BRUSSELS (AP) — The European Union's executive branch in Brussels has proposed giving itself far-reaching powers to decide what happens to banks that need rescuing, a key part of a plan to restore confidence in the region's financial system.
Under the proposal detailed Wednesday, the EU Commission would act to rescue or wind down a bank, but only after hearing advice from a board consisting of the European Central bank, its own officials and national authorities.
Based on that recommendation, "or on its own initiative, the Commission would decide whether and when to place a bank into resolution," a Commission statement said.
Some see it as another move by the EU authorities in Brussels to erode member countries' national sovereignty and the proposal is likely to run into opposition from Germany and others.
Lithuanian President Dalia Grybauskaite, who holds the EU's rotating presidency, said in a reaction it would be a "challenge" for the EU nations to find common ground on the issue.
The common rules for a centralized approach would replace the current national strategies, where local banking regulators have often proved not to be forceful enough in dealing with their home banks.
The EU Commission's president, Jose Manuel Barroso, said that with the new proposal "it should be banks themselves, and not European taxpayers, who should shoulder the burden of losses in the future."
Since the cost of savings banks can overwhelm individual governments' finances — as happened in Ireland and Cyprus, for example — the Commission said strong unified action is necessary.
The central authority to solve banking crises is one of three pillars in a broader 'banking union' that the EU is trying to create. The other two are centralized banking oversight — to be adopted by the ECB — and a jointly guaranteed deposit insurance, which has yet to be agreed on.
The Commission indicated it proposed taking the lead role in solving banking crises because of legal constraints on other institutions.
In a statement, it said "the Commission has the necessary experience on bank restructuring" and added that it was "the best placed among EU institutions to ensure that final decisions fully respect the principles underpinning the functioning of the EU."
The Commission insisted national authorities and the ECB would have a key role in leading the Commission's actions.