In order to keep to this schedule, the legal framework
will need to be designed in a way that avoids the need
for a change to existing European treaties.
A treaty change would open a whole new can of worms
- it would need to be negotiated with all the EU
governments, including the awkward UK. And it would
then need to be ratified by all of the EU parliaments.
In the long run, however, a treaty change looks
unavoidable if the ECB is to be given adequate
authority, and if the resolution framework and deposit
guarantee scheme are to be given enough financial
backing to see off a future financial crisis.
However, it seems likely that Germany would delay this
until much greater integration has been achieved in
other areas - including economic policy and
government spending rules.
Germany's constitutional court has made clear that a
national referendum will be needed for any treaty
change that obligates Germany to cough up even more
money for the common European good than it has
already agreed to give the eurozone bailout fund."
Interesting this isn't being talked about in our North
American news...
Surprising Cotton didn't catch this one!
Cheers! Christmas Presents for all!
"European media reaction
"An important transfer of sovereignty and a decisive
element in the integration of the eurozone." Beda
Romano, Il Sole 24 Ore, Italy
"Excellent news for the euro. It really was high time to
take power away from national supervisory authorities
because they were under the influence of politicians."
Ruth Berschens, Handelsblatt, Germany
"By agreeing to this major pooling of sovereignty... the
Europeans demonstrate that they are ready to stick
together to support bailouts of bankrupt banks."
Renaud Honore, Les Echos, France
"Perhaps those who most understand the underlying
ambition are the British, sensing danger for the City,
and for that reason they are threatening to escape."
Xavier Vidal, El Pais, Spain"
From BBC News:
"What is the "banking union"?
It consists of three parts:
A common banking supervisor (or "single supervisory
mechanism"): This job goes to the European Central
Bank, which will be given the power to monitor the
health of and the risks taken by all the major banks
within the eurozone, and intervene if any gets into
trouble.
A common resolution framework: If a bank anywhere
in the eurozone gets into trouble, the process of
bailing it out - or, in a worst case, letting it go bust -
would be managed by a common "resolution
authority", with the cost borne by the eurozone
governments collectively.
A common deposit guarantee: Anyone who puts
money in an ordinary bank account anywhere in the
eurozone would have their money (up to a limit,
expected to be 100,000 euros) guaranteed by a
common eurozone fund.
Only the details of the common banking supervisor
has been agreed at the summit.
What powers will the supervisor have?
According to the proposal, the eurozone central bank
will "have direct oversight of eurozone banks, although
in a differentiated way and in close cooperation with
national supervisory authorities".
The ECB, in its new role as supervisor, will monitor the
health of banks within the eurozone (but not the UK),
and be able to intervene when a bank is in trouble.
Countries such as the UK and Sweden, outside the euro
area, can enter into "close co-operation arrangements"
with the ECB if they choose to.
In contrast to the European Banking Authority, which
sets the rules under which all banks in the EU
(including the UK) must work within, the ECB would be
able to impose its will on the national banking
regulators.
A compromise agreement was reached giving the ECB
direct oversight of banks with assets greater than
30bn euros ($39bn; £24bn).
There was some debate about whether the ECB should
be directly responsible for all 6,000 eurozone banks or
just for the biggest banks.
The European Commission wants the ECB to be
responsible for all the banks, arguing that during the
financial crisis, even relatively small banks such as
Dexia and Northern Rock got into trouble and
threatened the entire financial system.
The German government wants the ECB to have a more
limited role. German Finance Minister Wolfgang
Schaeuble does not want the ECB to have powers over
his country's savings banks (Sparkassen) or the
regional Landesbanken, which play an important role
in public policymaking in Germany.
The German Chancellor, Angela Merkel, is also
concerned not to overburden the ECB with too many
responsibilities too quickly. The ECB may, for example,
delegate a lot of the day-to-day supervision work to
the national bank regulators.
Another concern for Germany is that the ECB's new
supervisory powers should be strictly separate from its
existing monetary policy powers - so that, for
example, the ECB won't be tempted in future to set
interest rates too low in order to help out banks that
are in trouble.
Under the compromise, the ECB will oversee banks
representing more than a fifth of a state's GDP.
How will the "common resolution framework" work?
Spanish investors were not happy when they were told
they must bear some of their banks' losses
If a eurozone bank got into trouble, the process of
rescuing it - or, in the worst case, putting it though a
kind of bankruptcy procedure - would be carried out
by a pan-European "resolution authority" - potentially
the ECB, or an agency reporting to it.
As part of any rescue, the eurozone governments
would require the bank's existing shareholders and
lenders to take a lot of the losses - as was the case
with Spain's recent bank bailout.
All eurozone banks would also be required to
contribute annually to a common fund that could be
used to absorb the cost of a bailout - and therefore
reduce the cost to taxpayers.
To the extent that taxpayer money is also needed to
absorb losses, or has to be put at risk by buying new
shares in a troubled bank in order to provide it with
more capital, then this would be provided by the
eurozone governments collectively, irrespective of
which country the bank is based in.
This taxpayer money is expected to be provided by the
eurozone's recently inaugurated permanent bailout
fund - the European Stability Mechanism.
What is bank capital?
When banks make losses on their loans and
investments (their "assets"), it means that they have
less money to repay their investors.
These "investors" include ordinary people who have
put their savings in a deposit account at the bank,
other financial institutions who have lent the bank
money, and the bank's shareholders.
The bank's capital is the value of its shareholders'
investments, based on the bank's financial accounts.
It is calculated by taking the value of all the bank's
assets, and subtracting from it the value of everything
the bank owes to its depositors and lenders.
The shareholders are the first in line to take losses on
their investments. Each time the bank makes a loss on
a loan it has made, the shareholders suffer an equal
loss on the value of the bank's capital.
If the losses are so big that they eat up all of the
bank's capital, the bank is insolvent - its assets are no
longer worth enough to repay all of the deposits and
loans that the bank owes.
For this reason, the bank's capital is a measure of how
much loss the bank can potentially absorb without
going bust.
How will the common deposit guarantee fund work?
Currently each eurozone country operates its own
national deposit guarantee scheme. During the crisis,
all EU countries agreed to raise the amount of each
deposit that they guarantee to 100,000 euros.
The summit discussion paper - put together by the
EU's various bigwigs - talks about a "harmonisation" of
these national schemes, which presumably involves
setting the same rules in each country for who gets
guaranteed how much and when, and what the banks
in each country must contribute to the scheme.
It is unclear if, and how much, these national schemes
will then be guaranteed by all of the eurozone's
governments collectively.
A maximalist version might create a single deposit
guarantee scheme with an blanket guarantee from the
eurozone. A minimalist version may retain the existing
national schemes, and give each one a limited
guarantee from the eurozone's bailout fund.
Whatever the case, the eurozone banks will also be
required to make big regular contributions to the
scheme (on top of their contributions to the common
resolution fund), in order to minimise the cost to
taxpayers.
When will all this happen?
The eurozone governments want to have the legal
framework for the common banking supervisor in
place by 1 January 2013.
The ECB will then have up to 12 months to put in place
its new supervisory department, and take over active
duties by 1 January 2014.
Some kind of common resolution arrangement should
also be in place by then, backed by the eurozone's
bailout fund.
In order to keep to this schedule, the legal framework
will need to be designed in a way that avoids the need
for a change to existing European treaties.
A treaty change would open a whole new can of worms
- it would need to be negotiated with all the EU
governments, including the awkward UK. And it would
then need to be ratified by all of the EU parliaments.
In the long run, however, a treaty change looks
unavoidable if the ECB is to be given adequate
authority, and if the resolution framework and deposit
guarantee scheme are to be given enough financial
backing to see off a future financial crisis.
However, it seems likely that Germany would delay this
until much greater integration has been achieved in
other areas - including economic policy and
government spending rules.
Germany's constitutional court has made clear that a
national referendum will be needed for any treaty
change that obligates Germany to cough up even more
money for the common European good than it has
already agreed to give the eurozone bailout fund."
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