Following seven hours of negotiations last night, the EU has agreed to a bail-in model for future bank failures, forcing shareholders, bondholders and wealthy depositors with over €100,000 to bear the costs of restructuring before taxpayers.
Shielding taxpayers is a positive move forward, although raiding savers’ deposits has proved controversial. However, individual countries will be given “some flexibility” to decide when and how to impose losses on a failing bank's creditors.
A major issue is that the new rules will not come into effect until 2018. In the meantime, the model for winding down a failing bank isn't entirely clear.
7 those lowest in bank liability pecking order - especially bottom 8% - will now demand higher returns. That is well and good.— Hugo Dixon (@Hugodixon) June 27, 2013
8 With shareholders and bondholders on hook for losses, the market will exert discipline on banks not to run excess risks. Again good.— Hugo Dixon (@Hugodixon) June 27, 2013
Meanwhile, lending to businesses in the Eurozone fell unexpectedly by €18bn (1.1 per cent) for the second consecutive month in May. Analysts had expected a fall of 0.9 per cent. The figures reflect a combination of continued risk aversion from the banks and limited demand from businesses, and the ECB will now be looking to ways to incentivise lending and improve credit availability. Some ideas are already in the pipeline, for example, ECB president Mario Draghi has suggested the use of asset backed securities to fund small and medium sized businesses.
And the annual eurozone money supply growth fell to a rise of 2.9 per cent in May following a 3.2 per cent increase in April, in line with expectations. This is below the 4.5 per cent target set by the ECB and suggests that there could be room for further stimulus.
EZ M3 money supply in line at 2.9% (YAWN) ... but look at this over the long term— Steve Collins (@TradeDesk_Steve) June 27, 2013
Finally, Italy's business lobby group Confindustria have made a significant revision to its growth forecast.
An industrial-size revision. Italy's business lobby group Confindustria slashes 2013 GDP outlook to -1.9% from -1.1%.— Jamie McGeever (@ReutersJamie) June 27, 2013