ECB's Draghi says trusts bank resolution mechanism in place by 2015


Oct 9 (Reuters) - A banking union is vital for the properfunctioning of the euro zone and a mechanism to wind downfailing banks should enter into force by 2015, European CentralBank President Mario Draghi said on Wednesday.

As a first step towards the closer integration of the eurozone's banking system, the ECB is set to start supervising thebloc's banks from next year. A single mechanism to wind downfailing banks is in the works.

The EU Commission in July outlined plans to set up an agencyto rescue or shut non-viable euro zone banks, to begin work in2015 if agreed on by EU states, which would eventually be ableto impose losses on creditors of a stricken bank.

"We trust that a single resolution mechanism will enter intoforce by the beginning of 2015," Draghi said in remarks preparedfor delivery at the Harvard Kennedy School, which did notcontain any reference to the outlook for monetary policy.

Banking union was crucial partly because more than twothirds of firms' external financing came from bank loans, hesaid.

Draghi said euro zone countries had made welcome progress inbringing down budget deficits, noting the average primary fiscaldeficit stood at around 0.5 percent of gross domestic product in2012 compared to about 6 percent in the United States.

Policymakers gathering in Washington for meetings of theInternational Monetary Fund, which Draghi will also attend, havewarned the current impasse in the U.S. Congress over the budgetwould pose a major risk to the global economy if it leads to aU.S. debt default.

Draghi said new European budget rules, including giving theEuropean Commission the right to inspect national budgets beforethey go before national parliaments, conferred "a power the U.S.federal government does not have over the states."

"We look forward to a full and transparent implementation ofthis new regime," he said.

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