Dutch Finance Minister Jeroen Dijsselbloem, who committed taxpayer funds to take over SNS Reaal NV (SR) last month, said troubled lenders in the euro area must now fend for themselves as part of future regional rescues.
Dijsselbloem, who leads the group of 17 euro finance ministers, said imposing losses on depositors and bondholders can be part of the bailout toolkit after such measures were taken to avoid default in Cyprus.
“We are looking for a way to place risks where they are taken,” Dijsselbloem said on Dutch television program “Pauw & Witteman” late yesterday. “Banks should strengthen their balances -- they have to ensure they can be unwound when they get in trouble. Next, it should be possible to make shareholders and bond holders contribute to a rescue. That’s how we move along. And then eventually you may get to a government contribution. That order was reversed in the last years.”
Dijsselbloem said earlier yesterday that if ailing banks can’t raise funds, “then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders.” Those comments, to Reuters and the Financial Times, were confirmed yesterday by Dijsselbloem’s spokeswoman, Simone Boitelle.
“Cyprus was an extraordinary case and that is why we went extraordinarily far by involving even depositors holding more than 100,000 euros,” Dijsselbloem said on the television program.
Dijsselbloem issued a statement after his earlier comments roiled markets already bracing for the potential of capital flight. The euro group yesterday decided the 10 billion-euro ($12.9 billion) bailout for Cyprus will require levies of as much as 40 percent on bank deposits above 100,000 euros.
“Cyprus is a specific case with exceptional challenges which required the bail-in measures we have agreed upon yesterday,” his later statement said. “Programs are tailor- made to the situation of the country concerned and no models or templates are used.”
The Cyprus approach contrasts with the Feb. 1 rescue of Dutch lender SNS, which will cost taxpayers 3.7 billion euros and subordinated bondholders their investments.
The euro weakened as much as 1.2 percent yesterday after his comments to Reuters and the Financial Times were published, after earlier climbing as much as 0.5 percent. It traded at $1.2858 at 9:02 a.m. in Tokyo, near yesterday’s four-month low of $1.2830 . Stocks and Italian and Spanish bonds also reversed gains.
Markets initially rallied after Cyprus dodged a disorderly sovereign default and possible euro exit by bowing to demands to shrink its banking system. The agreement came a week after Cyprus rejected an initial plan to charge a levy on all deposit holders, raising the specter of bank runs.
“I stand for the line of policy we have set out,” Dijsselbloem said on the “Pauw & Witteman” show. “If someone asks me what defends this approach towards Cyprus I say this is a framework on how we are handling the reform of the financial sector and troubled banks in several places at the same time.”
Problems should be returned to where they can be addressed and only end up with taxpayers when no options remain, he said. “That is what we have partially done with SNS obviously.”
The Dutch minister’s emphasis on national solutions come as he and his counterparts build a European banking union that provides for central oversight and the potential for recapitalization of banks by bailout funds to break the vicious circle of financial-sector and sovereign debt.
“We should aim at a situation where we will never need to even consider direct recapitalization,” Dijsselbloem told Reuters and Financial Times.
The existence of a banking union now would have made the euro’s fifth bailout program unnecessary, said Alexandria Carr, a finance lawyer with Mayer Brown LLP and former adviser to the U.K. Treasury.
“Had the EU acted more quickly in setting up a fully functioning banking union, the current situation in Cyprus may have been avoided,” Carr said in an e-mailed statement.
The Dutch minister’s conflicts over bank bailout were cited by Luxembourg Finance Minister Luc Frieden March 20, two days after Cypriot lawmakers rejected the maligned deposit levy. Dijsselbloem took over the euro group chairmanship from Luxembourg Prime Minister Jean-Claude Juncker on Jan. 21.
“Mr. Juncker would probably have listened more to some countries than the current chairman, who is doing his job very well, but at the same time is also tainted by the heavy debate on the rescue plans in his own country,” Frieden said in response to a question on Luxembourg’s RTL radio.
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