FRANKFURT (MNI) – The normalization of bank lending conditions is
gradually moving forward, though further credible solutions for both
crisis management and bank resolution are needed at the European level,
the European Central Bank said in its Financial Integration Report,
published Monday.

“Currently, the main obstacles to a common EU resolution framework
are the large differences between Members States’ insolvency and company
laws and the gap between organizational and legal structures of
cross-border banks,” the central bank said in its report.

The ECB noted that the European Commission was currently working on
proposals for such a framework, which are scheduled for publication next
month, along with an accompanying impact assessment study.

“Implementation of a more harmonized crisis management and
resolution framework would be beneficial to integration, as evidenced by
the experiences in the recent financial crisis,” the ECB said.

Among the measures still requiring integration are bank levies.
While general principles for levies on financial institutions have been
agreed to, not all EU member states have yet implemented the measures,
the central bank noted.

“Such divergence in parameters between member states may raise
double taxation issues within the single market and distort the level
playing field among banks or between banks and other financial actors,”
the ECB said.

“Other level playing field issues, such as spillover effects,
distortion of competition and relocation of businesses may also be
relevant,” the bank continued. “The simple fact that not all member
States will introduce a levy in the short term may create further
distortions in this section of the EU’s internal market.”

“Proper coordination at the EU level is therefore critical, and
should also be pursued at an international level as far as possible. A
lack of coordination could not only distort the level playing field, but
also reduce the effectiveness of the measure.”

The bank also called for a single, integrated “European solution”
regarding bank resolution funds and deposit guarantee schemes, as it
would also allow for a more “level playing field.”

However, at least in the case of the bank resolution funds, “the
setting-up of resolution funds at national level with a strong degree of
harmonization at the EU level regarding their main features appears to
be the most likely solution at this stage,” the ECB said.

Turning to sovereign debt markets, the central bank argued that the
recent widening in bond spreads was, at least partly, attributable to
market overreaction. It called for further monitoring “from the
perspective of financial integration…to better gauge the nature and
implications of the phenomenon.”

— Frankfurt bureau: +49-69-720 142; email: frankfurt@marketnews.com —

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