Brussels, 09/12/2014 (Agence Europe) - The European Stability Mechanism (ESM)'s direct bank recapitalisation scheme is now operational, but is unlikely to be used.
This additional power for the eurozone's permanent bailout fund is now formally operational, explained the ESM executive director, Klaus Regling, on Monday 8 December. In June, the member states dropped their reservations about how direct bank recapitalisation would operate, thus paving the way for ratification by the various national parliaments that require this step (see EUROPE 11098). The required ratificatioms have now been done and the ESM's administrative board (comprising eurozone finance ministers) has adopted direct bank recapitalisation guidelines.
With finance of €60 billion within the ESM, direct recapitalisation is intended to cut the link between bank problems and sovereign debt by no longer forcing countries to bear the vast majority of the cost of bailing out failing banks registered in their country.
The likelihood of the recapitalisation system being used (it was once presented as the main solution to the eurozone sovereign debt crisis) is extremely low. Regling talked about the “strings” attached to its use: “The bank concerned needs to be viable and of systemic relevance, bail-in rules must have been applied, national resolution funds used. So there is a cascade of events show that DR only at last resort when all options preserved.” Regling added that “use of direct recapitalisation is unlikely in the foreseeable future, but reassuring for the markets.” (MB)