Monday, March 12, 2012

ECB's Coeure revives call for bank bailout fund

A Reuters' article reports that the ECB's Executive Board Member Benoit Coeure has revived the call for a pan-European bank bailout fund.

The purpose of this bank bailout fund is to break the link between the creditworthiness of the banks and the sovereigns by standing behind and supporting the sovereign deposit guarantees.

Regular readers are familiar with this concept as it was included in your humble blogger's blueprint for saving the financial system.

Under the blueprint, banks recognized all the losses on and off their balance sheets today and while they are rebuilding their book capital through the retention of future earnings, the fund backstops the sovereign deposit guarantees.

It is nice to have an official of the ECB confirming the efficacy of another element of the blueprint.

A pan-European bank bailout fund would be an effective tool to absorb future shocks to the European banking system as it would ensure equal treatment while setting the right incentives to cooperate, a European Central Bank policymaker said....
But ECB Executive Board member Benoit Coeure said in a dinner speech at the Association for Financial Markets in Europe (AFME) delivered in Paris on Tuesday that such a measure could make the banking system more stable. 
"A pan-European financing arrangement would be one of the most effective measures to break the link between the creditworthiness of banks and that of their sovereigns," Coeure said in the speech, which focused on regulatory reforms in the financial sector. 
ECB Vice-President Vitor Constancio called for a similar fund run by Brussels in a speech in November.

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