FRANKFURT/LINKOPING, Sweden (Reuters) - Some of the euro zone’s lenders have no future and should be allowed to go under if they fail a health check, the bloc’s new banking supervisor told the Financial Times, underscoring a tougher approach to banking oversight.
Daniele Nouy told the newspaper that if any of the region’s participating banks fail the European Central Bank’s comprehensive assessment then they could be wound down, and that merging them in order to save them was not an option.
“We have to accept that some banks have no future,” Nouy, head of the Single Supervisory Mechanism (SSM), told the FT. “We have to let some banks disappear in an orderly fashion, and not necessarily try to merge them with other institutions.”
Nouy’s comments echo ECB President Mario Draghi’s speech at Davos in January, in which he said banks that are found to be unviable by the asset quality review and stress tests this year should be shut down.
The SSM oversight is part of a push for closer integration of the banking system to avert future crises. Before it starts its supervisory role in November it is running the rule over the balance sheets of the bloc’s 128 biggest banks.
The banks will also be put through a stress test to see how they hold up in shock scenarios. The results will published in October, showing whether a bank meets a required capital threshold.
“I do not have any idea of how many banks have to fail,” Nouy told the FT. “What I know is that we want to have the highest level of quality. A failure of a bank may happen.”
“We are well equipped to face whatever situation we encounter in the exercise,” she told the paper.
Nouy’s appointment comes as the ECB is putting its credibility on the line after past tests failed to root out problems, notably in Ireland’s banking sector.
ECB is handling the balance sheet review and the stress tests itself, bypassing national regulators and challenging banks directly over their figures.
The checks will include subsidiaries of banking groups outside the bloc, including Sweden’s SEB.
Sweden’s finance minister Anders Borg said he was not concerned about the country’s banks, but he conceded that some banks in Europe would be found to not have enough capital.
“If these are smaller regional banks, I do not think this will pose any significant problem. But you will have to accept that a number of banks will be subject to a bail-in, or that they will be restructured,” Borg told reporters in the Swedish town of Linkoping.
For the full interview, click on: here
Reporting by Eva Taylor in Frankfurt and Johan Sennero in Linkoping; Editing by John Stonestreet and Louise Heavens