Ecofin fails to agree on wind-down rules for banks

European finance ministers failed to reach agreement last night on a pan -european way to wind up troubled banks.

Following 18 hours of discussions, Ministers failed to reach agreement on a key strand of banking union, the EU’s much-vaunted policy response to the financial crisis.

Ministers will now meet on Wednesday, in an effort to hammer out a deal ahead of next summit of EU leaders on Thursdeay and Friday.

Speaking after the discussions, Michael Noonan, who chaired the meeting, said there were still real issues outstanding. Non- euro zone countries such as Sweden and the UK want more fkexibility around the rules.

The EU is keen to introduce a pan-European approach to winding down banks, which would align with proposals to create a single supervisor for EU banks and a common deposit scheme.

It also wants to shift the burden of future bank collapses away from taxpayers and on to private creditors, in effect moving from a “bailout” to a “bail-in” model. This could include hitting depositors with more than €100,000 in an institution as well as various classes of bondholders.

A compromise proposal, devised by the Irish presidency, sets out a clear hierarchy of creditors to be bailed-in in the event of a bank wind-down, with large deposits over €100,000 the last in line.

For euro zone banks, it is envisaged that the ESM’s direct bank recapitalisation fund would be used after all options in the bank resolution and recovery process have been exercised. Britain, Sweden and France were among those countries calling for member states to have greater flexibility in implementing the rules.

France’s finance minister Pierre Moscovici, however, indicated that France would be prepared to make concessions.

“France wants flexibility but it is willing to agree to some limits,” Mr Moscovici said ahead of the meeting. “Nothing is insurmountable.”

However, Sweden’s finance minister Anders Borg sounded a more cautious note on his way into the discussions.

“The fact that the euro zone countries are trying to push a solution is very dangerous for the rest of us,” he told reporters.

Britain is also against the establishment of a single resolution fund that would fund the cost of a bank wind-down, arguing that it already operates its own bank levy. EU sources suggested that a compromise solution on the single resolution fund was possible last night.

Earlier on in the day, finance ministers agreed on a proposal to combat fraud related to value-added taxes, a package that had been prioritised by the Irish presidency of the council of the European Union.