EU finance ministers reach banking union deal

EU finance ministers Wednesday reached a banking union accord which will hand Brussels unprecedented new powers to prevent failing banks from wrecking the economy, AFP reports citing official sources. "We have an accord," a French finance ministry source said after another long day of hard talks marked by sharp differences over key elements of the new bank regulatory system. "Momentous day for #bankingunion," EU Financial Markets Commissioner Michel Barnier said in a tweeted message. "Agreement by (member states)...for single resolution mechanism. Negotiations with (European Parliament) can now start," Barnier said. The Single Resolution Mechanism will close failing banks before they can damage the wider economy and along with a new supervisory regime, forms the banking union. This was drawn up in response to the financial and then debt crises which brought down many banks and nearly drove the eurozone to its knees as governments had to be bailed out after rescuing their lenders. The new framework means a big pooling of sovereignty and would mark a big step towards EU cross-border authority, explaining in large part why the talks have taken over a year to get this far. A key sticking point, especially between France and Germany, has been who will have the final say in deciding to close a bank and how this will be paid for. The plan is for the banks to contribute to a special fund for this purpose, phased in over 10 years, so that the taxpayer will no longer have to foot the bill. However, the fund is unlikely to be enough in the interim period and there have been tortuous discussions over how it could find additional or "backstop" financing. According to a draft document seen by AFP, bridge financing could come either from the member states or from the eurozone's own rescue fund, the European Stability Mechanism. Used for national bailouts, drawing on the ESM usually comes with tough policy conditions, but it was used controversially to provide some 41 billion euros to Spanish banks directly in 2012 without such terms. The final winding up fund -- estimated at 55 billion euros -- will also have a backstop to provide additional finance if needed, with the banking sector ultimately liable for it. Finance ministers from the 28-country bloc were under pressure to produce a deal which EU leaders could then approve at a summit Thursday and Friday. Once that is done, the proposal will go to the European Parliament for what are also expected to be tough negotiations on a final form.