Europe Told to Abide by Rules

Europe should follow its own rules when it looks at the rescue of Italian banks, European Central Bank Executive Board member Yves Mersch said.

 “If Europe gives itself rules, then it should also abide by the rules,” Mersch said in a Bloomberg Television interview at the Ambrosetti Workshop in Cernobbio, Italy. “That rule respect is a very important element where Europe has to make a little bit more progress.”

The European Union has enacted procedures for failing banks meant to end taxpayer bailouts with the so-called “bail-ins.” The new rules came after governments used nearly €2 trillion ($2.12 trillion) in state aid to rescue the financial sector from 2008 to 2014.

In their first test, Banca Monte dei Paschi di Siena SpA and other two small Italian lenders requested a precautionary recapitalization, which funnels government money to solvent banks without sending them into resolution. It also addresses a capital gap in a stress test and imposes lower losses than a full “bail-in” to investors.

“This is a process that is still underway,” Mersch said in the interview. “The ECB is involved from the point of view of supervision but we have a strict separation between the supervisory side and the monetary policy side.”

The complexity of the central bank’s new role has become clear in recent months. When the European Central Bank declared Monte Paschi solvent last December, the first step toward a state-funded rescue, some members of the 19-nation supervisory board weren’t fully on board, people familiar with the matter said.