Who exactly is responsible for a bank rescue in the eurozone, and on what legal terms?

 The EU authorities do not have the legal power to conduct the sort of rescue measures just concocted by the US Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation, acting in concert.

The Bank Recovery and Resolution Directive (BRRD) does not allow national governments to bail out uninsured depositors in a crisis. 

BRRD aims to ensure that taxpayers will never again be on the hook when banks fail. What it instead does is to guarantee havoc.

The terms are so harsh, and so contradictory, that many European banks could not meet the “bail in” threshold without having to confiscate the deposits of ordinary savers (as happened in Cyprus).

The deeper point is that the eurozone never completed its long-promised banking union. There is still no shared deposit insurance for banks. The infamous doom loop from 2011-2012 lives on.

Each country is still responsible for rescuing its own banks even though it cannot print its own money or set its own interest rates, and no longer has its own lender-of-last-resort; and even though it has no means of blocking dangerous inflows of speculative capital (as happened to Spain). 

A banking crisis still threatens to pull any of the eurozone high-debt states into the abyss with it.

The even deeper point is that Germany, the Netherlands, and the creditor states of the North still refuse to accept fiscal union and permanent issuance of joint debt, for the legitimate reason that this would eviscerate the tax-and-spend sovereignty of their own parliaments. 

No steps have been taken to soften the blow as €1.2 billion of cheap emergency loans (TLTROs) come due in tranches. Some €470bn must be repaid to the ECB next month. The Bank of Italy’s financial stability report warned last week that “just under half of Italian banks have insufficient reserves to repay the TLTROs over the coming quarters”. 

Europe’s  too are sitting on large losses from bond portfolios acquired when interest rates were minus 0.50pc and most European sovereign bonds were trading at negative yields. The European Banking Authority has ordered a probe into this “interest rate risk” but has yet to tell us how big these losses are.  

I leave the last word to Jacques de Larosière, ex-governor of the Banque de France and ex-head of the International Monetary Fund, who has just unleashed a lacerating salvo for the Official Monetary and Financial Institutions Forum. 

He accuses the authorities themselves of subverting the private banking system with deranged volumes of QE long after it had become financially toxic. 

“Central banks, far from promoting stability, have delivered a masterclass in how to organise a financial crisis. 

“It reminds me of Goethe’s classic tale of the sorcerer’s apprentice whose clumsy use of magical powers produces an uncontrollable trail of disaster,” he said.

The Faustian pact has finally caught up with them.

Ambrose Evans-Pritchard Telegraph 5 May 2023 


Targeted long-term refinancing operation - TLTRO

TLTRO is a super-cheap funding vehicle for banks that choose to participate, getting liquidity into the more challenged parts of the EU’s regional banking system. 

Think Greece and Italy.

Bloomberg 21 January 2019


The TLTRO and dual interests are more significant innovations than QE.

Joe Weisenthal Bloomberg 14 juni 2022 


The ECB has proffered a fresh round of cheap funding for the banks (TLTROs) but that is life-support.

Ambrose Evans-Pritchard 27 MARCH 2019



Target 2


Target2 credits have reached €920bn

 Ambrose Evans-Pritchard 4 June 2019


The European Union's new €750 billion recovery fund... But money cannot solve the problem of distorted relative goods prices within the eurozone.

Hans-Werner Sinn Project Syndicate 24 July 2020



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