“The need for capital is to be first and foremost covered by shareholders and the market, and where that doesn’t occur there will be coordinated aid from states. ---German deputy finance minister Joerg Asmussen, Nov. 14, 2011
“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."
---Jeroen Dijsselbloem, Dutch finance minister, March 24, 2013
There you have it: the evolution of European bank resolution policy since 2011. In 2011, governments stood behind bank deposits; in 2013, bondholders and depositors stand behind bank deposits. The donor countries are united in this decision. Bloomberg today:
“The document from Germany and its allies refers to EU current proposal on handling bank failures. Germany, Finland, Denmark and the Netherlands renewed their call for the new rules to take effect in 2015, and said the new framework should be available as a way to break the vicious circle of countries and their banks dragging each other down. ‘We strongly believe that making all tools in the directive available by 2015 will allow resolution authorities to safeguard taxpayers’ money more effectively with immediate positive consequences. As soon as there are credible alternatives for financing bank failures, risks inherent to the banking sector will have a significantly weaker adverse impact on sovereign funding conditions,’ the paper said.”
So northern europe wants to introduce market discipline to European banking. Do they have any idea what they are recommending? Do they really mean for market discipline to be applied to northern european banks?