BRUSSELS: Finance ministers from Germany and France said Europe is ready to deal with any new banking crisis after an agreement to install a permanent lifeline to the eurozone’s crisis fund.
The currency bloc’s finance chiefs agreed to put in place a “backstop” to the Single Resolution Fund, a pot of money that can be used to shore up banks if they run into trouble. The deal, confirmed during all-night talks on broader euro-area reforms in Luxembourg, means that the firepower of the fund will eventually double to roughly 120 billion euros (US$135bil) by 2024 at the latest.
“This will reassure markets, this will reassure the public that Europe is equipped to deal with any banking crisis,” French Finance Minister Bruno Le Maire told reporters. “Savers should know they are protected because we now have the resources to deal with all bank crises including systemic banks.”
The measure is part of a framework designed to end taxpayer bailouts for banks after governments used trillions of euros to rescue the financial sector after 2008. The resolution fund is filled by bank contributions and any funds supplied through the new public-sector lifeline would have to be repaid by the industry. Investors would have to take a hit before the aid can be accessed.
The increased capacity means that the fund “is of the right size,” German Finance Minister Olaf Scholz said. It’s unlikely that the new backstop will ever be needed because even the biggest banks could usually be handled with the existing crisis fund, he said.
The Single Resolution Board, the euro area’s bank failure agency, has so far only put one bank – Spain’s Banco Popular Espanol SA – through a special process known as resolution. The crisis fund didn’t have to be tapped because Banco Santander SA took over the lender. — Bloomberg