BRUSSELS, June 11 Euro zone governments agreed
on Tuesday that the bloc's bailout fund will be able later this
year to help to recapitalise failing banks which have written
off 8 percent of their liabilities.
European Union leaders agreed two years ago that the bloc's
European Stability Mechanism (ESM) must have the option of
directly buying a stake in a bank to break the 'doom loop' that
binds indebted governments to unstable banks they are trying to
Tuesday's agreement is based on a May proposal by the
chairman of euro zone finance ministers, Jeroen Dijsselbloem,
allowing direct recapitalisation once 8 percent of a bank's
total liabilities are written off.
The direct bank recapitalisation from the ESM is designed as
the last resort option.
"The instrument may be activated in case a bank fails to
attract sufficient capital from private sources and if the ESM
member concerned is unable to recapitalise it, including through
the instrument of indirect recapitalisation of the ESM,"
Dijsselbloem said in a statement.
The instrument's capacity was capped at 60 billion euros
The global financial crisis forced Europe to forge a banking
union, the euro zone's most fundamental systemic change since
the creation of the euro, aimed at ensuring better supervision
and repair mechanisms to prevent another crisis.
The union entails supervision by the European Central Bank
while a new agency, the European Commission and possibly
ministers from member countries will decide how to handle
If a bank has to raise capital by the end of 2015, it will
have to ask private investors for money first and if it cannot
raise enough, it can ask the government for support.
But to further reduce the need for euro zone funds in that
transition year, a national resolution fund would first have to
use the money it accumulated from bank contributions during that
year - an equivalent of 0.1 percent of all deposits up to
Only once the national resolution fund's cash is used, and 8
percent of what the bank owes others is written off, can the
euro zone bailout fund move in to buy shares in the bank.
Once the EU's Bank Resolution and Recovery Directive is
fully in force from the start of 2016, not only a bank's
shareholders but also its bondholders and even large depositors
would have to lose money before government or euro zone money
could be used to save the bank from collapse.
EU policy-makers call this a bail-in, contrasting it with
using taxpayers' money to bail out failing banks.
($1 = 0.7345 Euros)
(Reporting by Martin Santa; Editing by Ruth Pitchford)