VIENNA (Reuters) – National governments need to act as financial backstops in case next year’s round of bank health checks reveals additional capital needs that cannot be raised on the market, European Central Bank Executive Board member Yves Mersch said on Tuesday.
Mersch said that if governments were unable to do so, another public backstop would have to be used.
“Banking union is not a transfer union through the back door,” Mersch said in a speech to an Austrian banking conference.
“When both options – private sector and national budgets – are exhausted, a further form of safety net must be used.”
“It has to be assessed on a case-by-case basis to what extent a temporary access to a public backstop is needed to ensure a quick and smooth recapitalisation without excessive use of taxpayer money or a negative impact on financial stability.”
Mersch, however, did not detail how this other backstop would work.
ECB President Mario Draghi said on Monday it was realistic to count on national governments to prop up their local banks should checks of their balance sheets reveal capital shortfalls.
Mersch reiterated that the ECB could not start the review of bank balance sheets unless a credible and solid backstop was already in place.
He said the results of the review of particularly risky portfolios – perhaps ship finance in one country and real estate in another – would flow into bank stress tests to ensure that a single figure emerges for each bank examined.
Noting the European Commission wanted a common resolution mechanism in place by 2015 to handle banks in trouble, he said: “This timetable is not just ambitious, but also feasible.”
He said using the ESM euro zone bailout fund as a backstop for a joint resolution fund would be in line with decisions taken by EU members in December.
(Reporting by Michael Shields in Vienna and Sakari Suoninen in Frankfurt; Editing editing by Ron Askew and Robin Pomeroy)
ECB's Mersch - Need quick way to plug any bank capital holes
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