Brussels, 14/05/2013 (Agence Europe) - The first ministerial debate on a directive to harmonise national bank resolution schemes, at the ECOFIN Council on Tuesday 14 May, gave an idea of the debates ahead in order to reach agreement in principle at the ECOFIN Council next month.
As EU Internal Market Commissioner Michel Barnier explained, the main aim of the draft directive is to put an end to the assumption that countries always bail out banks. In the future, bail-in (raiding savings and accounts at the bank) will become the rule in Europe, he said, with a clearly defined hierarchy of which accounts are to be raided first - starting with shareholders, junior and non-assured senior bond-holders, and lastly savings of more than €100,000 - with the taxpayer only coughing up when all the others have paid their share. The Cypriot episode is in everyone's minds and the ministers said it was important to have legal security in the rules, which must be clear and predictable for investors and not push up the costs of bank refinancing by too great an extent.
Irish finance minister Michael Noonan said he was encouraged by the views expressed by the member states which, despite a number of disagreements, were beginning, he said, to move towards a point of balance. He drew the following conclusions: - the scope of the bail-in would be wide, but would never raid deposits of less than €100,000 because this protection (provided under the savings guarantee directive) was “sacrosanct”; - most countries recommend a preferential treatment for deposits of over €100,000, so that they are only raided as a last resort and in extreme cases; - bail-in would not apply to all transactions (excluded would be: money for salaries; derivatives; payment system transactions; and perhaps the bank accounts of big companies); - member states seem to need flexibility in the way bail-ins operate and what they do with bank resolution fund cash.
Barnier defended the introduction of a preferential system for savers with more than €100,000 on deposit. He said the Commission's analysis had shown that the fears of a hike in financing costs were not founded. He quoted the United States' twenty years of experience in this domain and said that against the backdrop of a crisis similar to the current one, in which most bank defaults led to losses of less than 10% of the balance sheet, the rate of loss for other investors would rise, but remain reasonable.
All the same, many countries are not convinced about the idea of a preferential system. French economy minister Pierre Moscovici said it was not a good option and risked damaging the structure of bank balance sheets. He recommended a more flexible system with the “assumption of exclusion” of deposits of more than €100,000, which would only be raided if necessary. The Dutch finance minister (and head of Eurogroup), Jeroen Dijsselbloem, said pari passu treatment of depositors with more than €100,000 and non-guaranteed investors is needed, the important thing being the hierarchy. Similar noises were made by the Danish finance minister, Margrethe Vestager, who said pari passu treatment would expand the instruments that can be mobilised for a bail-in and thus facilitate the emergence of private sector solutions. Spanish finance minister Luis de Guindos called for all savings to be excluded, describing the €100,000 threshold as “a bit artificial.”
Flexibility. Most countries stressed the need for flexibility at national level when it comes to the details of a bail-in, particularly for deciding exactly what will be raided. The British finance minister, George Osborne, talked about flexibility with rules to preserve the integrity of the single market and take account of state aid rules. Recognising that too much national flexibility would increase the cost of bank financing, France suggested that the European Banking Authority should rubberstamp the list of products that a national bank authority suggests should be raided in bail-ins.
Other delegations warned of the dangers of too much flexibility. The Netherlands doesn't want flexibility within the eurozone, but is happy to go along with it for non-euro countries. Italy and the Czech Republic say the rules should be as harmonised as possible. Exemptions to bail-ins should be necessary, proportionate and compensated by other sources of finance in order to absorb losses; in other words either sharing the burden among the investors covered by the bail-in or stronger bank resolution funds or increasing bank capital or junior debt, said Barnier.
Several countries called for the new bail-in rules to come into force in 2018 rather than 2015 as demanded by Germany and the ECB. Spain, the Netherlands, the United Kingdom and Sweden approve of the obligation on banks to hold specific capital that can be used for a bail-in. Portugal and Italy pointed out the need for urgent progress on Banking Union. (MB/transl.fl)