ECB welcomes Greek bank resolution bill with legal qualms

The European Central Bank welcomed Greece’s draft legislation to bring its bank-resolution rules into line with European Union law, while warning some provisions could harm the independence of the local monetary authority.

“The ECB welcomes the draft law, as it strengthens the tools and procedures available to the Bank of Greece to carry out effective preventive, early intervention and effective resolution measures,” the Frankfurt-based institution said in a legal opinion posted on its website.

The ECB didn’t offer a view as to whether the bill “effectively discharges the obligations of the Greek state to implement the Bank Recovery and Resolution Directive in Greek law.”

Transposing the EU’s rules on how to save or shutter an ailing bank was required by euro-area leaders as a condition of further financial aid for Greece. The European rules, fully effective as of Jan. 1, 2016, seek to prevent governments from footing the bill for bank failures.

The ECB said that as the Bank of Greece is already the country’s supervisory and resolution authority, transposing the BRRD law doesn’t represent a major shift in its responsibilities. That said, provisions in the law could still hamper its operational independence, according to the opinion.

“By requiring the Finance Ministry’s prior consent for all decisions pertaining to the sale of a business, the setting up of a bridge bank, asset separation, bail-in, write down or conversion, regardless of whether they have a direct fiscal impact or systemic implication, the draft law seems to go beyond” the BRRD text, the ECB said.

‘Fiscal impact’

This raises the possibility that the Finance Ministry could be considered a second resolution authority alongside the Bank of Greece, the ECB said.

“The consulting authority is invited to consider whether the Finance Ministry’s prior consent should be more appropriately limited to those cases in which the resolution measures have a direct fiscal impact or systemic implications,” according to the opinion.

The ECB also expressed concerns that the personal liability clauses affecting senior staff of the Bank of Greece in the text may not be proportionate. The final law should also make clear that under no circumstances can the central bank assume financial liabilities for the entities being wound down.

Greek lenders are in line to receive as much as 25 billion euros ($27 billion) in fresh capital from the euro area as part of the bailout framework proposed this month. Given that the bail-in provisions of European law are only in force from January, any bank wind-downs in the meantime may take place under existing legislation.

The ECB’s supervisory arm will decide on the precise amount needed and will also conduct a stress test of bank balance sheets. The law is scheduled to be debated in the Greek parliament on July 22, with a vote expected after midnight Athens time.

[Bloomberg]