At the Eurogroup meeting in Brussels on Monday 10 July, the finance ministers of the Eurozone took stock of recent bank bailout operations in Spain and Italy.
“All decisions were taken in full respect of the European legal framework”, said the President of the Eurogroup, Jeroen Dijsselbloem after the meeting, adding: “however, there is still work to do and lessons to be learnt in terms of possible policy implications”.
The various representatives of the European institutions and bodies (ECB, Single Resolution Board) involved in the bank bailout process reported back to the ministers on the unfolding of the operations and explained their role in the decisions made. Dijsselbloem said that coordination between the institutions had proven effective. “We are starting to build experience”, he added.
As the Spanish resolution of Banco Popular (see EUROPE 11803) was discussed last month, and due to the media interest the case has enjoyed, praising the effectiveness of banking union in the Eurozone, discussions focused on the liquidation of the Venetian banks Banca Popolare di Vicenza and Veneto Banca (see EUROPE 11816), which have, conversely, attracted stiff criticism.
Within the Eurogroup, these decisions went down well by and large. However, Austria, Finland and Slovenia were somewhat more critical, according to one European source. However, the source went on to say, the majority of the Eurozone countries are aware that full application of the ‘bail-in’ principle laid down in the banking recovery and resolution directive (BRRD) in the process of liquidating the Venetian banks, as for the Spanish resolution case, would have ended up costing taxpayers more.
“Each case is different and has to be assessed individually”, the Eurogroup President pointed out.
The European Commissioner for Economic and Monetary Affairs, Pierre Moscovici, said that the decisions put an end to the uncertainty weighing on the Italian banking sector. He went on to point out that around 13% of non-performing loans have been withdrawn from the Italian banking sector as a result of these operations. “Our rules have proven their worth and so has banking union”, he concluded.
Areas for future work
The Eurogroup discussions also highlighted the lessons to be learnt for the future, such as the need to ensure the coherence of the process. This will start with a post-mortem on these bailout cases to be carried out by the ECB and the SRB. In 2018, the Commission will also re-examine the implementation of the BRRD directive.
Dijsselbloem said that the priority is to focus on harmonising the national insolvency frameworks, creating ‘buffers’ for capital that can be drawn upon in the event of banking resolution (MREL), establishing a clear hierarchy of creditors in the Eurozone (see EUROPE 11810), increased protection for retail investors who were unaware of the risks they took when they invested in certain securities and, finally, a better evaluation and transparency of assets when allowing external investors to act.
“All of this could be put on our agenda to finalise banking union”, said the Dutch Minister, adding that this would require “both risk reduction and risk sharing”.
On Tuesday 11 July, the Commissioner for Competition, Margrethe Vestager, and the President of the Single Resolution Board, Elke König, tackled this exercise once again at the European Parliament in hearings behind closed doors, and then a second hearing, this time public, for König, before the members of the economic and monetary affairs committee. (Original version in French by Marion Fontana)