European officials unveil plan to deal with failing banks

WASHINGTON -- European officials on Wednesday unveiled a plan to deal with banks on the brink of failure, proposing broad centralized powers to rescue or shut down financial institutions in order to limit the impact on individual nations and reduce taxpayer losses.

The Single Resolution Mechanism for the Banking Union would give authority to a board of officials from the European Union and the nations where a problem bank has a presence to decide if it should get a bailout from a new fund or be put out of business.

The $70-billion resolution fund would be paid for by the banks and built up over 10 years.

The plan by the European Commission, the economic region’s executive body, is part of a broader blueprint for European-wide supervision of the region’s large banks.

Quiz: Do U.S. corporations pay too little in taxes?

“We cannot eliminate the risk of future bank failures, but with the Single Resolution Mechanism and the resolution fund, it should be banks themselves -- and not European taxpayers -- who should shoulder the burden of losses in the future,” said European Commission President Jose Manuel Barroso.

But the move to centralize authority for handling failing banks could face problems.

A German government spokesman on Wednesday said existing treaties do not give the European Commission the power to resolve failing banks.

But the commission said it has the authority. The plan would have to be approved by the European Council and the European Parliament, the region’s legislative bodies.

Under the proposal, the European Central Bank would determine when a bank “was in severe financial difficulties” that needed to be addressed.

A board composed of officials from the ECB, the European Commission and the nations where the problem bank is headquartered or has subsidiaries or branches would prepare a resolution plan and make a recommendation.

The European Commission then would determine if the bank should be rescued or shut down, with the resolution board overseeing the process.

The goal would be to act fast to try to contain the impact of a failing bank, European officials said.

“We have seen how bank crises can quickly spread across borders, sending confidence into a downward spiral throughout the euro area,” said Michel Barnier, internal market and services commissioner at the European Commission.

“We also have seen how the collapse of a major cross-border bank can lead to a complex and confusing situation,” he said. “We need a system which can deliver decisions quickly and efficiently, avoiding doubts on the impact on public finances, and with rules that create certainty in the market.”

ALSO:

Asiana crash not expected to damage airline long-term

China’s exports slump in June; worst reading since recession

Tribune to spin off L.A. Times, other papers into separate company