European banks have not enough buffer for bail-in

Europe's banks have not yet built up the capital buffers needed to comply with new EU rules which will impose losses on creditors of a failing bank before any public money can be used to rescue it, an EU official said on Tuesday. New bank watchdog the Single Resolution Board (SRB) wants the bail-in buffer, known as MREL, to be at least 8 percent of the assets of each of the 144 euro zone banks on its watch.
From this month the SRB has the power to resolve banks likely to fail but may find it difficult to do so without taxpayers' money if banks do have not enough assets to bail-in. "In an ideal state we would like to find ourselves in a situation where banks have all built their financial buffers in terms of MREL (...) but we are not there yet," the EU official, who was speaking on condition of anonymity, said. "It's a challenging situation because we may be confronted with a situation when there is a (resolution) case but the buffer has not been built," the official added.
To reduce risks for taxpayers after several state-funded bank bailouts during the 2009-2012 euro zone debt crisis, the block decided to set up the SRB with the task of quickly resolving failing lenders without state intervention from 2016. But only major, systemic banks have already built sufficient MREL buffers to comply with the new rules, the official said. For smaller lenders, the SRB wants to set by the second half of 2016 specific targets and timeframes to reach the 8 percent of assets or above deemed a sufficient buffer.
The funds and eligible liabilities that banks have to set aside for a possible bail-in come in addition to their core capital buffers to tap in a crisis. The bail-in rules are part of the EU's Bank Recovery and Resolution Directive, which became fully effective on January 1. They will make shareholders, creditors and even large depositors liable for the losses of a failing bank before any public money is used.
The SRB, which also became fully operational at the beginning of the year, should be able to quickly resolve banks under its supervision, also thanks to resolution plans pre-arranged with each lender. So far, however, the new watchdog has prepared resolution plans for only 40 of the 144 lenders on its watch, the official said.