The European Central Bank (ECB) steps up efforts to launch a tool that would enable financial regulators to stop customers from withdrawing cash when a bank is about to go under.
According to news from Bloomberg, ECB Executive Board Member Sabine Lautenschläger said banking resolution cases in 2017 provide evidence that the tool, which would render a bank’s accounts and liabilities frozen for five days, is necessary.
“If we have a long list of exemptions and we have a moratorium that doesn’t work, I do not want to have a moratorium tool,” Lautenschläger told a conference in Frankfurt. “Then you will never use it.”
Bloomberg noted that European Union (EU) member states seem to be on board, based on a paper from earlier this month that suggests authorities would be able to cap bank deposit withdrawals after an institution has been declared to be failing or likely to fail. The paper said the moratorium can apply to eligible bank deposits and that “resolution authority should carefully assess the opportunity to extend the suspension also to covered deposits, especially covered deposits held by natural persons and micro, small and medium-sized enterprises, in case application of suspension on such deposits would severely disrupt the functioning of financial markets.”
The newswire stated that EU members might give up on a proposal in which financial regulators can render accounts frozen even before the bank is declared to be failing or likely to fail. If that proposition were allowed to move forward, industry representatives contend it could weaken a firm or force it into resolution.
“Either it’s a moratorium tool with a very broad coverage, or you don’t need it,” Elke Koenig, the head of the EU’s Single Resolution Board, said in Frankfurt. “A discussion about a moratorium except for all deposits — there is not much of a point.”
The moratorium was proposed by the European Commission’s executive arm as part of an effort to upgrade the Bank Recovery and Resolution Directive.
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