Europe should eliminate so-called "zombie banks" hobbling the continent's economic recovery with a bank resolution authority underwritten by the European Stability Mechanism bailout fund, according to the European Central Bank.

Jörg Asmussen, an ECB board member, called yesterday for a European bank wind-up fund, financed by a banking levy and managed by a new institution. If such an institution could not be created in the short term, he said, the “second-best solution would be to temporarily base this authority at the ESM”.

'Emergency facility'
"If the means in this fund are insufficient, the wind-up fund could have access to a temporary EU emergency facility," he told an audience in Magdeburg yesterday. "The ESM would be a potential candidate for these tasks. The temporary help should be covered by a bank levy and, in the medium term, be fiscally neutral."

His remarks come ahead of European Commission bank wind-up proposals and puts the Frankfurt bank at odds with Berlin.

An ECB spokesman said yesterday there was no official bank position on the bank wind-up fund. Ahead of meetings of euro finance ministers this week in Luxembourg and of leaders next week in Brussels, European institutions have been positioning themselves on the so-called banking union.

Banking union
Considered the "missing link" of euro zone infrastructure, a banking union would include a pan-European banking regulator and bank wind-up fund. German officials insist agreement on banking union is essential for allowing ESM recapitalisations of struggling banks.

Ahead of September’s general election, German politicians are nervous about putting the fate of national banks in European hand.

Mr Asmussen said, “Banks in difficulty should bid farewell to the expectation that the costs can be passed on to the taxpayer.”