Eurozone leaders decided in June 2012 that the European Stability Mechanism (ESM), which has a lending capacity of €500 billion, should be able to recapitalise directly banks if a government is unable to raise sufficient funds on its own because market borrowing could endanger the sustainability of its public debt. The exact rules on how recapitalisations could take place, under what conditions and which banks might be eligible are to be decided by eurozone finance ministers later this month, at a meeting in Luxembourg following six months of discussions. They appear close to agreement on some issues.
With a view to preserving the ESM's high creditworthiness and its lending capacity for other instruments, the Board of Governors (of the ESM) resolves to limit the amount of financial assistance available for the ESM instrument for the direct recapitalisation of institutions to EUR.
To recapitalise an institution directly, the ESM board of governors will set up a subsidiary, the document said, that would channel the aid and take care of all the current business related to it.
The ESM shall, for the purpose of implementing financial assistance in the form of direct recapitalisation of institutions and to facilitate private participation, establish a subsidiary as an entity of public international law ('Subsidiary'), fully owned by the ESM as the only shareholder. The subsidiary may set up sub-entities "for the purpose of implementing financial assistance in the form of direct recapitalisation of institutions", the document said.
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