European Regulators Weigh State Aid for Troubled Banks
September 28 2016 - 7:30AM
Dow Jones News
LONDON—European regulators are open to using public funds to
help clean up toxic assets weighing on bank balance sheets and
hampering lending in the bloc's struggling economy.
"I think the authorities should consider whether, if the process
is not going fast enough, whether state aid could be part of the
ingredients to accelerate this process," Andrea Enria, chairman of
the European Banking Authority, said Wednesday at a Wall Street
Journal Financial Regulation Pro event here.
Mr. Enria's comments came as investor worries are mounting about
the health of leading banks in Italy and Germany in particular,
prompting speculation about whether government assistance might
play a role, despite strict postcrisis continental rules intending
to limit bailouts. Shares in Deutsche Bank AG have plunged over
fears that a threatened American fine in a mortgage-securities
probe could strain its capital levels, while Italy's Banca Monte
dei Paschi di Siena SpA is struggling to complete a private
recapitalization plan.
European law "does not exclude the possibility of state aid,"
said Mr. Enria, whose agency monitors the health of European banks.
"First of all," he stressed, "it says that before getting to state
aid you need to have private investors of course paying their fair
share of the price." But, he added, "there are conditions to have
state aid, and there are also situations in which state aid can be
say used in case of systemic events. There are rules to do that and
I think that these rules should be applied."
European policy is now structured to favor investor "bail-ins"
as opposed to taxpayer "bailouts"—that is, to force investors to
absorb losses before turning to public funds.
But the politics of "bail-in" have proved complicated,
particularly in Italy, where household investors own a large
portion of banking debt, having been sold the instruments with the
promise that they were virtually as safe as deposits.
"Bail-in is a very intrusive tool—it's a mighty weapon," said
Joanne Kellerman, a member of the Single Resolution Board, the
newly created agency in charge of writing resolution plans and
winding down a bank in case it is failing or likely to fail.
Ms. Kellermann, who was on the panel with Mr. Enria, added that
"if there are issues with a large number of bail-in able securities
being held by private investors, that is something to be addressed,
especially if those securities were sold under a false pretense"—as
some in Italy have alleged.
She didn't specify how she thought those issues should be
addressed.
(END) Dow Jones Newswires
September 28, 2016 07:15 ET (11:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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