FINANCIAL SERVICES : BUILDING A BANKING UNION GIVEN TOP PRIORITY.

Making progress on the construction of a banking union will be an Irish Presidency priority. It intends to finalise some heavy dossiers, including the package creating a single supervisory mechanism (SSM) for banks. A European Commission legislative proposal on restructuring of the banking sector is also expected.

BANKING SUPERVISION

The first priority will be to wrap up negotiations between the European Parliament and the Council on reform of the CRD IV-CRR (Capital Requirements Directive-Capital Requirements Regulation) prudential banking rules that adapt the Basel III rules to the European level. The parties are well behind schedule on this. The initial date of entry into force of the reform was set for 1 January 2013 in order to meet the timetable set by the Basel III Committee (gradual application of the rules from 2013 to 2019). The negotiations are, however, coming to an end and the parties are planning to reach an overall agreement at their next political meeting in January.

The European Parliament and Council will be heavily involved in the package creating an SSM for the 17 eurozone countries (EU17) and which is also open to EU member states outside the eurozone. The first step towards a banking union, this package gives the European Central Bank (ECB) a central role in terms of supervising banks. It consists of a draft regulation conferring supervisory powers to the ECB (this requires the agreement of all 27 EU member states after consulting the European Parliament) and a proposal amending the regulation setting up the European Banking Authority (subject to co-decision).

The European Parliament and Council have planned political three-way talks from early January with the hope of reaching a compromise agreement on the legislation as quickly as possible. It will then be up to the ECB to take the necessary steps to implement the mechanism.

Effective establishment of this SSM is a necessary, but insufficient, condition for the direct recapitalisation of banks by the EU17's European Stability Mechanism. In the next six months, the operational framework that structures this recapitalisation will need to be set, including in particular the thorny issue of the definition of historical assets' (which amounts to agreeing on the debts that will be targeted).

Before the end of March, the EU27 will also need to agree on draft directives on the recovery and resolution of failing banks as well as deposit guarantee systems - the two other...