Wednesday 7 December 2016

Banking reform must be high on ECB agenda

The well has run dry and winding up bust banks without involving EU taxpayers is overdue, writes Colm McCarthy

Published 06/10/2013 | 05:00

DRAGHI'S D-DAY: The president of the ECB – which will, for the first time, be involved in the next set of bank stress tests – said this week that he expected a bank resolution regime to be agreed before the European Parliament was dissolved in March for elections next May
DRAGHI'S D-DAY: The president of the ECB – which will, for the first time, be involved in the next set of bank stress tests – said this week that he expected a bank resolution regime to be agreed before the European Parliament was dissolved in March for elections next May

Ireland's ability to survive without EU and IMF bailout loans, no longer available from January next, will be determined by the Government's willingness to keep the budget deficit falling. It will also be affected greatly by the stress tests on the banks to be undertaken in tandem with the European Central Bank (ECB) over the winter. If it needs further capital, the State is in no position to provide it and it is not alone.

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European banks shown to be bust should no longer expect rescue from sovereign states, several of which have reached the limits on what they can borrow. Even France and Germany have limited capacity to provide further rescue funds to bust banks.

If the stress tests are done rigorously and reveal capital deficiencies in banks, there will be a crisis, since no eurozone policy has been agreed to deal with that situation. If the stress tests conclude that everything is just fine, there will be a serious credibility problem: previous stress tests have given the thumbs-up to banks that subsequently went bust and were rescued by taxpayers.

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