Talks on funding EU banks fail

EU finance ministers broke off negotiations early in Brussels having failed to find common ground on how to fund banks that could be exposed as needing billions of new money to survive next year.

While officials and politicians said they believed they can reach agreement in December on the Single Resolution Mechanism after a new German government is in place, the distance between countries remained wide.

The EU needs to put in place an agreement about where banks can find the money to break the link between sovereign and the banking sector, but they appear to be as far from this as they were at the beginning of the crisis five years ago.

The initial plan was that within a single banking union structure, they would access money from a pot to which the banks contribute — some countries already have this in place nationally and are reluctant to pool it. A sufficient EU fund could take 20 years to put together and a plan that it could borrow from the ESM in the meantime is also opposed by Germany.

In the meantime it was proposed that there would be a hierarchy of funding sources, beginning with the banks raising the money on the market, and if they were unable to do this, they would turn to the national government, and in the event they could not help, then borrow directly from the EU loan fund the ESM.

Germany is adamant that the losses should be imposed on shareholders and bondholders, while the other eurozone heavyweight, France, is totally opposed, supported by Spain and Italy.

Finance Minister Michael Noonan said they were agreeing to a short-term solution and would deal with the longer-term issues of recapitalising or resolving banks again.

Ireland’s banks were due to be stress tested shortly after the asset quality review currently underway, but this has been put off until next year when it, an asset quality review and a supervisory risk assessment will be conducted at the same time as all the other banks, organised by the ECB in preparation for their role as single bank supervisor November next year.

Mr Noonan insists that they are adequately capitalised — helped in part by the increase in property prices. Officials believe that while Bank of Ireland would certainly have no difficult raising extra capital on the markets, they hope that AIB would be in a similar position next year.

However since it and Irish Permanent are state-owned, the State will be responsible if the decision is made to bail in creditors while their next port of call would be to borrow from the ESM.

Thomas Wiser, chair of the eurogroup committee, said that banks will be given just one figure when they receive the stress test results in the early autumn of 2014, when the supervisor (the ESM) will tell them to find the capital needed through private equity.

They will be given some months to achieve this and if they fail then other measures will kick in — so he was confident that the backstop would be in place by then.

The meeting confirmed that in the event of tests revealing a capital shortfall the pecking order would be private sources, then national and euro area/EU instruments would apply.


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