ECB's Mersch - banks' risks should determine resolution fund dues

FRANKFURT (Reuters) – Banks should pay into a European resolution fund for dealing with problem lenders according to their risk-weighting, European Central Bank Executive Board member Yves Mersch said on Wednesday.

Mersch and ECB Vice-President Vitor Constancio are jointly leading the central bank’s preparations to become supervisor of European banks – a responsibility it is taking over as part of the bloc’s plans for a banking union.

A resolution fund to deal with troubled banks is due to be financed by a planned levy on banks over 10 years until 2025.

“We know that some banks have more risky bank models than others,” Mersch said in the text of a speech for delivery in Berlin. “Therefore, the charges that banks have to pay into the Fund should be risk-weighted.”

While the ECB’s new supervisory role will give it the power to decide whether a bank is no longer viable, Mersch said a separate resolution authority should decide on the strategy for winding down or restructuring the bank concerned.

“In order to comply with this clear line of responsibility, the ECB should not have a right to vote on the resolution board,” he said, adding it would suffice for the ECB to have observer status.

The ECB has promised to put top euro zone banks through rigorous tests next year to unearth any risks hidden in balance sheets before supervision comes under its roof as part of the banking union aimed at avoiding a repeat of the euro crisis.

Mersch said the ECB would first look at banks’ liquidity and refinancing risks, before looking at their assets next year.

“We will then look more closely at samples of specific portfolios and individual assets,” he said, adding the review would look at credit and market risks, on- and off-balance sheet positions as well as domestic and foreign exposures.

“We will include all asset classes including non-performing loans, restructured loans and government bonds.”

(Writing by Paul Carrel; Editing by Toby Chopra)

ECB's Mersch - banks' risks should determine resolution fund dues