EU members reach understanding on cross-border stability

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BRUSSELS – European Union (EU) central banks, finance ministers and supervisory authorities have agreed a Memorandum of Understanding (MoU) on co-operation on cross-border financial stability. The new MoU is an extension of one agreed in 2005 and focuses on information sharing, management and resolution of cross-border crises within the EU.

The MoU’s agreed principles are designed particularly for banking groups with significant undertakings in several EU member states. Should a banking group become in danger of insolvency in a situation that could lead to systemic effects in one member state, then all member states in which the bank is active will co-ordinate information, public information and contingency planning.

The document highlights the need for national authorities to encourage private-sector solutions, promote financial discipline and limit moral hazard. The agreement comes after March’s Federal Reserve sponsored buyout of US investment bank Bear Stearns by rival JP Morgan Chase and February’s nationalisation of Northern Rock in the UK.

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