YEREVAN, June 21. /ARKA/. Eurozone Finance and Economic Ministers have agreed on guidelines for how the European Stability Mechanism (ESM) could directly recapitalise banks in trouble.
At Thursday’s Eurogroup meeting, officials sought to allow the €500bn fund to inject capital directly into banks instead of going through the host government. According to European Union (EU) Monetary and Economic Affairs Commissioner Olli Rehn, this would “break the vicious circle between banks and sovereigns by diluting the link between them”.
Despite the general agreement, ministers decided to limit such direct investments to €60bn in each case. They are also discussing the creation of a new facility by the second quarter of 2014.
Ministers also sought to make individual governments responsible for their banks by requiring them to buffer capital by 4.5% of bank assets and then contributing at least 20% to any recapitalisation through the ESM itself.
Eurogroup President Jeroen Dijsselbloem said that decisions to issue funds would “decided case-by-case” and that “it’s up to the member states to apply for it”.
French Finance Minister Pierre Moscovici said that the idea of using the fund for recapitalisation was so that they “don’t weigh excessively on state budgets that are already very indebted. It will enable us to secure the banking system”.
However, European Central Bank (ECB) board member Jörg Asmussen showed concern about giving national authorities too much leeway when deciding which investors and creditors would take losses during a bank failure. “It’s important for investors to know ahead of time what the rules of the game are,” he said. Asmussen added that the ECB still thinks new bank-restructuring rules should be implemented by 2015, rather than the original deadline of 2018. –0–
