FRANKFURT (MNI) – A number of large financial institutions are
discussing the idea of a privately-financed E20 billion European
Recovery Fund, which would be used to assist cash-strapped banks in the
event of another financial crisis, the Financial Times reported Monday.
The idea is the brain child of Unicredit’s chief executive,
Alessandro Profumo, who believes governments must not be called on again
to bail out banks, the newspaper wrote.
“The option for authorities to use the fund to stabilize one or a
few large, ailing banks can assure the market that the crisis can be
contained at an early stage and avoid a systemic event from occuring,”
Profumo wrote in a piece published in Monday’s edition of the business
daily.
Other banks have their own ideas. While it had been suggested, for
example, that Deutsche Bank welcomed the idea of a pre-financed private
sector bailout fund, in fact senior figures at the leading German bank
said their institution preferred a solution that would be implemented
after the fact, in line with a recent publication by the Institute of
International Finance (IIF), which is chaired by Deutsche Bank CEO Josef
Ackermann.
“A clear majority within the (banking) industry is of the view that
an ex-post arrangement – that is, one in which the industry commits to
provide funding after the event to meet any additional costs of a
resolution necessary to secure systemic stability – would be the most
practical and effective,” the IIF wrote.
Opponents to the idea of a pre-financed fund also pointed to the
moral hazard risks — namely, that the the mere fact of having a
pre-funded safety net could encourage excessive risk-taking, the FT
reported.
— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —
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