Reuters: ESM head says euro bailout fund may not aid banks

02 March 2013

Regling said deep reservations in some European states could ultimately stop the eurozone's bailout fund being used for bank recapitalisation.

"There are several states where enthusiasm for direct bank recapitalisations is very limited", Mr Regling said, noting it needed unanimous backing. "I can therefore not say with 100 per cent certainty that we will have this instrument." Eurozone leaders agreed last June to allow the ESM to recapitalise banks directly to stop the rescue of failed financial institutions from piling debt on individual countries.

But Germany and others have doubts about using the fund for this purpose because they fear it will leave them on the hook for bad loans made in Spain and elsewhere. Regling also has doubts. "If money from the ESM goes into saving banks then it reduces the ESM's capacity to make loans to needy states", he said in an interview made available on Saturday, adding that recapitalising banks without an upper limit could hurt the ESM's credit rating.

Full article

© Reuters