EU weighs up funding backstop to reinforce non-Eurozone banks

City A.M. Reporter
BRUSSELS is considering using an EU fund for non-Eurozone states with balance of payments problems as a backstop for banks in those countries that fail regionwide financial health checks, EU officials said yesterday.

The idea is part of a wider discussion on how to reassure investors that Europe will have enough money to bolster banks that will need recapitalising following next year’s stress tests.

The €50bn facility consists of funds raised by the European Commission on capital markets. Around €13bn was disbursed to support Romania, Hungary and Latvia over the past three years.

“If a non-euro member state would be in need, the facility could help, even if a particular instrument for dealing with banking sector issues was not specified,” one official said.

Under plans to reassure financial markets about the financial health of European banks, the European Central Bank will check the balance sheets and assets of lenders in the Eurozone before it takes over as their supervisor in November 2014.

That review will be followed by stress tests of all EU banks, including non-Eurozone ones, by the European Banking Authority, which will check if they would be capable of weathering another financial crisis.