Credit institutions are expected to pile up a relevant amount of non-performing loans (NPLs) as a consequence of the current crisis. Thus, one of the most critical issues at stake is whether they currently hold an amount of capital which is sufficient to absorb the inherent losses. If this will not be the case, then they will have to undergo recapitalisations. In a context of global and prolonged economic crisis, nevertheless, it could turn out to be extremely challenging to find private investors able and willing to invest in their equity. Therefore, a new solution capable to balance conflicting, yet legitimate, needs, such as credit institutions’ recapitalisation without recurring to excessive and generalised public bail-outs, might have to be found. Accordingly, what we propose is a temporary, revised and standardised form of privately and publicly funded precautionary recapitalisation, designed beforehand and operating on a quasiautomatic basis. Thus, this paper advocates a temporary amendment of the precautionary recapitalisation under the Single Resolution Mechanism Regulation (SRMR) with the major involvement of the European Stability Mechanism (ESM). Such proposal should build on the regime currently in place in light of the European Commission’s (Commission) decision to temporarily suspend the application of the state aid prohibitions. Accordingly, for a limited period of time, some of the conditions currently required by the SRMR for the precautionary recapitalisation should be amended in line with the recent measures adopted by the Commission to facilitate public intervention to support the economy. This should be combined with an ESM facility allowing it to buy hybrid instruments issued by the credit institutions that would need to be recapitalised.

(2021). A temporarily amended version of precautionary recapitalisation . Retrieved from http://hdl.handle.net/10446/200972

A temporarily amended version of precautionary recapitalisation

Bodellini, Marco
2021

Abstract

Credit institutions are expected to pile up a relevant amount of non-performing loans (NPLs) as a consequence of the current crisis. Thus, one of the most critical issues at stake is whether they currently hold an amount of capital which is sufficient to absorb the inherent losses. If this will not be the case, then they will have to undergo recapitalisations. In a context of global and prolonged economic crisis, nevertheless, it could turn out to be extremely challenging to find private investors able and willing to invest in their equity. Therefore, a new solution capable to balance conflicting, yet legitimate, needs, such as credit institutions’ recapitalisation without recurring to excessive and generalised public bail-outs, might have to be found. Accordingly, what we propose is a temporary, revised and standardised form of privately and publicly funded precautionary recapitalisation, designed beforehand and operating on a quasiautomatic basis. Thus, this paper advocates a temporary amendment of the precautionary recapitalisation under the Single Resolution Mechanism Regulation (SRMR) with the major involvement of the European Stability Mechanism (ESM). Such proposal should build on the regime currently in place in light of the European Commission’s (Commission) decision to temporarily suspend the application of the state aid prohibitions. Accordingly, for a limited period of time, some of the conditions currently required by the SRMR for the precautionary recapitalisation should be amended in line with the recent measures adopted by the Commission to facilitate public intervention to support the economy. This should be combined with an ESM facility allowing it to buy hybrid instruments issued by the credit institutions that would need to be recapitalised.
Gortsos, Christos; Siri, Michele; Bodellini, Marco
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10446/200972
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