02 November 2017

Financial Times: US banks fight EU proposal to limit damage of bank runs

The banks are lining up against a proposal from the EU last November, which would allow authorities in member states to put a temporary freeze on withdrawals from accounts at troubled banks.

The proposal, known informally as the “payments moratorium”, is designed to help stabilise tottering lenders by stopping all payments for a period of up to 12 days — or possibly longer, if the powers are used more than once.

In a letter to the US Treasury secretary the two most powerful banking lobby groups argue that such a long freeze on withdrawals could undermine broader financial stability by encouraging depositors to flee at the first sign of trouble.

The simmering transatlantic row over measures designed to prevent financial panics, underlines the dangers of disjointed international regulation and the still-unresolved debate about how to deal with failing banks.

EU countries which already allow a moratorium on bank payouts in insolvency procedures at national level, such as Germany, support the proposal.

Elke König, the head of the Single Resolution Board, the euro-area bank crisis agency created in January, has repeatedly called for extended freezes on payments for troubled banks.

Estonia, which holds the rotating presidency of the EU, has also pledged to drive forward work on the reform package, which includes several other changes to the EU framework known as the Bank Recovery and Resolution Directive.

Charlie Bannister, London-based manager at AFME, which advocates for integrated European capital markets, said a moratorium “completely goes against the objectives of resolution, which is to provide continuity of business operations”.

Simon Hills, an executive director at UK Finance, said such a move would “affect market confidence and financial stability”, pushing up margin requirements for banks while increasing the risk of creditor runs.

Full article on Financial Times (subscription required)

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