EIM Financial - January 2014

12 February 2014

The stand-off between the European Parliament and Council seems to be deepening as the issue has moved on from the simple mechanics of Banking Union to the relative constitutional roles of the two institutions.

The stand-off between the European Parliament and Council seems to be deepening as the issue has moved on from the simple mechanics of Banking Union to the relative constitutional roles of the two institutions. It is increasingly difficult to see either side backing down from deeply entrenched positions. Fortunately, competition rules already provide swift bail-in provisions if any state aid is required – as is most likely with a major bank in difficulties.

The precise accounting rules to be used for measuring the impairment of banks assets is emerging as a difficulty and also whether the AQR exercise will impact 2013 financial statements. The answer is No – it will be reflected in the 2014 profits – giving time for banks to earn another €60ish billion of profits to help plug gaps. However, investors who buy securities on the basis of 2013 financial statements that turn out to be mis-stated may have reason to feel aggrieved if they are subsequently bailed in.

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© Graham Bishop