July 5, 2019 / 9:12 AM / 5 months ago

Sufficient liquidity mechanisms must exist in resolution processes: ECB

FILE PHOTO - Luis de Guindos, vice-president of the European Central Bank, speaks during a Reuters Breakingviews event in New York, U.S., April 25, 2019. REUTERS/Brendan McDermid

MADRID (Reuters) - Europe’s processes for banking resolution need mechanisms to ensure a troubled lender has sufficient liquidity, ECB Vice President Luis de Guindos and Bank of Spain Governor Pablo Hernandez de Cos said on Friday.

A run on Spain’s Banco Popular two years ago exposed a hole in European Union rules that bar the ECB, the euro zone’s central bank, from supporting a failing lender while the EU’s Single Resolution Board organizes a rescue.

The ECB is considering taking on the task via a new lending facility but that is likely to require approval from euro zone finance ministers. Countries like Germany are concerned that the tool would be used inappropriately to prop up ailing banks.

“We need to ensure there are sufficient mechanisms for the provision of liquidity for the resolved entity to make the tool and the resolution process credible,” Bank of Spain chief de Cos said.

He was speaking at a conference to mark the 10th anniversary of Spain’s FROB state bailout fund, set up to aid local lenders whose property loans soured during the global financial crisis.

The ECB’s de Guindos, who was then Spanish economy minister, said it was urgent that lenders that were deemed viable after a resolution were granted access to liquidity instruments.

“Though the ECB welcomes any progress in ongoing technical debates held so far, the current proposals regarding liquidity are far from complete,” De Guindos said.

To complete a planned banking union, EU politicians must agree on setting up a common deposit insurance scheme (EDI), de Guindos added.

Reporting by Jesus Aguado; Editing by Catherine Evans

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