Euro ministers to decide direct bank recapitalization rules on Thursday

Wed Jun 19, 2013 9:11pm EDT
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By Jan Strupczewski

BRUSSELS (Reuters) - Euro zone finance ministers will decide on Thursday when and how their bailout fund can invest in a bank to save it from failure, laying a cornerstone of the banking union seen as vital to restore economic growth.

Ministers from the 17 countries using the euro will also set guidelines for how much a government would have to contribute to such a bank rescue, which banks would be eligible, and who would lose money in the process.

"We will reach a decision on all aspects of direct recapitalization," a senior European Union official involved in preparations for the meeting said.

Euro zone leaders want the European Stability Mechanism (ESM) bailout fund to be able to become a shareholder in a systemically important bank so that the expense of saving the institution does not fall just on the shoulders of a government that may already be struggling with huge debts.

The possibility of such direct recapitalization should help boost confidence among euro zone banks, encouraging them to lend to the real economy and so boost growth.

The discussions are closely linked to talks on Friday, when the euro zone ministers will be joined by colleagues from other European Union countries, on a broader law to rescue or close down a failing bank.

The bank recovery and resolution directive covers some similar ground to the ESM direct recapitalization guidelines, for example who loses money, and when, if a bank is rescued or wound down.

That is why guidelines for ESM, while expected to be agreed in principle on Thursday, will only be finalized in a legal form once the European Parliament votes through the directive.   Continued...