The European Commission proposed far-reaching powers for regulators to take control of failing banks on Wednesday, a step towards the banking union wanted by the European Central Bank, which will come too late to help Spain.
The plans, which spell out an insolvency regime for banks and empower regulators to intervene to prevent a collapse from triggering panic, first need to be approved by EU countries and the European Parliament and may not take effect until 2015.
This would be far too late for Spain, which could be forced to seek a bailout for its banks if it cannot support lenders saddled with bad property loans and other debt.
“The proposal we have today may be only useful for the future, but it does not solve the current problems we face,” said Sharon Bowles, who chairs the European Parliament’s economic and finance committee. “In the short term we need further measures.”
The draft law is designed to prevent a repeat of the chaos after the fall of US bank Lehman Brothers in 2008.
This would allow supervisors impose a loss on the senior bondholders of a struggling bank from 2018. These lenders came through the crisis unscathed, compared with shareholders.
The EU executive hopes tighter links between winding-down schemes across the European Union will be the basis of a single resolution fund to close or salvage parts of a troubled bank