The Ecofin Council creates officially the clan of ‘undead’ banks

From left to right, Jean-Jean-Claude Juncker, Prime Minister and Minister of Economics of Luxembourg, Ollie Rehn vice President of EC, Christine Lagarde general manager of IMF. (EC Audiovisual Services).

From left to right, Jean-Claude Juncker, Prime Minister and Minister of Economics of Luxembourg, Ollie Rehn vice President of EC, Christine Lagarde general manager of IMF. (EC Audiovisual Services).

Today 5 March 2013, in Brussels, without much publicity the Economic and Financial Affairs Council of the European Union, known as the Ecofin Council, is expected to discuss, inter alia, the new draft rules on bank capital requirements (“CRD 4”), including future rules on bankers’ bonuses. Those issues go in pair, in a way that was not all explained in terms that could be understood by the wider public. The mighty publicity machines of the EU institutions promoted the one, about capping bankers’ bonuses, which is easily sellable to the unsuspecting public, to hide the other about the creation of the ‘undead’ banks.

This last and more important issue is about a number of largely privately owned Eurozone banks, which are to be elevated legally to the ‘undead’ status. The Ecofin will presently create the categories of systemically important financial institutions (SIFIs), global systemically important institutions (G-SIIs) and the EU or domestic systemically important institutions (O-SIIs). As it usually happens in cases like that, the initial idea to elevate some banks to the category of “cine qua non” needs elaboration. It is like in heaven where there are many categories or regiments of Cherubims, Seraphims etc.  It couldn’t be differently because not all banks are equal. How can the giant Deutsche Bank be equal to a Cypriot or a Portuguese lender? There have to be distinctions in this new heavenly universe of banks.

New banking universe

In short the Ecofin Council today is about to create another layer of gentry within the establishment. This one will be made up of by bankers and bank owners, who will be living from now to eternity on the sweat of ordinary people. It will be exactly in the same manner as some national and the European bureaucracies have become “systemic”, thus ‘undead’.

In detail, according to an EU Council background announcement, the Ecofin, {will be called on to broadly endorse a compromise reached with the European Parliament on 27 February on two proposals – the so-called “CRD 4” package – amending the EU’s rules on capital requirements for banks and investment firms. The latest round of negotiations between Council and Parliament focused on five issues:

– Requirements for national systemic risk buffers and buffers for systemically important financial institutions (SIFIs);

– Flexibility for member states to impose stricter national measures to address increased macro-prudential risks to financial stability;

– Reporting requirements for banks on a country-by-country basis;

– Restrictions on bankers’ bonuses;

– Additional own-initiative mediation powers for the European Banking Authority (EBA)}.

There is more explanation of how the banks will be categorised in first, second or third rate systemic (or rather untouchable?) ones. Exactly as the EU bureaucracy is structured and functions, primarily serving its own interests and causes. The text the Ecofin Council is about to endorse continues like that:

{The main elements of the compromise with the Parliament are as follows:

1. SIFI buffers and systemic risk buffer

The buffer requirements specific to systemic institutions will be mandatory for global systemically important institutions (G-SIIs), but voluntary for other (i.e. EU or domestic) systemically important institutions (O-SIIs). Buffers will apply on a consolidated basis for G-SIIs and on an individual, sub-consolidated or consolidated basis for O-SIIs. The O-SII buffer is capped at 2%. The systemic risk buffer and buffers for G-SIIs and O-SIIs will generally not be cumulative and only the highest of the three buffers will apply. However, if the systemic risk buffer only applies to domestic exposures, it can be added to the SIFI buffer}.

In all those texts it is not yet clear who is going to pay for those buffers to safeguard the banks in the difficult times. It is certain however that the cost to crate them will be borne by the people who sweat in the real economy. In short the European Union is about to create a new category of “systemic” financial institutions, which will continue to produce financial crisis. Whenever those ‘undead’ banks are going bankrupt, the buffers will intervene and restore their capital to previous levels. Exactly as Count Dracula sucks the blood of the living, to perpetuate his own existence.

And all that under the publicity coverage of the EU institutions, which promoted the capping of bankers’ bonuses, to hide the creation of a new banking universe of ‘undead’ firms.

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