The European Central Bank is on track to take up its full bank-supervision duties in October 2014, Dutch Finance Minister Jeroen Dijsselbloem said in his role as chief of the group of euro-area finance ministers.
“The interests of the euro zone are of course massive in this project,” Dijsselbloem told a European Parliament committee in Brussels today.
Finance ministers will ask ECB President Mario Draghi for an update “quite soon” on how the Frankfurt-based central bank will handle its reviews of banks’ balance sheets during a transitional period, Dijsselbloem said. He said clarity on that process will be “crucial” for the new supervisor to explain its strategy to nations and the general public.
“We need to be able to trust that it’s a good process, that it will be done in an independent and high-quality manner,” Dijsselbloem said. He also said it is “inevitable” that private companies will play a role in the assessments.
If the ECB finds shortfalls in its bank assessments, institutions will first have to seek additional capital from private investors, Dijsselbloem said. After that, nations must apply new state-aid rules that require some private investors to absorb losses, before turning to national bank-resolution funds or other assistance programs.
Direct aid to banks from the European Stability Mechanism, the 17-nation euro zone’s firewall fund, will be “very difficult” during the transitional period, he said.
“One of the conditions for the use of direct recap from the ESM is that the supervisory work by the ECB has already started, and it doesn’t start until October next year, so we also have a problem of time and phasing here,” Dijsselbloem said.
“If and when direct recap were to be applied in a specific case, there are a number of conditions” such as the hierarchy of creditor losses spelled out in pending EU legislation on bank resolution, Dijsselbloem said. “So direct recap is an instrument that is available, it will be right at the end of all the possibilities, but it has a number of strict conditionalities that will have to be applied first.”