Proposals from earlier today:
ECB guarantees deposits for .25% annual fee
ECB takes over regulation, supervision, enforcement of banking regs etc.
This becomes the model for regulating all EU banks
I finally got a quick minute to add some color to the above proposals from earlier today.
With about 70 billion in assets, the banking system has negative capital of about only 2 billion, or about 3% of assets. And that no doubt includes markdowns on EU member nation debt that ‘goes away’ with the ECB ‘doing what it takes’ to sustain solvency.
With ECB deposit insurance the liquidity issue goes away, so the approx 10 billion in loans won’t be applicable, and ‘regulatory forebearance’ can then obviate the need for the rest of the proposed and highly controversal and problematic ‘rescue package.’
Additionally, the cost of funds goes down, so net interest margins widen to promote internal capital rebuilding.
ECB regulation will include ‘regulatory forebearance’ where the banks are allowed to operate with current levels of negative capital under strict ‘tarp like’ terms and conditions- no dividends, salary and bonus controls, credit quality criteria, etc. etc. and not to neglect thorough investigations into criminal activity and prosecution.
When capital ratios are brought into compliance with BASIL levels either through earnings and/or raising new equity the ECB can remove the ‘special requirements and restrictions’ imposed due to insufficient capital.
The ECB, like all central banks, will ultimately insure all bank deposits and also do the regulation. It’s already pretty much doing this indirectly. Cyprus is an opening to do it directly, and get the process down there first before expanding to the rest of the ECB’s member banks.