The European Union (EU) has reportedly hammered out a deal on how to undertake and fund the orderly winding down of banks.

Conversations that began on Wednesday and ended in the early morning hours on Thursday put an end to the stand-off between the European Parliament and EU states, according to several financial media sources quoting those "involved" in the discussions.

The final leg of the legislation pointed to the implementation of a single resolution fund valued, as expected, at €55bn (£45.8). According to the reports, the funds will be raised via bank levies over a period of eight years compared to the original ten contemplated.

While the Financial Times reported that the common funds will be mutualized sooner so countries are more quickly removed from the backstop, Reuters gave details that 40% of the fund will be mutualized from the start, increasing to 70% in just three years.

The news agency also noted that the common fund itself will not be allowed to rely on the Eurozone bailout fund if it needs more financing. This led Paul De Grauwe of the London School of Economics to tell Reuters that the banking union was a failure.

"The whole idea was to cut the deadly embrace between bank and sovereign. But if a banking crisis were to erupt again, it would be how it was in 2008 with every country on its own," he said.

Both media sources said an agreement was reached to give the European Central Bank the main control for triggering a bank wind-down with less scope for individual countries to intervene in the decision-making process.

The agreement still needed European Parliament and EU finance minister approval, but it was understood that it was simply a matter of bureaucracy and the draft agreement should soon be rubberstamped.

JM

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