Saturday

27th Nov 2021

Eurozone ministers look at 'lessons' to save banks

  • "There is still work to do and lessons to be learnt" to strenghten the banking resolution system, said Eurogroup president Jeroen Dijsselbloem. (Photo: ECB)

Eurozone finance ministers endorsed Italy's rescue of some of its banks on Monday (10 July), but said that European rules on banking resolution should be strengthened.

Last month, the Italian government decided to provide up to €17 billion to save Banca Popolare di Vicenza (BPVI) and Veneto Banca, which were at risk of failing due to massive debts.

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The plan came as the government is also trying to save the fourth largest bank in the country, Monte dei Paschi di Siena, with a €6.6-billion state contribution.

"They took the decision within all the legal frameworks and there's no question about that as far as the ministers are concerned," Eurogroup president Jeroen Dijsselbloem said after a meeting in Brussels.

EU finance commissioner Pierre Moscovici noted that the "decisions taken have put an end to uncertainties weighing down on the banking sector" and that they have "removed about 13 percent of non-productive loans in the Italian banking sector".

Non-productive loans (NPL) are loans that borrowers don't reimburse or pay interest on. Since the financial crisis they have been a major factor in bank debts.

An EU source noted that some ministers, especially the Austrian one, "didn't like the solution" provided by the Italian government, but they agreed to it because "they know it would have been worse for taxpayers".

"A number of banks are in trouble, a number of retail customers were at risk of becoming part of the solution and a lot of public money had to be spent to sort it all out. There were huge problems," Dijsselbloem said.

"We need to make sure these problems don't occur anymore in the future. If they do occur, we want to be as effective as possible."`

The Eurogroup president insisted on "the importance of dealing with very big differences between national insolvency frameworks," a position that is shared by the German finance minister, Wolfgang Schaeuble.

Dijsselbloem said that it is "important to make sure that all banks have a capacity to carry their own losses".

He added that it is also important to get "a very clear creditor hierarchy in the eurozone area," in order to know who pays first when banks have to be rescued.

Other issues that will have to be addressed are the protection of retail investors and how to have "sound asset evaluation in the process of dealing with banks to allow also outside investors to participate."

"There is still work to do and lessons to be learnt," Dijsselbloem said.

Ministers also discussed how to reduce the risk of NPLs for banks and customers.

Dijsselbloem said that the idea of "one big bad bank for the eurozone or for each country," in which bad loans would be transferred to relieve banks "is not going to work".

He said that a "much better way to move forward" is trying to create a market for NPLs, where different types of assets would be taken into account.

EU approves rescue of Italian banks

The European Commission gave the green light to a €17-billion plan by the Italian government to save Banca Popolare di Vicenza and Veneto Banca.

Italy reaches EU deal on failing bank

After months of negotiations, the European Commission and Italy agreed on the terms of rescue for Monte dei Paschi di Siena bank, including job cuts, salary caps and private sector involvement in the bailout.

Eurozone bank needs more scrutiny, says NGO

Transparency International says eurozone's central bank is not subject to "appropriate democratic scrutiny" and should have no say on EU bailout projects.

ECB takes over ailing Italian bank

Decades of mismanagement appear to have caught up with Italy's Carige bank as the European Central Bank takes control in a move to stave off another banking crisis.

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