Mike Shedlock
Recommend this article

On December 12 the Financial Times reported EU reaches landmark deal on failed banks with a "common rule book for handling failed banks".

Gunnar Hökmark, the lead negotiator for the parliamentary side, said: “We now have a strong bail-in system which sends a clear message that bank shareholders and creditors will be the ones to bear the losses on rainy days, not taxpayers. At the same time we also established clear rules to deal with the most exceptional cases in which overall financial stability is in danger.

The next day, a friend commented the banking union agreement proved me wrong. I replied "wait for the details".

Laughable Details Now Pouring In

Let's start with a look at Eurozone Red Tape in the Financial Times just three short days later.

Fears are growing that the eurozone’s proposed new banking regime will be too bureaucratic for the task of handling a sudden collapse of a cross-border institution.

The latest proposals could see up to 126 people being consulted on how to wind up a bank, even though agreement might need to be reached over the course of a weekend while financial markets are closed. Some senior officials are warning the proposals are too cumbersome.

A Financial Times analysis of the full banking union resolution process for a lender operating in three countries reveals the labyrinthine procedure that would still be required to wind up a bank. In a worst case scenario, where key officials disagree, this could involve nine panels and up to 143 votes being cast, from its supervisor raising a warning flag to the final wind-up decision.
Recommend this article

Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.