Draghi pushes for bank resolution fund to be operational quicker

European Central Bank chief Mario Draghi called Wednesday for a new bank resolution fund to be brought into full operation quicker as debate intensifies over the key element of a new banking union. Eurozone states agreed last December on the outlines of the second element of the new banking union, a so-called single resolution mechanism (SRM) to wind up failing banks. The banking union aims to end the situation where weak banks force states into expensive bailouts and closures, thus triggering a crisis in government finances that can end up with a sovereign bailout as happened in Ireland.   The SRM is to be able to call upon a fund of 55 billion euros ($75 billion), but it is envisaged this bank-funded pot won't be full until 10 years after its planned creation in 2016. Moreover, worried about paying for others' failures, the states agreed the fund would be cantonised into separate pots for each country until 2026. Draghi said that "one issue that creates uncertainty is the protracted time period -- currently 10 years -- over which national compartments are to be mutualised into a single resolution fund." Speaking at the Belgian central bank, Draghi said the ECB's comprehensive review of banks before taking over as their regulator later this year under the first part of the banking union should remove the fear of surprises and makes the 10-year period "unduly long". "We would see merits in doubling the pace of mutualisation to have a genuine European fund within five years." The European Parliament, whose approval is required, has also criticised the long period and has refused to accept the proposal by the states. Time for an agreement is running short before the parliament ends its session ahead of European elections in May. Draghi said another unresolved issue is that of a backstop in case the fund does not have sufficient cash in its coffers. "We believe that a single resolution fund needs a solid public backstop, be it an ability to temporarily borrow from the market backed by guarantees from participating member states, or access to a credit line, potentially from the European Stability Mechanism." Markets are also jittery about where states will find funds to recapitalise weak but viable banks after the ECB completes its review. One possible option is to seek help from the EU's bailout fund, the European Stability Mechanism.