BIS backs banking union to ease euro zone crisis

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BIS backs banking union to ease euro zone crisis

Reuters | June 24, 2012 | 10:04 AM EDT

LONDON (Reuters) - Creating a banking union for the euro zone could break the fever gripping the shared currency and buy time for governments to put the euro on a viable long-term footing, the Bank for International Settlements said on Sunday.

The endorsement by the BIS, a global forum for central banks, will add momentum to proposals for a single supervisor for big euro area banks, pan-European deposit insurance and a fund to wind down cross-border lenders in trouble.

The ideas will be discussed at a European Union summit in Brussels on June 28/29, the 19th such meeting to try to quell the euro zone's 2-1/2-year-old debt and banking crisis.

The crisis is complicated by the interdependence of heavily indebted governments and the banks that help to finance them by buying their bonds. Germany, the EU's paymaster, is opposed to asking its taxpayers to backstop other countries' banks.

"If adopted, these measures will break the adverse feedback between the banks and the sovereign and other destructive links that are making the crisis so severe," the BIS, based in Basel, Switzerland, said in its annual report.

Common banking rules would shore up confidence in the euro because depositors would no longer have a reason to flee lenders they fear might fail, the BIS said. Greek banks have lost about 30 percent of their deposits since the start of 2010.

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