PARIS (Reuters) - The euro zone needs to agree on the details of a backstop for its planned bank resolution fund by the end of the year, European Central Bank policymaker Francois Villeroy de Galhau said on Tuesday.
European Union leaders agreed at the end of June to allow the ESM bailout fund to lend in an emergency to the existing bank resolution fund if it runs out of cash in a crisis. They left it to finance ministers to settle the details by December.
“It is now urgent to deliver on it (the June agreement) by the end of this year,” Villeroy, who is also governor of the French central bank, told a financial regulation conference in Paris.
“Two key issues remain: how to fund the backstop at a sufficiently high level to be credible, and how to create a swift decision-making process to deal with emergencies. If we need weeks to activate the backstop, then the backstop is useless,” he said.
The EU’s bank-financed rescue fund for failing lenders was set up as part of a banking union plan during the financial crisis, but it still lacks enough cash to cope with a large banking crisis, meaning it would require a safety net.
The backstop issue, along with a common insurance scheme for European depositors, have long blocked the completion of the euro zone’s banking union with a single supervisory body.
Villeroy said that making the resolution fund fully operational should be a priority, which would in turn open the way for a “pragmatic compromise” on deposit insurance.
Reporting by Leigh Thomas, editing by Larry King