Germany openly seeks more advantages for its banks

General view of the meeting room of the Ecofin Council, regrouping the 27 EU ministers of Finance, (EC Audiovisual Services, 14/5/2013).

General view of the meeting room of the Ecofin Council, regrouping the 27 EU ministers of Finance, (EC Audiovisual Services, 14/5/2013).

The Commission proposal for a Bank Resolution and Recovery Directive divided deeply the Ecofin council in its yesterday’s Brussels meeting. Again the division took the form of North versus South or rather Germany & Co against everybody else. Mr Wolfgang Schauble, the German Federal Minister for Finance, insisted that the line of funds to be used by national resolution authorities in bail-in operations in case of a bank failure should contain also the unsecured deposits. France, Spain and Luxembourg maintained that unsecured deposits should be given a clear preference in relation to other bank creditors.

Apart from that even the issue of the theoretically secure deposits of up to €100,000 was not unanimously agreed. In both cases Germany wanted to degrade as much as possible the creditworthiness of all Eurozone banks, in order to underline the fame of its own lenders as the most creditworthy, despite the fact that the Deutsche Bank recently lied by saying it won’t be needing more capital from its shareholders. Let’s take one issue at a time.

The bank resolution directive

According to the Commission the proposed directive is aimed at providing national authorities with common powers and instruments to pre-empt bank crises and to resolve any financial institution in an orderly manner in the event of failure, whilst preserving essential bank operations and minimising taxpayers’ exposure to losses. It establishes a range of instruments to tackle potential bank crises at three stages: preparatory and preventative, early intervention, and resolution.

In view of that yesterday the Ecofin council discussed exactly this framework for the recovery and resolution of credit institutions and investment firms, focusing in particular on the design of the bail-in instrument. This tool will guide the national authorities over the line of funds to be used in the event of a resolution of a failing or about to fail bank. The two Cypriot banks were a test of this procedure. However in the Nicosia case the solution agreed by the Eurogroup and the Cypriot authorities was entirely provisional exactly because this proposed directive is still not in force.

In any case what is now at stake is the line of funds to be used in resolving or rescuing a failing bank. The only point that yesterday’s Ecofin council agreed was that shareholder funds will be used first. From that point onwards, that is the rest of funds to be used in a bail-in procedure, everything remained in the air. The reason for the disagreement was that Germany wants to use this affair, to boost the largely fictitious strong creditworthiness of its national lenders and more so of Deutsche Bank.

It goes without saying that France cannot accept that, expressing also the interests mainly of the Italian, Spanish and Luxemburg’s banks. The key point is the fate of the unsecured deposits above the €100,000 benchmark. If those deposits are to be placed entirely at the discretion of the bail-in authorities and not be given any preference, the slightest difference in the public and market perception about which banks are more secure than others, may create a major comparative advantage for some. If rightly exploited, this advantage can create two major categories of Eurozone banks, the secure and the less secure ones. The latter will be forced to pay more dearly for their funds and seemingly Germany & Co hopes to monopolise the former category.

According to the official Press release issued by the Council after the Ecofin was concluded its Presidency noted that there was:
* agreement amongst most member states that deposits under €100,000 must be fully guaranteed;
* considerable support for depositor preference (i.e. last category of assets to be bailed in), with some reservations raised on giving preference to large corporate deposits.

What Germany wanted

In both cases Germany wanted the Directive to contain the least possible reassurances to bank account holders, so as its own banks and more so the Deutsche Bank emerge as the most secure of them all. As a result Berlin is reserved over a full and unquestionable reassurance to be included in the Directive that all deposits of up to €100,000 are completely safe and their owners will be fully paid in the event of the bank’s resolution. Sources from the Ecofin council say that Germany contested also the preference to be given to holders of deposit accounts above the limit of €100,000.

Germany maintains that all account holders be given the least possible coverage by the directive.
Berlin follows now exactly the same policy line that Germany held in the case of the recent resolution and recovery of the two Cypriot banks. In this case the Eurogroup, under strong German pressures echoed and blindly followed by its Berlin loving president, Jeroen Dijsselbloem, had initially accepted that a haircut could be given even to deposits under the €100,000 benchmark. Then Berlin was at roof tops about the deepest possible haircut to be given to Cypriot deposits of above €100,000. At that time Paris was short-sighted in supporting Berlin destroy the Cypriot banking system. Yesterday however the French minister of Finance, Pierre Moscovici, was obliged to explain his change of position regarding both, the haircut of deposits under €100,000 and the preference to be given or not to larger deposits.

There is no doubt that Germany wants the Bank Resolution and Recovery Directive to contain the least possible reassurances to all bank account holders, so as its own national lenders and the Deutsche Bank gain a comparative advantage.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

EU job-search aid worth €2 million for 500 former shipbuilding workers in Spain

India’s economy is growing fast, but its poorest areas lag behind. Here’s why this could be about to change

Future of EU farming: MEPs push for modern common policy with fair funding

3 ways firms can master the digital challenges of the 4IR

Embracing the diversity in a multicultural city of Romania

The role of medical students in promoting women’s rights

Venezuela: European Parliament calls for additional sanctions

UN highlights importance of skills development on World Youth Skills Day

Inflation down to 0.7%, unemployment up at 12.2%: Bad omens for Eurozone

Employment and Social Developments in Europe review: why social fairness and solidarity are more important than ever

17 ways technology could change the world by 2025

Human health – litmus paper for the climate change?

Mozambique cyclones a ‘wake-up call’ to boost resistance: UN weather agency

UN human rights chief regrets closure of Burundi office following Government pressure

After the Italian ‘no’ and the Brexit, Germans must decide which Europe they want

“Decisions taken in the coming weeks will shape Europe’s experience of the internet”, Joe Mcnamee from EDRi says live from European Business Summit 2015

Here are what UNESCO considers to be remarkable new World Heritage Sites

Coronavirus: Commission lists key steps for effective vaccination strategies and vaccines deployment

Cyprus President urges collective leadership to address ‘root causes’ of world’s crises

End ‘cycle of violence’ in Gaza, UN deputy chief tells forum on Palestine

Pedal power makes ‘positive impact on climate’, urges UN on World Bicycle Day

Historian Niall Ferguson on what the pandemic means for the global economy, geopolitics – and parties

UN underscores the need to celebrate indigenous peoples, not confine them

What is the Coral Triangle?

Asylum seekers in Sri Lanka fear for their safety, in wake of Easter Sunday terror attacks

This warehouse is one of the world’s greenest industrial buildings

EU and 15 World Trade Organization members establish contingency appeal arrangement for trade disputes

Greta Thunberg at #DavosAgenda: Here’s how climate experts responded to her speech

Statement by OECD Secretary-General Angel Gurría on the outcome of COP 25

Deepfake democracy: Here’s how modern elections could be decided by fake news

Why leaders need to upgrade their operating systems

The New Year 2016 will not be benevolent to Europe

Trump reshapes the Middle East at the expenses of Europe

MEPs want to boost energy storage in the EU to help spur decarbonisation

A refugee from Syria cries out: “I’m not just a number!”

Companies can help solve water scarcity. Here’s how

Building trust: Here’s what you need to know about The Davos Agenda 2021

Italy’s dilemma after Merkel-Hollande agreed loose banking union

Global Trade Identity can be the cornerstone of paperless trade

Coronavirus: a cultural escape goat or the next Big Five

8 fascinating and fearsome frontiers of science you should know about

South Africa’s cabinet is now 50% women for the first time ever

Brazil must immediately end threats to independence and capacity of law enforcement to fight corruption

Release of prize-winning Reuters journalists in Myanmar welcomed by UN

EU approves close to €240 million to strengthen resilience in neighbouring countries hosting Syrian refugees in light of the coronavirus pandemic

UN urges ‘maximum restraint’ as Israel-Hamas tensions rise over rocket attack

WhatsApp to face scrutiny from EU regulators task force over data sharing with Facebook

Climate change: What is COP26 and why does it matter?

Asylum: MEPs call for more solidarity among EU member states

How to build a digital infrastructure that benefits emerging economies

Here’s how businesses can make the circular economy a reality

5 ways students can graduate fully qualified for the Fourth Industrial Revolution

What is behind the wide reach of  fake news about Coronavirus?

Telemedicine in Brazilian favelas: The medicine of social isolation transforming public health

The Commission breathless behind the horsemeat scandal

COVID-19 is a threat to waste pickers. Here’s how to help them

World Migratory Bird Day highlights deadly risks of plastic pollution

Rohingya emergency one year on: UN says thousands of lives saved, but challenges remain

5 amazing schools that will make you wish you were young again

4 ways to build a net-zero economy by 2050

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s