By DAVID McHUGHAP Business Writer
FRANKFURT, Germany (AP) - A top European Central Bank official is calling for quick creation of an agency with powers to restructure and wind down busted banks, in an apparent pushback against Germany's insistence that such fundamental changes should take time.
Benoit Coeure said in the text of a speech Thursday in Copenhagen that such an agency was indispensable to ending "the bailout culture" and would spare taxpayers from footing the bill for rescuing troubled banks.
Coeure said the "resolution" agency will be needed as soon as the ECB takes over banking supervision, expected next year.
Together with a Europe-wide deposit guarantee scheme, these three measures would form the European Union's banking union - a key part of the 27-country bloc's strategy to combat its financial crisis.
Coeure's remarks stand at odds with stance of eurozone powerhouse Germany. Finance Minister Wolfgang Schaeuble has said such a central resolution authority would require changes in the basic treaty governing the EU in order to have a safe legal basis. That could take years. He has proposed having creating a network among national authorities to deal with the issue in the interim.
Germany, Europe's largest economy and chief financial backer of rescue loans for indebted governments, appears reluctant to rush into setting up a resolution agency because of concern that its taxpayers or banks would have to contribute to cleaning up messes in other countries.
Still, Germany is increasingly isolated in its reluctance, with most other EU countries pushing for rapid implementation. Countries hardest-hit by the crisis like Greece, Portugal and Spain see the full implementation of the banking union as a way to stabilize their economies.
Fears about banks have helped drive Europe's crisis over too much government debt. Markets are reluctant to lend to governments if they think the government will have to spend huge amounts of money to rescue banks. Banks in turn can find it hard to raise funds if markets think they will suffer losses on government bonds they hold.
Individual countries' banking regulators are considered to be too reluctant to act forcefully to halt problems with their home banks, and can face added problems when a bank's activities cross national borders. That has led to calls for a centralized EU approach.
Coeure said the resolution mechanism was only way to break that vicious circle because it takes the financial burden off governments.
When it becomes supervisor, the ECB will have the power to yank bank's licenses. But the job of taking action over a failed bank would remain with the resolution agency. It could write off what the bank owes to its creditors, known as a bail-in, or convert those debts into shares in a restructured bank, for instance. That would find money to get the bank going again without tapping the public treasury and making taxpayers pay.
Coeure said the resolution agency would need its own pot of money to finance bank restructuring, but that money would be raised ahead of time by a levy on banks.
He said the recent experience in bailing out eurozone member Cyprus showed the need for clear rules and powers on winding up banks. The legislature in Cyprus had to hastily pass legislation allowing restructuring of its troubled banks. The turmoil unsettled markets and has weighed on business optimism, adding to the burdens on the eurozone economy as it struggles to leave recession return to growth.
"Any solution which does not imply an outright bailout seems to take creditors and markets by surprise. This will need to change," Coeure said. "I would say that after the events of Cyprus, markets should be convinced that Europe is serious and committed to bailing in and thus ending the bailout culture."
AP staff writer Juergen Baetz contributed to this report from Berlin.
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