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2014-03-21

EUs bankfond är otillräcklig Läs Eurointelligence eleganta slakt

Wolfgang Schauble applauds the agreements on the grounds that
"the mutualised liability of participating member states remained ruled out";
Eurointelligence 21 March 2014

From an economic perspective, it is the only issue that matters.

We would like to highlight why a backstop is critically important.

A backstop is what transforms a fund that can deal with a single bank into one that can backstop multiple banks at the same time. A backstop is what renders such a fund viable during a financial crisis.

The Federal Deposit Insurance Corporation, the US resolution fund, is in many ways similar to the SRM, including in terms of its overall budget size, but unlike the SRM it enjoys an implicit backstop of the US federal government.

When it takes over a bank, this implicit backstop is critical to the success of the operation because it is why savers, investors and counterparty banks place their trust in the FDIC. It cannot go bust.

The backstop is the reason the FDIC can do what it does.

One of the agreements reached in the early hours of yesterday morning was the ability by the fund to borrow on markets – which appears a good compromise at first sight – but it is not.

If you tell the markets, as Schauble did yesterday, that the mutualised liability of member states is ruled out,
the markets will not lend to the fund in a crisis.



Rolf Englund om EU-grundlagen ever closer union

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