ECOFIN COUNCIL : BANKS: MINISTERS TAKE A STAND ON BACKSTOPS.

The 28 finance ministers published a statement, at the 15 November Ecofin Council(1) on the order in which backstops - private and public money - would be used if banks should need to be recapitalised. Such needs would be identified as part of the assessment of banks' financial health expected to be completed in 2014 by the European Central bank (ECB) for the eurozone and in coordination with the European Banking Authority (EBA) for the 28.

The text mentions the possibility of direct recapitalisation of banks through the European Stability Mechanism (ESM, the eurozone rescue fund), an ultra-sensitive issue.

When a bank is ailing, remedial steps will be taken in the following order: refinancing on markets, bail-in by the private sector, followed by national backstops in line with state aid rules. "Only if a country cannot meet the capital needs of its own banks [ ] will the ESM be available," said Eurogroup President Jeroen Dijsselbloem the day before the Council, after a meeting of the 17.

The statement notes that the ESM could be used indirectly in the form of a loan to a member state, as foreseen today. It could also be used as an instrument for the direct recapitalisation of banks, adds the text, once adopted according to eurozone and national procedures. The ministers reached political agreement on these principles last June. But they decided that they would be detailed only once the Council and EP agreed on the bank resolution and restructuring directive (BRRD), including the...