Europe has a 240,000 million stash for a resolution scheme if necessary

The banking storm unleashed in the United States with the bankruptcy of Silicon Valley Bank (SVB), then worsened in Europe with the sale of Credit Suisse to its rival UBS, then the fall of Deutsche Bank on the stock market on Friday has put on the table the  fear of another financial crisis like that of 2008.

In the event of failure (resolution scheme) of one or several entities, Europe has a bazooka of up to 240,000 million, according to informacion.es.

The deputy governor of the Bank of Spain , Margarita Delgado, recently highlighted in a report that “in a hypothetical case of resolution in Europe, the Single Resolution Fund (FUR) will this year have 80,000 million euros” with the additional support of the ESM (European Stability Mechanism), “which would complement its support capacity”.

Regarding the additional support (‘backstop’) of the ESM, it is quantified, according to Jonás Fernández, PSOE MEP and member of the European Parliament’s Committee on Economic and Monetary Affairs, at up to double what the FUR provides.

In this case, and assuming that the fund is used in its entirety, the ESM (European Stability Mechanism) would contribute 160,000 million, with which the European bazooka in the event of resolution would be up to 240,000 million.

One of the problems with this 240,000 million bazooka is that its activation is not yet homogenized at the European level.  The implementation of the FUR is conditional on the fact that, in the event of a resolution, at least 8% of the entity’s debts are borne by shareholders and bondholders, the first two to assume losses in the event of insolvency: “Now they are trying to harmonize the criteria of hierarchy in the returns”, confirms Fernández. In fact, Italy has not yet given its approval to this harmonization because its proposal is to broaden the scope of action of the ESM.

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