Brussels, 11/06/2014 (Agence Europe) - At a meeting of national Council of Ministers' experts on Tuesday 10 June, member states lifted their reservations on the revised guidelines for direct bank recapitalisation by the European Stability Mechanism (ESM).
Now begins a legislative process at national level by which those states which require it, such as Germany and Finland, will amend their domestic law in order to provide this instrument with a stable legal basis, a process that is expected to take until the autumn.
The ESM will earmark €60 billion for direct bank recapitalisation to help break the cycle of bank problems causing sovereign debt woes by forcing countries to bail out failing banks registered in their land. As banking union has been brought about, the eurozone political leaders' aims have been watered down and direct bank recapitalisation will now only take place as a last resort.
Early last month, the Eurogroup agreed that direct bank recapitalisations would be possible from 1 January 2015 onwards (see EUROPE 11073). Two preconditions will apply in 2015 - a bail-in of 8% of the failing bank's assets; and provision of cash available in member states' bank resolution funds.
From 2016 onwards, harmonised bail-in rules will come into force as part of the BRR directive on member states' bank restructuring funds. Along with 8% of the bank's assets being contributed through a bail-in, the country's resolution fund will have to provide up to 5% of the bank's assets and convert uninsured and non-preferential debt before any cash may be forthcoming from the ESM via direct bank recapitalisation (see EUROPE 10871). (MB)