| BRUSSELS, March 25
BRUSSELS, March 25 A rescue programme agreed for
Cyprus on Monday represents a new template for resolving euro
zone banking problems and other countries may have to
restructure their banking sectors, the head of the region's
finance ministers said.
"What we've done last night is what I call pushing back the
risks," Dutch Finance Minister Jeroen Dijsselbloem, who heads
the Eurogroup of euro zone finance ministers, told Reuters and
the Financial Times hours after the Cyprus deal was struck.
"If there is a risk in a bank, our first question should be
'Okay, what are you in the bank going to do about that? What can
you do to recapitalise yourself?'. If the bank can't do it, then
we'll talk to the shareholders and the bondholders, we'll ask
them to contribute in recapitalising the bank, and if necessary
the uninsured deposit holders," he said.
After 12 hours of talks with the EU and IMF, Cyprus agreed
to shut down its second largest bank, with insured deposits -
those below 100,000 euros - moved to the Bank of Cyprus, the
country's largest lender. Uninsured deposits, those accounts
with more than 100,000 euros, face losses of 4.2 billion euros.
Uninsured depositors in the Bank of Cyprus will have their
accounts frozen while the bank is restructured and
recapitalised. Any capital that is needed to strengthen the bank
will be drawn from accounts above 100,000 euros.
The agreement is what is known as a "bail-in", with
shareholders and bondholders in banks forced to bear the costs
of the restructuring first, followed by uninsured depositors.
Under EU rules, deposits up to 100,000 euros are guaranteed.
The approach marks a radical departure for euro zone policy
after three years of crisis in which taxpayers across the region
have effectively been on the hook for resolving problem banks
and indebted governments via multiple rescue programmes.
That process, with governments and taxpayers bearing the
costs and providing the back stop, had to stop, Dijsselbloem
said. Recent financial market calm meant now was the time to
make the change, although he conceded there was some concern
that it could unsettle markets again.
"If we want to have a healthy, sound financial sector, the
only way is to say, 'Look, there where you take on the risks,
you must deal with them, and if you can't deal with them, then
you shouldn't have taken them on,'" he said.
"The consequences may be that it's the end of story, and
that is an approach that I think, now that we are out of the
heat of the crisis, we should take."
If adopted by the euro zone, Dijsselbloem's template could
also sound a death knell for a plan hatched nine months ago when
the euro zone debt crisis was threatening to blow the currency
Then, euro zone leaders agreed that the bloc's future rescue
fund should be allowed to recapitalise banks directly, thereby
breaking the debilitating link between teetering banks and weak
governments forced to bail them out. That may now never happen.
Asked what the new approach meant for euro zone countries
with highly leveraged banking sectors, such as Luxembourg and
Malta, and for other countries with banking problems such as
Slovenia, Dijsselbloem said they would have to shrink banks
"It means deal with it before you get in trouble. Strengthen
your banks, fix your balance sheets and realise that if a bank
gets in trouble, the response will no longer automatically be
that we'll come and take away your problem. We're going to push
them back. That's the first response we need. Push them back.
You deal with them."
The marked change in attitude, which Dijsselbloem agreed was
a shift in strategy for EU policymakers, has consequences for
how banks are recapitalised and for how financial markets react.
One of the major steps the euro zone has taken over the past
three years has been to set up a rescue mechanism with
guarantees and paid in capital totaling up to 700 billion euros
- the European Stability Mechanism.
The expectation was that the ESM would be able to directly
recapitalise euro zone banks that run into trouble from
mid-2014, once the European Central Bank has full oversight of
all the region's banks.
The goal of the ESM and direct recapitalisation was to break
the so-called "doom loop" between indebted governments and their
banking sectors. Now, Dijsselbloem says the aim is for the ESM
never to have to be used.
"We should aim at a situation where we will never need to
even consider direct recapitalisation," he said.
"If we have even more instruments in terms of bail-in and
how far we can go on bail-in, the need for direct recap will
become smaller and smaller.
"I think the approach needs to be, let's deal with the banks
within the banks first, before looking at public money or any
other instrument coming from the public side. Banks should
basically be able to save themselves, or at least restructure or
recapitalise themselves as far as possible."
Dijsselbloem, 46, who took over as Eurogroup president only
in January, said he had discussed the new approach with
financial market participants and said he expected that they
would adjust to the new regime over time.
"Now we're going down the bail-in track and I'm pretty
confident that the markets will see this as a sensible, very
concentrated and direct approach instead of a more general
approach," he said.
"It will force all financial institutions, as well as
investors, to think about the risks they are taking on because
they will now have to realise that it may also hurt them. The
risks might come towards them."
(Writing by Luke Baker, editing by Mike Peacock)