Luxembourg, 20/06/2013 (Agence Europe) - The eurozone's permanent bailout fund, the European stability mechanism (ESM) should be able to intervene retroactively on a case-by-case basis in the recapitalisation of a bank that has already received public aid.
Acting on a case-by-case basis will make faster action possible once a tangible decision has been taken to recapitalise a struggling bank, said a source on Thursday 20 June on the fringes of the Eurogroup meeting deciding on guidelines for direct bank recapitalisation by the ESM. In June 2012, a eurozone summit promised to break the automatic connection between struggling banks and sovereign debt by enabling the ESM to recapitalise banks directly. This will only become possible from the autumn of 2014 onwards, when the ECB fully takes up its new role as eurozone bank supervisor.
German Finance Minister Wolfgang Schäuble pointed that there would not be much room for manoeuvre for direct bank recapitalisation, comments that his Irish counterpart did not appreciate. Michael Noonan said that room for manoeuvre means that there is room for manoeuvre (something Ireland is keen on). Austrian Finance Minister Maria Fekter used the Spanish example of how bank restructuring should take place before any intervention from the ESM. French Economy Minister Pierre Moscovici said that France definitely wanted it to be possible to adopt guidelines and recapitalisation that is not too much of a burden on savers.
By providing capital directly to a bank, the ESM would gain the right of scrutiny as a shareholder of that bank, particularly in terms of how the bank is managed and what bonuses are paid to managers.
The total sum to be earmarked for direct bank recapitalisation would be in the order of €60 billion, which is modest compared with the ESM's total lending capacity of €500 billion. This should enable the ESM to keep its cherished AAA rating and thus cheap lending from the markets to lend on to struggling member states. Any country making an official request for aid for its banks would be financially liable for between 10% and 20% of the recapitalisation.
Each bank recapitalisation by the ESM would lead to the creation of an ESM subsidiary. (MB/transl.fl)