More than ten years after the outbreak of the financial crisis of 2008, the european Court of auditors intends to look at the magnifying glass the way in which the banking institutions have been supported by taxpayers ‘ money. A study is therefore conducted on the subject, and its conclusions should be made by the end of the year. According to the head of audit, Mihails Kozlovs, “since the 2008 crisis, the financial services sector has received more State aid than any other sector of the economy”, a situation that makes it essential for a thorough investigation “to protect competition on the internal market and to protect the citizens against “the burden of the bailout for the banks”.
according To estimates from Brussels, 1459 billion euros in capital and 3659 billion euros in cash have been pledged by member States to banks between 2008 and 2017, with the approval of the Commission. In part repaid since, these “bailouts” have been saving these institutions, but the price is a swelling of the public debt, turning it, in fine, “the banking crisis in european debt crisis”.
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support is sometimes “necessary”
“State aid to enterprises […] are generally prohibited by the legislation of the EU, because they distort competition”, recalls in the preamble, the Court of accounts: these financial aid are therefore “subject to the control of the european Commission”. However, in certain “circumstances” of a severity to be exceptional, as the crisis of 2008, the public support “may be necessary” to ensure the good functioning of the economy. The audit of the european Court of auditors is to check that the european Commission has sufficient tools to monitor State aid, ensure that the expected results are actually achieved” and see if the current rules allow for identifying and controlling the aid granted to banks, while avoiding to the maximum impact on the free competition between establishments. Objective: minimize, to the extent possible, the effect of a financial crisis on the taxpayer.
The european Court of auditors also questioned the long-term impact of such a rescue operation. Based on the principle that they would be in any way supported by the member States in the event of failure, the banking institutions were able to increase their “willingness to expose himself to the risk, because it was not at their own expense”. A development that could put in danger the institutions and the actors in charge of the support in case of failure.
A context is particularly sensitive,
This audit falls as the clouds are gathering over european financial institutions, affected by the global uncertainties related to the exogenous event as the Brexit or us-china tensions. In a report published Wednesday, the european systemic risk Board (ESRB), chaired by the head of the european central Bank, Mario Draghi, stressed the “high” risk to financial stability in the Union. According to experts, the financial operators, including banks, pension funds and life insurance companies, believe evil of the vagaries and expose themselves to higher risk premiums. In the case of a re-evaluation of the latter by the financial markets, the institutions would be vulnerable to a “sales panics and liquidity crises” difficult to manage.
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so far, the european Court of auditors recalls that, several changes have been implemented since 2008, enhancing the protection of the banking institutions without the consumer be taken advantage of. The press release of the institution quoted including the addition of the directive on the recovery of banks and the resolution of their failures (BRRD), which was implemented in France in August 2015, and aims to “restructure the banks at the edge of bankruptcy without the taxpayer having put his hand to the pocket to preserve financial stability”. “The authorities consider that banks and the banking systems of the EU are resilient,” adds the document.
The last test, conducted by the european banking Authority (EBA) on the resistance of the banking institutions of the Union has been, in this respect, rather encouraging. Some institutions are however still in the face of fragile internal substantial: in Germany, the two giants bank Deutsche Bank and Commerzbank are in talks for a possible merger, as a result of the difficulties. The banks of several countries must also manage a large amount of non-performing loans which add to their balance sheet, as in Italy or Cyprus.
