European Parliament reaches agreement on banking union

EU members and the European Parliament reached an agreement today on a new regulatory system designed to prevent a failing bank from wrecking the economy.

According to the latest accord, the Single Resolution Mechanism (SRM), a centralized resolution body and accompanying €55 billion fund that will be responsible for winding-up troubled banks, will become fully operational in eight instead of ten years as initially planned, Reuters reports.

The deal also envisages giving the European Central Bank the primary role in triggering the closure of a bank, making it harder for the new `resolution` agency to do so and limiting the scope for country ministers to challenge such a move.

The European Parliament had opposed an agreement reached in December by EU leaders on how to close down a bank in trouble, saying it was too unwieldy, AFP has reported.

SRM is the second pillar of the European banking union, starting at the end of the year when the European Central Bank takes over as watchdog.

The task of the banking union is to regain trust among banks and increase lending across euro zone while providing support to the economic growth in that bloc.