Tag Archives: EBA

THE RESULT OF UNRAVELLING A BALL OF WOOL… FROM THE WRONG END, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

François Hollande has confirmed that the Government is going to propose for adoption an organic law (which a simple law cannot undo) in order to have the balanced budget rule adopted, on the advantageous pretext that it is provisional. There have been many occasions in recent French history when special measures have been adopted for their presumed importance, without ever leaving good memories behind.

At the same time, the debate in Europe continues to move on, focusing once again on the reduction of the banks’ debts. Thanks to the Wall Street Journal, we have learnt that during their latest meeting, the ECB advised the European Finance Ministers to force the senior debt-holders to participate in the bail-out of the Spanish banks. A 180° U-turn which was not actually followed, since the draft of the memorandum which is supposed to be adopted during the next Eurogroup meeting on the 20th July makes no mention of it.

According to the newspaper’s sources, the ministers did not wish to follow Mario Draghi’s proposals at the meeting, as they were afraid of how the markets would react. It was also out of fear that the Irish government would demand equal treatment, since to save the European banks – in particular the British ones – the Irish Government had to borrow money to pay off the senior creditors of their country’s banks. Nor would the Greek and Portuguese Governments have failed to jump on the bandwagon.

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WHEN FATE INTERVENES…, by François Leclerc

Guest post. Translated from the French by Tim Gupwell.

In the blink of an eye, discussions have switched focus. The issue of growth which was at the forefront has rapidly surrendered its place to the elaboration of a plan for the supervision of the banks and the rescue of those in need. Improvisation continues to be a dominating force, with what was denied yesterday becoming a priority today.

The sheer size of the reported losses in the Spanish banking system and the capital withdrawals out of struggling countries have forcibly imposed this return to a theme which had been set aside. The global fragility of a highly interconnected system has been highlighted to such an extent that, in order to show the potential scale of it, the risk of a new European ‘Lehman Brothers’ scenario has been evoked. A new aspect, the chronic under-funding of the system, which had for a long time been denied and described in a relatively harmless and indulgent manner as a ‘liquidity crisis’, has now been fully recognized, at least for those cases which can no longer kept out of the public eye.

The reinforcement of minimum capital requirements by the European Banking Authority (EBA) – already considered insufficient even before they have been put into practice by all the banks concerned (clear to see from the example of the Spanish banks) – has been a belated first sign of the realization of this necessity. Meanwhile, while all this has been going on, the banking lobbies have been doing their utmost to hide the reality, seeking to modify the Basel III capital proposals in ways that benefit them, and to drag out the work on accounting norms by the International Accounting Standards Board (IASB). But all this is no longer enough.

Continue reading WHEN FATE INTERVENES…, by François Leclerc