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Translated from the German
You will soon have to make a judgement on the health of European banks. In Spain, the bad loans have reached a record level; banks in Portugal and Greece had to scale back their lending significantly. Is this not causing you sleepless nights?
There are many things yet to sort out, I agree. But the crucial thing is not only whether a bank has bad loans on the balance sheet but how much risk provisioning and capital the bank is holding against it. If banks had no bad loans on their books, they would not assume any risks. But the assumption of risk is part of the banking business. So the question is: Can the banks afford these risks? The answer to that will be available after the intensive analysis of the balance sheets and the stress test.
Is there excess capacity in the banking sector?
For the German banking sector, I can affirm that; for the European banking sector, this question is difficult to answer as it is anything but homogeneous.
Why did the German financial supervisor not prevent this excess capacity?
The German regulator has no structural mandate. Our task is to provide a functioning banking industry that can meet the needs of the real economy.
Unlike in the past, the stress tests will take into account the banks' involvement in government bonds. How?
The stress tests will be strict and take into account the different rating of government bonds. If we want to achieve regained confidence in the banking sector, we need to identify risks and detect contamination. Only in this way will we send a clear signal to the market that not only current risks but also those that may materialise in the future are covered sufficiently. How exactly the risk of government bonds will be taken into account in the stress tests has not yet been decided.
Was it wrong of ECB chief Mario Draghi to say that not all banks will pass the balance sheet review and stress test?
It will probably transpire after the balance sheet review that some banks are short of the required core capital ratio of 8 per cent. Those banks will then need to recapitalise - but this would not mean the end of the world for them.
For these cases, should there be an emergency plan?
Absolutely. It is very important to have a backstop as last resort. But before public funds are used, all other options will have to have been exhausted. First, the bank must try to increase its own capital base. Then we will see whether and to what extent certain creditor groups can be involved. Then you have to think of national resolution funds before the question of public funds arises. I see the individual nation-state in the duty. Only when all else fails may the ESM provide assistance.
Controversy remains over the question who in future is to organise and be responsible for the settlement of ailing banks. What is your opinion on this?
We need a European resolution authority - because if supervision is happening at the European level, resolution must be handled at European level as well. But we also need a firm legal basis, since it the rights and interests of third parties that are concerned should a settlement of a bank become necessary. It will have to be decided which investor loses how much and this will inevitably leads to a wave of lawsuits. It is questionable whether we have this water-tight legal basis at the moment. The solution will therefore most likely be a European network, in which, among other things, the load distribution is regulated. A European Resolution Authority would ultimately have to rely on national funds as well and therefore involve all those who fill these national pots.
Full interview (in German)
Further reporting by the Handelsblatt © 2013 Handelsblatt