European banking union moved a step closer when the Council of the European Union agreed a general approach on a single resolution mechanism (SRM) for dealing with failing banks on 18 December. This follows final agreement on greater centralisation of supervision of banks through the single supervisory mechanism (SSM) in October and political agreement between Council and Parliament on the bank recovery and resolution directive, including rules for bailing-in shareholders and creditors of failing banks, earlier in December.

As for SSM, SRM will cover all eurozone countries and non-eurozone EU member states which opt in to European banking union. According to the Council’s approach, the decision to place a failing bank into resolution will be taken by a new single resolution board based in Brussels rather than at national level. The board will include representatives of national resolution authorities of each EU member state participating in European banking union. The board will also decide on the use of a single resolution fund to support resolution. Decisions of the board will enter into force 24 hours after their adoption unless the Council, acting by simple majority on a proposal of the Commission, objects or calls for changes.

The single resolution fund will be financed by bank levies raised at national level reaching a target level of 1% of covered deposits over 10 years. The fund will gradually become a pooled fund over the 10 year period. Eurozone countries are committed to negotiating a separate agreement on the functioning of the single resolution fund by 1 March 2014.

The next step is for Council to enter negotiations with Parliament with the aim of agreeing a final text before the end of the Parliament’s current term in May 2014. If this timeline is achieved SRM is expected to enter into force on 1 January 2015.

Contributed by Shane Kelleher.

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