A new bank rescue operation in Europe?
Wouldn't financial life be a refrain? The recent cases of NordLB in Germany and Banco Populare di Bari in Italy have rekindled fears of systematic use of public funds. In twelve years, we will have reached almost 700 billion bank recapitalizations in Europe. It's cold in the back. It is scarring treasurers too. However, European citizens were told that they would no longer have to bail out their banks. The case of Cyprus was interesting with a "bail in" (internal bailout) compared to the other "bail outs" (external bailouts with public money). The idea, however, was to empower banks and their shareholders. However, with the NordLB the German state has put 2.8 billion notably for guaranteeing dubious maritime credits. The European Commission approved by considering that the conditions were "market conditions". It is therefore not state aid in the sense of what Margaret Vestager is fighting. It is doubtful that the refinancing conditions were so-called market conditions. The fact of distorting the market by helping some without having previously let the shareholders contribute on the front line, we create a precedent (repeated), which is a bad signal. There would be double standards in Europe. The Germans always invoke the problem of Italian banks to justify their refusal to guarantee deposits. The “bail in” rule does not seem to be favored over the “bail out” rule, as it should have been. Many believe that the BRRD (i.e. Bank Recovery Resolution Directive) rules were only applied once for the Spanish bank Banco Popular. Too little often! The problem arises when the majority of the bank's creditors or debt holders are individuals. Let us remember the exception made for the famous and historic Monte dei Paschi di Sienna saved in extremis. The spirit of the directive has been changed. Sometimes a disagreement on the route hides a disagreement on the destination. This is the case with the famous European savings guarantee.
A national fund would be required (in principle) in each country to guarantee EUR 100K per individual. According to the Germans, the risks should first be reduced (e.g. toxic loans, money laundering, harmonization of bankruptcy rules, etc.). Then EU could apply the full set of banking union rules.
In summary, we can estimate that it will take five years (at least) to reach an agreement and what will happen in the meantime? What risks are we going to meet? We are far from having a banking union worthy of the name and a uniform approach by the major countries. We can regret it. However, as I have said on several occasions, it is a risk that could combine with others whose persistent negative rates have a domino impact. Really, do politicians and bankers learn from their mistakes and from previous crises? One can legitimately wonder. It's like a refrain from a popular song that keeps coming back. Let us remain vigilant because the counterparty risk is not theoretical and choose our bankers.
Fran?ois Masquelier, SimplyTREASURY – Luxembourg 2020