(c) 2013, Bloomberg News.
(c) 2013, Bloomberg News.
PARIS — European Central Bank President Mario Draghi expressed confidence that euro-area nations will ensure that backstops are in place in time for bank reviews next year.
There's a "general determination" to have adequate measures in place when the ECB takes on its new role as a bank supervisor, Draghi told reporters here Wednesday. He said capital injections into banks probably won't count against budget ceilings under the currency bloc's rules because they will be one-off measures.
"That's another thing that quite astonishes me as the doubts that have been expressed about whether national backstops will be in place," Draghi said. "In fact, there is an explicit reassurance about this in the conclusion of the last European Council, where there is an explicit reference to national backstops."
The ECB is slated to take over supervision of all euro-area banks next year, after a transition period in which regulators will assess the quality of banks' assets and their resilience to shocks. Euro-area nations now are debating what kind of financing options need to be in place to head off contagion from capital shortfalls that are uncovered.
EU financial-services chief Michel Barnier has proposed a Single Resolution Mechanism that would have a central fund handle the costs of failing banks and give decision-making authority on resolution decisions to the Brussels-based European Commission. Germany has led objections to the proposed fund and also the commission's proposed powers.
Draghi said the ECB will decide when a bank under its supervision is viable and not what to do after it fails. He said the ECB should be only an observer on resolution and not hold a voting role on any decision-making board.
"We view the two moments of assessing the known viability of a certain banking concern and deciding which action should be undertaken as clearly separated," Draghi said. The ECB will take care of the first part, and the SRM should handle the second, he said.
His remarks counter a proposal from Germany's main opposition party, the Social Democrats, who called for the ECB to take control of failing euro-area lenders. Chancellor Angela Merkel has favored using a network of national bank regulators to handle bank resolution, rather than Barnier's proposed central system.
Draghi reiterated the ECB's plan to release details of its bank-review process later this month. The euro area needs to "harmonize" its definitions of non-performing loans and to make sure the reviews are rigorous.
"To be credible, they have to be transparent and rigorous, othewise they're useless," Draghi said.
Draghi said he hopes credit will recover before the asset- quality review takes place. Bank funding conditions have improved since 2012, for example in the context of strengthened deposit bases in "a number of stressed countries," he said.
If done correctly, the asset-quality reviews have the chance to improve fragmentation across the euro-zone financial sector, he said.
"It's fear, it's undertainty that has produced fragmentation," Draghi said. When the reviews take place, "I don't expect major disasters."
On the question of how the risk of government bond holdings will be assessed during the bank reviews, Draghi said the ECB so far hasn't discussed a policy approach.
"Current opinions about different riskiness of government bonds are what they are, namely personal opinions which address a clear issue: different riskiness of government bonds," Draghi said. "Let me also say that no action is being envisaged or no policy has ever been discussed by the governing council to this extent."
_ With assistance from Simone Meier in London and Birgit Jennen in Berlin.