EU mulls $68b fund to aid non-euro banks

The European Union is weighing whether a €50 billion ($68 billion) rescue fund can be turned into a bank backstop for member states outside the single-currency bloc, two EU officials said.

By Rebecca Christie (Bloomberg)

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Published: Fri 27 Sep 2013, 10:22 AM

Last updated: Fri 3 Apr 2015, 3:13 AM

The EU’s balance-of-payments fund currently has about €40 billion available, after being used to help Latvia, Hungary and Romania, the officials said. The European Commission now wants to overhaul the fund and add a tool for bank aid that could be tapped by non-euro countries whose lenders fail next year’s continent-wide stress tests, they said on condition of anonymity because the talks are private.

The Brussels-based commission wants a resource that can operate alongside the euro area’s €500 billion firewall, so that the entire 28-nation EU is braced for the results of next year’s stress tests, the officials said. The goal is to reach a deal by the end of this year so that the tool can be ready by mid-2014, when the commission also hopes to have finished negotiations on when the firewall can provide direct aid to eurozone banks.

“The Commission has proposed that the Balance of Payments Mechanism include a bank recapitalisation instrument for the same reason that one is available for euro area countries under the ESM: to provide a credible public backstop at the European level capable of reassuring supervisors and market participants that financial stability will be assured,” Simon O’Connor, a spokesman for the commission, said by e-mail.

“This is particularly important in view of the forthcoming asset quality review and stress tests, which need to strengthen confidence in the solidity of the financial sector in Europe,” he said.
 The European Central Bank will be conducting balance-sheet reviews of major banks across the euro area as it prepares to take on new oversight duties in the second half of 2014. In addition, all EU banks will face a new round of stress tests, carried out by the ECB, national regulators and the European Banking Authority.

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