Brussels, 09/07/2014 (Agence Europe) - On Tuesday 8 July, EU 28 finance ministers gave details of the rules on addressing capital requirements and burden-sharing for banks ahead of publication in October of the results of the European Central Bank's Asset Quality Review and the European Banking Authority's bank stress tests.
The Ecofin Council sets out the series of measures to be taken by banks to address any capital shortfalls identified by the ECB or EBA within the six to nine-month deadline. The first port of call will be private sources of finance, such as the raising of capital on the money markets or the sale of assets. There is broad agreement that supervisors should encourage banks that may need capital to benefit from the current benign climate and tap the markets before the test results are released.
In a document adopted on the fringes of the Ecofin Council, the ministers say: “Public recapitalisations should be the exception rather than the norm and be used only when strictly necessary to remedy a serious disturbance in the economy of a member state and preserve financial stability. From January 2015, the use of public funds would imply that an institution is deemed to be failing or likely to fail and would lead to resolution, except for precautionary public recapitalisations that meet all the conditions of the BRRD Directive. These precautionary recapitalisations will not trigger resolution and will be conditional on final approval under state aid rules, including the presentation of a restructuring plan and burden sharing, thus ensuring a level playing field”.
Burden sharing. The EU state aid rules were changed a year ago to require junior bondholders to pay some of the restructuring costs before a public bailout of a bank is allowed. Exceptions will be possible on a case-by-case basis when raids on private investors' holdings would be disproportionate or endanger financial stability.
The Ecofin Council calls on member states to introduce the “necessary tools” and legislation to deal with any eventuality. On Monday 7 July, the head of the Eurogroup, Jeroen Dijsselbloem, commented: “Member states should have legislation put in place before the AQR outcome. This has to do with legal requirements and with burden sharing. A lot of progress has been made over the past few years. Some member states still have to do that. They have to hurry up”. (MB)