Regling Says New ESM Leverage Tools Needed for Bank Aid

European Stability Mechanism chief Klaus Regling said the euro area’s permanent rescue fund would need to create new instruments to permit private investors to take part in direct bank recapitalizations.

The ESM has access to leverage tools created for its temporary predecessor that so far have not been used. Those tools, which would allow private investors to come in alongside the euro area in lending money to governments, remain available, though they’re not suitable for direct lending to banks, Regling told reporters in Brussels today after a meeting of euro-area finance ministers.

“We will have to create a new one” if policy makers decide to move ahead, Regling said. He said the fund will do technical work to explore possibilities.

Euro-area finance chiefs have set a goal of mid-year for developing guidelines for how direct bank aid would work. The new tool, which EU leaders announced last year in a bid to assure investors that they’d protect the euro from an onslaught of banking problems, won’t be available until the European Central Bank takes up its bank supervision duties.

Dutch Finance Minister Jeroen Dijsselbloem, who leads the finance ministers’ group, said the currency bloc will explore options for the inclusion of private investors. The goal is to have as much capacity as possible for direct bank aid without putting the ESM’s other missions or its credit rating in jeopardy, he said.

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