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Exclusive: Euro zone bailout fund should be allowed to help close failing banks - document

Workers maintain the huge Euro logo in front of the headquarters of the European Central Bank (ECB) in Frankfurt, December 6, 2011. REUTERS/
Workers maintain the huge Euro logo in front of the headquarters of the European Central Bank (ECB) in Frankfurt, December 6, 2011. REUTERS/

BRUSSELS (Reuters) - The euro zone's bailout fund should be allowed to lend to help finance the closure of banks in the bloc, a proposal prepared for euro zone finance ministers showed on Monday.

European countries are seeking to reach a deal before the end of the year on how to close failing lenders, as part of an ambitious plan to create a banking framework and fix broken banks, whose problems have festered since the financial crisis.

The proposal, drawn up by junior euro zone ministers, seems to clash with the view of Germany, however, which does not want the European Stability Mechanism (ESM) bailout fund to lend for any bank closures, underlining how complex reaching a deal will be.

A so-called Single Resolution Fund (SRF), together with a single resolution authority, is to be part of a pan-euro zone mechanism to wind down failing banks in an orderly way, and will be financed from bank contributions.

But until it has built up enough money, policymakers want another source of cash to help see through any bankruptcies.

According to the proposal prepared for finance ministers, the ESM could provide such bridge financing not only in the period when the resolution fund is only building up to full capacity, but later as well.

"In the build-up phase, bridge financing would be available from the respective national sources, or from the ESM on a case by case basis in line with agreed procedures," said the document seen by Reuters.

"When the SRF is fully financed, national sources will be replaced by a common backstop, e.g. the ESM," it said.

The document stresses, however, that such bridge financing for the SRF - be it from the euro zone fund or from any national source - would only be the last resort and eventually not cost the taxpayer anything.

"Any public assistance shall be fully repaid, by means of ex-post levies on the financial industry when necessary so that taxpayers are not affected by the use of the mechanism," the document said.

(Brussels Newsroom)

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