Eurozone ministers make progress on Banking Union

Eurozone finance ministers said early Wednesday they had made progress on a new bank regulatory system, especially on the funding of a mechanism to close failing banks before they damage the economy. However, ministers were reluctant to give details, suggesting that differences remained, especially between France and Germany, over implementation. "We have come a long way," said Dutch Finance Minister Jeroen Dijsselbloem who heads the group of 17 eurozone ministers. Asked whether there had been agreement on a funding "backstop" for the Single Resolution Mechanism which will actually close banks, Dijsselbloem said: "We have come a very long way on the backstops." Declining to give details, he said enough had been achieved to make him optimistic for a meeting later Wednesday with the 11 non-euro finance ministers to finalise the issue. German Finance Minister Wolfgang Schaeuble left the seven hour session with a brief comment that progress was made. In contrast, his French counterpart Pierre Moscovici said ministers now had a "shared vision of what the SRM will be ... with backstop sources on which we can rely." EU Economic Affairs Commissioner Olli Rehn said the meeting had reached a "common understanding on backstops," hailing it as a "crucial breakthrough." He said this would help pave the way to the Banking Union, the new regulatory framework to police, restructure and if necessary close failing banks without the taxpayer having to foot the bill. The SRM will work alongside the already agreed Single Supervisory Mechanism -- handled by the European Central Bank -- which is to oversee the top 130 eurozone banks directly, and thousands more indirectly via national authorities. The SRM would also have a pot of cash -- funded by the banks themselves -- to cover the cost of winding up a failed lender. But in the interim as this fund is built up, there is the need to provide funding backstops to ensure the SRM can do its work. One possibility might be to borrow from the eurozone's bailout fund, the European Stability Mechanism, or to raise funds from governments, although that potentially involves the taxpayer again. Germany opposes any such recourse to the ESM and is cool on the other options too. Moscovici said the backstop could take several forms but "that remains to be sorted out in coming years." France and Germany have other differences too over the running of the SRM, especially on how it will make the decision to close a bank. Germany favours national governments having the final word while France believes the European Commission, the EU's executive arm should be in charge. Various ways have been put forward to reach a compromise but these have the disadvantage of making the system unwieldy and likely unable to respond as fast as is needed to head off unforgiving markets. The 28 EU finance minsters are supposed to finalise the project later Wednesday so it can be submitted to an EU leaders summit on Thursday and Friday.