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British savers could face losses in eurozone bank stress tests
Uninsured depositors and bondholders in eurozone banks could face imposed losses following stress tests carried out before a “single-supervisory mechanism” headed by the European Central Bank begins work next June.
To avoid the cost of banking bailouts falling on highly indebted eurozone governments, banks that fail the ECB stress tests will face having losses and writedowns imposed on their creditors Photo: Reuters
By Bruno Waterfield, in Brussels
5:16PM BST 07 May 2013
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Jeroen Dijsselbloem, the chairman of eurozone finance ministers, warned that that the ECB checks on the quality of banking assets could lead to banks being shut down, highlighting the need for eurozone agreement on bank resolution rules this summer.
The prospect of eurozone banks facing closure will alarm British expatriates who live and have transferred their savings, proceeds from house sales and other assets to eurozone bank accounts in countries such as France, Spain and Italy.
“The first thing that the ECB will have to do when they take on their supervisory task is to have an asset-quality review of the main banks that will be under their supervision and I think very soon after that all the other banks in Europe as well because there is still the risk of contamination between banks,” Mr Dijsselbloem said.
“The outcome of that asset quality review we don't know yet, but it might be worrying. It might be worrying for some banks in some countries. We don’t exactly know. What I do know is that when we do have an outcome that is worrying, we need to have the instruments to deal with the problems.”
As well as setting up the new ECB “single-supervisory mechanism” in June 2014, the eurozone is to agree common rules on “bank resolution”, setting out which uninsured depositors and bondholders will lose money if financial institutions need to be taken into receivership and restructured.
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To avoid the cost of banking bailouts falling on highly indebted eurozone governments, banks that fail the ECB stress tests will face having losses and writedowns imposed on their creditors.
Yves Mersch, an ECB executive board member, confirmed that the new supervisor would check bank balance sheets to reveal any concealed dangers in the quality of assets before taking charge.
“Before we start working, we need to know what is on the balance sheet of these banks,” he said.
Wolfgang Schaeuble, the German finance minister, has lifted Germany’s opposition to a so-called banking union as long as it remains within the current EU treaty, without a common European deposit guarantee or resolution fund.
“We can’t wait, given the inertia we have in Europe, until we achieve treaty changes to solve current problems,” he said. “Therefore we need to do the best we can on the basis of the existing treaties.”
Ahead of a meeting next week, eurozone finance ministers remain divided on how to impose writedowns on banks following controversy over how losses were inflicted on depositors in the recent EU-IMF rescue of Cyprus.
“The treatment of uninsured depositors remains a key issue particularly after recent events,” according to an internal eurozone negotiating text seen by Bloomberg.
The question of how to bail-in bank creditors is likely to avoid writedowns on the value of deposits, over the guaranteed or insured level of €100,000, so that “in many instances” depositors will not face losses.
There are also divisions over using national “deposit guarantee systems” (DGS), aimed at protecting depositors under €100,000, to contribute to writedowns when unsecured senior creditors face losses.
The Irish EU presidency, which is overseeing negotiations until the end of July, has expressed concern that resolution rules might “unusable” unless DGS protection is not given protected status from the costs of restructuring a failing bank.
“The low size of DGS funds compared to insured depositors balances means that the funds would not be able to cover the losses in the event of a bail-in of a large bank,” said the internal paper.
Mr Dijsselbloem warned that unless the eurozone agreed common deposit guarantees, meaning that there would collectively guaranteed insurance for bank savers, then an EU banking union might fail with catastrophic consequences.
“That will be the final building block of the banking union, a necessary block,” he said. “We need to have the instruments to deal with the problems, because just exposing problems in banks and not having an answer would be very dangerous.”
Uninsured depositors and bondholders in eurozone banks could face imposed losses following stress tests carried out before a “single-supervisory mechanism” headed by the European Central Bank begins work next June.
To avoid the cost of banking bailouts falling on highly indebted eurozone governments, banks that fail the ECB stress tests will face having losses and writedowns imposed on their creditors Photo: Reuters By Bruno Waterfield, in Brussels
5:16PM BST 07 May 2013
Comment Jeroen Dijsselbloem, the chairman of eurozone finance ministers, warned that that the ECB checks on the quality of banking assets could lead to banks being shut down, highlighting the need for eurozone agreement on bank resolution rules this summer.
The prospect of eurozone banks facing closure will alarm British expatriates who live and have transferred their savings, proceeds from house sales and other assets to eurozone bank accounts in countries such as France, Spain and Italy.
“The first thing that the ECB will have to do when they take on their supervisory task is to have an asset-quality review of the main banks that will be under their supervision and I think very soon after that all the other banks in Europe as well because there is still the risk of contamination between banks,” Mr Dijsselbloem said.
“The outcome of that asset quality review we don't know yet, but it might be worrying. It might be worrying for some banks in some countries. We don’t exactly know. What I do know is that when we do have an outcome that is worrying, we need to have the instruments to deal with the problems.”
As well as setting up the new ECB “single-supervisory mechanism” in June 2014, the eurozone is to agree common rules on “bank resolution”, setting out which uninsured depositors and bondholders will lose money if financial institutions need to be taken into receivership and restructured.
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06 May 2013
To avoid the cost of banking bailouts falling on highly indebted eurozone governments, banks that fail the ECB stress tests will face having losses and writedowns imposed on their creditors.
Yves Mersch, an ECB executive board member, confirmed that the new supervisor would check bank balance sheets to reveal any concealed dangers in the quality of assets before taking charge.
“Before we start working, we need to know what is on the balance sheet of these banks,” he said.
Wolfgang Schaeuble, the German finance minister, has lifted Germany’s opposition to a so-called banking union as long as it remains within the current EU treaty, without a common European deposit guarantee or resolution fund.
“We can’t wait, given the inertia we have in Europe, until we achieve treaty changes to solve current problems,” he said. “Therefore we need to do the best we can on the basis of the existing treaties.”
Ahead of a meeting next week, eurozone finance ministers remain divided on how to impose writedowns on banks following controversy over how losses were inflicted on depositors in the recent EU-IMF rescue of Cyprus.
“The treatment of uninsured depositors remains a key issue particularly after recent events,” according to an internal eurozone negotiating text seen by Bloomberg.
The question of how to bail-in bank creditors is likely to avoid writedowns on the value of deposits, over the guaranteed or insured level of €100,000, so that “in many instances” depositors will not face losses.
There are also divisions over using national “deposit guarantee systems” (DGS), aimed at protecting depositors under €100,000, to contribute to writedowns when unsecured senior creditors face losses.
The Irish EU presidency, which is overseeing negotiations until the end of July, has expressed concern that resolution rules might “unusable” unless DGS protection is not given protected status from the costs of restructuring a failing bank.
“The low size of DGS funds compared to insured depositors balances means that the funds would not be able to cover the losses in the event of a bail-in of a large bank,” said the internal paper.
Mr Dijsselbloem warned that unless the eurozone agreed common deposit guarantees, meaning that there would collectively guaranteed insurance for bank savers, then an EU banking union might fail with catastrophic consequences.
“That will be the final building block of the banking union, a necessary block,” he said. “We need to have the instruments to deal with the problems, because just exposing problems in banks and not having an answer would be very dangerous.”
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