The European Commission will propose on Wednesday creating an agency to salvage or shut failed banks but its power to clean up the euro zone's financial sector will be tempered by resistance from Berlin.
Working in tandem with the European Central Bank as supervisor, the new authority will wind down or revamp banks in trouble. It completes the second pillar of a 'banking union' meant to galvanize the euro zone's response to the crisis.
If agreed by European Union states, the agency will have the means to impose losses on junior creditors of a stricken bank from 2015, officials familiar with the blueprint said.
But the new authority will be handicapped by the fact that it will have to wait years before it has a fund to pay for the costs of any bank wind-up it orders.
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The plan foresees tapping banks to build a war chest of up to 70 billion euros ($90 billion) but that is expected to take a decade, leaving the agency dependent on national schemes in the mean time, the officials said.
The EU's executive will not call for giving a backstop role to the euro zone's rescue fund, the European Stability Mechanism, undermining a central goal of banking union - namely to sever the 'doom loop' between bank and state.
Any suggestion of putting such a safety net in place faced stiff resistance from Germany, which feared that it could be left on the hook for problems uncovered in Spain's banks or elsewhere, when the ECB starts policing the sector next year.
Furthermore, the 'resolution board' that executes bank wind-downs will be forbidden from imposing decisions on countries, such as demanding the closure of a bank, if that would result in a bill for that nation's taxpayer.