HEAR YE, HEAR YE : THE DAY OF RECKONING HAS COME

 

As Ms. Merkel would love to say, "my day will come". The ECB is pushing forward with its program to shape up the European banking sector, and at any cost.

The ECB has begun inspection of the Euro Zone Banks, ahead of next year's deadline for EU control of banking practices in the Euro Zone.  

The 'opening of books' has begun, and with it the probable doom of many suffering banks, a good bit of which reside in Italy. Sheltered so far from scrutiny by the dogged avoidance of a bailout request from the EU, the teetering banking sector in Italy will finally have to render account to the EU authorities come next year. 

That type of scrutiny however, could be earth shattering for some.  

The ECB in fact will be responsible for the whole outcome of the banking monitoring program, because the EU commission relies on their scrutiny alone.  If a large banking institution cannot prove its solvency before next year, they risk being run into the ground, dissolved or even nationalized, all of which can be done only by following a thorough cleanup that could involve dipping into the pockets of its depositors.

Germany however, wants to have a decisive role in the restructuring or closure of underperforming banks.  Germany insists that the sovereignty of the banking system must be respected, with the country in which the bank resides to make the ultimate decision on the bank's fate.  Apparently, the EU does not have clear cut regulations on the shuttering of banks. 

The major opposition from Germany however, is to make Germany or any solvent economy foot the bill in shoring up or winding down banks in other EU countries.  The Germans and other solvent European countries are calling for a self funded plan in which the bank themselves would foot the bill by self-funding a rescue pool, from which to shore up finances in the future, but such a plan could be a decade in the making. The current plan, however, could not survive without funding to put in action the winding down or restructuring of banking institutions that will be deemed insolvent or underperforming, even if the inspections bear fruit.  And without that, and with strong opposition with wealthier EU nations, the inspections will be useless. 

Source : Spiegel Online/ 7.11.13