The officials of the so-called Euro Working Group will convene informally in Rome on Thursday and Friday to discuss how the European Stability Mechanism (ESM) will use eurozone funds to acquire shares in troubled lenders.
Officials said a consensus was forming around capping this facility at €60 billion, although an agreement in principle on this wouldn't be reached until a meeting of eurozone finance ministers planned for June 20. The said the plans envision an ESM representative sitting on the board of any bank that is directly recapitalised. It was likely that the ESM official would not come from the home country of the bank being recapitalised and would not be involved in day-to-day management, but would have purview over such issues as management remuneration.
Eurozone countries that have already used bailout loans to prop up their banks might retroactively gain access to the facility. Some of these governments are eager to move some of the stakes they took in banks using eurozone bailout money from their national accounts to the ESM's balance sheet—thereby reducing their debt burdens. But even if retroactive access is granted, it appears unlikely that countries that have already received bailout funds will be able to make a full transfer of their bank stakes to the ESM because of that €60 billion cap. Greece's banks alone have taken €50 billion in aid, while Spain's financial institutions have drawn on €41.4 billion.
The decision to allow a bank to get help directly from the ESM would be judged on a bank-by-bank basis, the officials said. The request for direct recapitalisation would still have to come from the government and not the bank that needed aid, they added. Officials said it was still unclear who would ultimately be liable if a rescued bank failed. So the facility wouldn't be operational before there is final agreement on a set of rules on restructuring and winding down failing banks, which is unlikely before the end of this year.
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