The EU Positions for Total Control Over Winding Down Banks

“BRUSSELS—The European Commission will propose itself as the single authority for winding down banks in the euro zone, a step that will set the European Union’s executive on a collision course with the bloc’s most powerful member, Germany.

Berlin insists that such an authority—whose actions could force national governments to spend money to help rescue failed banks—would breach EU treaties. That, it says, could lead to legal challenges over bank restructurings and create uncertainty for financial markets at a sensitive time.

Michel Barnier, the EU commissioner responsible for financial-market regulation, was to lay out his final proposal Wednesday for a so-called single resolution mechanism, giving it the authority to restructure or close any of the 6,000 banks in the 17-nation euro zone that hit financial problems.

Bank restructurings currently take place under a patchwork of national rules, which also hinder the winding down of cross-border banks.

The euro-zone’s ambitious banking union project—a cornerstone of efforts to end the three-year-old debt crisis—aims to break the vicious link between struggling euro-zone banks and their governments.

The first pillar is a single supervisor for euro-zone banks, a task the European Central Bank is expected to assume in the fall of 2014. The single resolution mechanism is meant to form the second pillar.

The commission calls for a so-called “single resolution board” to prepare and carry out bank restructurings, backed by a shared fund that would be financed by contributions from banks….”

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