EU Commissioner says no more public money for ailing banks
Reuters in Berlin
European Union banks that do not pass the next round of stress tests and need to secure more funding will have no further recourse to public money, the EU’s antitrust chief told a German newspaper, though he later said he had been misquoted.
“It will not be possible to resort to public money again,” Joaquin Almunia, the European commissioner in charge of competition policy, told business weekly VDI nachrichten.
“If there are banks that are close to bankruptcy, they must be wound down, and indeed exactly according to the new rules.”
Alumnia later said he had not said state aid for banks would no longer be possible after the stress tests to be undertaken next year and instead pointed to the revised rules on state aid for banks which were adopted on 10 July. VDI was not immediately available to comment.
“Under these new rules, which will enter into force on 1 August, if a bank must receive state aid, shareholders and junior creditors will have to contribute to the costs of restructuring in order to minimise the state aid necessary,” he said in a statement.
“The aim is to reduce the cost for the taxpayer, but state aid will of course still be allowed by EU rules under the conditions specified by these revised rules.”
“Before they are recapitalised with taxpayers’ money, banks will need to submit a sound restructuring plan. Only for those banks whose viability cannot be restored will an orderly winding down plan need to be submitted instead.”
In a policy shift, Europe overhauled the rules covering state aid to struggling banks last Wednesday, putting the burden for restructuring them on to shareholders and junior debtholders.
The European Banking Authority (EBA) is preparing for another round of stress tests in the second quarter of next year, that will examine how well the EU’s banks are placed to respond to economic and financial shocks.
The focus of the next test will be on seeing that banks are taking steps to implement Basel III, the global accord requiring them to hold more and better-quality capital and cash buffers.
In 2011, the EBA told the sector collectively to raise 106 billion euros (HK$1.1 trillion) by mid-last year, but many analysts and commentators argued that this was still not enough.