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Last Minute Loss of Nerve Over TBTF?

The FT is reporting that a stand-off has developed over the EU bank recovery and resolution directive.

The issue relates to the degree of support that a state can provide to an ailing bank before triggering the bail-in provisions of the directive.  The UK has asked for clarity that central banks can extend liquidity without triggering bail-in.  Apparently, this position has the support of the EU Parliament, but not all of the Member States needed to approve the proposal, with the Czech Republic and Denmark noted as opponents of the move.

Accordingly to the report, a number of other Member States – including France, Italy, Sweden and Portugal – are using the current discussions to push for broader exemptions which would allow state guarantees to be used to help a failing bank issued bonds without triggering bail-in.

The position of Germany is at yet unknown, but previous form suggests that they will be closer to the camp promoting a strict interpretation of the bail-in rules.  At stake is the fundamental question of ‘too big to fail’ (TBTF) – the principle of whether tax payer money should be put at risk in support of a failing bank.  The final text of the directive is due to be published by the EU Parliament in the next few days so we won’t have long to wait to see how this one plays out.


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