LONDON, April 27 (Reuters) - Europe’s warchest for fighting the euro zone crisis could be used to shore up troubled banks and bolster investor confidence until more fundamental solutions are put in place, Britain’s top financial watchdog will say on Friday.
In a speech to be delivered in Dublin, Financial Services Authority Chairman Adair Turner will say that that fundamental solutions to the euro zone crisis such as greater fiscal integration and jointly issued Eurobonds will take time because of their political sensitivity.
Meanwhile the EU’s two firewall institutions, the European Financial Stability Facility and the European Stability Mechanism, could “play a direct role in recapitalising periphery national banks”.
Under current rules, only countries can tap the funds on behalf of banks.
Regulatory officials say if the warchest is used to recapitalise banks directly, it would become a resolution authority that would need “burden sharing” agreements to say who pays what if a lender in receipt of funds goes belly up.
There is no such cross-border legal framework for this.
Turner will note there is a “remorseless logic” in the IMF’s call for a more pan-eurozone approach to bank resolution, deposit insurance and bank supervision.
He echoes concerns at the European Central Bank which on Thursday called on authorities to set up a body to manage bank rescues in the euro zone in a bid to restore investor confidence in the battered sector.
Since the financial crisis began unfolding, the regulatory remedies have mainly been “more Europe”, meaning centralised supervision and common capital requirements.
There was a need now to consider “less Europe” as well, meaning “macroprudential” supervisory tools for use nationally, such as tailored capital buffers to rein in a local property market.
“Do we need more Europe or less Europe? My answer will be a mix of both - more integration on some dimensions, strong national powers on others, and with the balance quite different between countries within the euro zone and those outside,” Turner will say.
The need for such macroprudential tools will be even greater in euro zone countries as they cannot vary their own interest rates. (Reporting by Huw Jones; Editing by Greg Mahlich)