MNI POLICY: Single Resolution Fund Backstop Said Insufficient

By Luke Heighton

     FRANKFURT (MNI) - A proposed EUR60 billion backstop for Europe's Single

Resolution Fund may not be sufficient, the ECB's representative on the

Supervisory Board of the Single Supervisory Mechanism said today.

     EU ministers agreed in June that the European Stability Mechanism could

provide an additional EUR 60 billion as a backstop for the Single Resolution

Fund in case of need. The SRF, which is funded by EU banks, held EUR24.9billion

in July, and is intended to cover at least 1% of deposits by the end of 2023,

when its funds should also total EUR60 billion.

     However, Ignazio Angeloni told an audience in Brussels: " We don't have

formally a backstop yet, it has been announced that there will be a backstop.

The numbers that floating around, so far as another 60 billion, one can wonder

whether this is sufficient or not.

     "Even etymologically, a backstop of 60 billion is not a backstop, because

there is no stop in the back if you have only 60 billion".

     Here are key points from Angeloni's remarks during a panel debate at the

Single Resolution Board Conference.

     -- Efforts to bring about banking resolution have been partially

successful, with banks "more resolvable" than 10 years ago.

     -- The ECB could provide banks with liquidity funding, but with conditions

- banks must be financially sound, have proper collateral, and such a move

should interfere with standard monetary policy.

     -- Inadequate harmonization across borders has created an "incentive to

bypass the rules", with failing banks able to avoid resolution in favour of

liquidation and state aid.

     -- Although it is "very clear" for the ECB when to declare a bank to be

failing or likely to fail, national authorities may not agree, thus creating a

"limbo situation".

     -- Current legislation on early intervention needs to be "tuned up" because

there is currently not enough distinction between normal supervisory action and

the early intervention phase.

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com