The practical details of setting up a single bank resolution system and fund, the upcoming bank balance sheet health checks and next steps for Greece were the key issues Economic and Monetary Affairs Committee MEPs raised with European Central Bank President Mario Draghi on Monday. MEPs also discussed the economic risk landscape with Mr Draghi, in his capacity as Chair of the European Systemic Risk Board.
Single resolution mechanism
Besides discussing the practical details for establishing the single bank supervisor, the recently-agreed first pillar of banking union, various MEPs also stressed the need to lose no time in setting up a single bank resolution authority and fund, which they said was essential for EU bank supervision to work.
Mr Draghi replied that the single resolution mechanism should be in place by the time the forthcoming bank balance sheet checks are completed, thereby ensuring the credibility both of the tests and the EU bank supervision system.
He added that until the resolution fund is fully financed, it should be able to borrow from other sources, including national ones, to ensure that properly-funded resolution is an option from the start.
Bank health checks
Private reviewers will help to carry out the bank balance sheet health checks and potential conflicts of interest will be addressed at all stages of the process, all of which should help to build credibility, said Mr Draghi.
Asked whether government bonds would be “stressed” during these checks, he replied that this had not yet been decided, but that all details of the methodology for the checks would be disclosed by mid-October.
Asked whether Greece would need a third bailout programme, Mr Draghi said that it was “premature” to speculate on this. Pressed on the need to change tack in view of the country’s high debt to GDP ratio, he added that the 180%/GDP figure was sustainable and that there was therefore no need to change policies.
More generally, Mr Draghi said that he did not see the ECB remaining part of the Troika system in the long term. He also confirmed that it was ready to use any of the instruments it had crafted, including long-term refinancing operations.
Systemic risk in the EU
Speaking as Chair of the European Systemic Risk Board, Mr Draghi assured MEPs that the economic environment was improving, but nevertheless cautioned that risks in the financial system remained. MEPs focused their questions on the insurance sector, with a view to the forthcoming conclusion of Solvency II legislation, bank leverage ratios, money market funds and shadow banking.