Brussels, 19/01/2016 (Agence Europe) - The President-in-exercise of the Ecofin Council, Jeroen Dijsselbloem, is in favour of limiting the exposure of European banks to the public debt of the member states in which they are established.
“We need a more realistic regulatory treatment of the risks of the government bonds that banks hold. The crisis has clearly shown that such exposures are not risk-free”, the Dutch finance minister said in an article published in the Wall Street Journal, on Tuesday 19 January. Whereas banking union aims to reduce the inter-dependence between bank risk and country risk, “our goal should be that banks are able to survive a potential debt restructuring of their national government”, he said, adding: “this may require concentration limits, which would cap a bank's holdings of its national government's debt as a proportion of total assets or total capital”.
In particular, Dijsselbloem describes the ECB's 'quantitative easing' operation as the ideal opportunity for this reform, as the ECB is able to buy back sovereign debt instruments that banks might need to sell. This will also help to avoid increasing the financing costs for the most-affected countries, such as Italy.
In order to reduce the financial risks further and, ultimately the likelihood that public money is needed to absorb bank losses, the President of the Eurogroup argues in favour of the introduction of an “ambitious” leverage ratio, which could require banks of systemic importance to hold levels of optimum-quality own funds equivalent to “at least 4%” of total assets.
In parallel to the work to complete banking union in the eurozone through the creation of the European deposit insurance scheme (EDIS), the European Commission has earmarked several fields for action to reduce the risks present on the financial market still further (see EUROPE 11437 and 11436). Amongst other things, it is planning to make changes to the national leeways in banking legislation in order to create a single rulebook, the introduction into EU law of the G20 agreement on the 'TLAC' buffer for the major systemic banks (see EUROPE 11431) and the calibration of prudential ratios. (Original version in French by Mathieu Bion)