The chairman of euro zone finance ministers Jeroen Dijsselbloem warned that the results of stress tests on euro zone banks scheduled for next year could be ‘worrying’ as he underlined the need to have common bank resolution rules in place to govern the wind-down of banks, if needed.
The head of the group of 17 euro zone finance ministers said the type of in depth review the European Central Bank would conduct could produce worrying results for some banks.
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The prospect of euro zone banks facing closure will alarm British expatriates who live and have transferred their savings, proceeds from house sales and other assets to euro zone bank accounts in countries such as France, Spain and Italy.
The chairman however, remarked that the region must have complete transparency and be ready to deal with any weaknesses as it moves forward to align regulations and unite banks under one common supervisor and create a resolution mechanism for ailing banks.
The Dutch finance minster Jeroen Dijsselbloem on Tuesday discussed a new round of stress tests which would evaluate the current state of the region’s banks before they are linked. Stress tests have already been performed by the European Banking Authority to rate banks based on how well they perform in poor conditions, but they have been criticized as being too lenient. The tests are expected to continue alongside the ECB’s own review, which will examine the quality of a bank’s assets themselves.
To avoid the cost of banking bailouts falling on highly indebted euro zone governments, banks that fail the ECB stress tests will face having losses and write-downs imposed on their creditors.
Addressing a conference in Brussels on Tuesday, the chairman said banks would undergo asset quality reviews before they come under the supervision of the European Central Bank next year.
A new ECB ‘single-supervisory mechanism’ is to be set up in June 2014. The euro zone is to agree common rules on “bank resolution”, setting out which uninsured depositors and bondholders will lose money if financial institutions need to be taken into receivership and restructured.
On Tuesday, German finance minister Wolfgang Schaeuble surprised investors by saying Germany was prepared to enter the union without making time consuming changes to the EU’s underlying treaty.
Ahead of a meeting next week, euro zone finance ministers remain divided on how to impose write-downs on banks following controversy over how losses were inflicted on depositors in the recent EU-IMF rescue of Cyprus.
The euro zone ministers are also divided over using national “deposit guarantee systems” (DGS), aimed at protecting depositors under €100,000, to contribute to write-downs when unsecured senior creditors face losses.