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26 September 2013

Bloomberg: EU mulls €50 billion fund to aid non-euro banks

The EU is weighing whether a €50 billion rescue fund can be turned into a bank backstop for Member States outside the single-currency bloc, two EU officials said.

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.

If all the proposed backstops are in place, the EU would have as much as €400 billion available to handle any banking problems that emerge, one of the officials said. This would include €60 billion in possible direct bank aid from the European Stability Mechanism and another €280 billion in capacity for banking assistance programmes like the one Spain received last year, as well as the proposed tool for non-euro Member States.

Germany and the UK are leading opposition to the proposal, on the grounds that it might ease pressure on countries to clean up their banking sectors without aid, the officials said. 

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