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ECB’s Nouy Says EU Is Repeating Crisis Mistakes in Capital Rules

Nicholas Comfort, (2018), “ECB’s Nouy Says EU Is Repeating Crisis Mistakes in Capital Rules”Bloomberg, 5 Δεκεμβρίου

The European Union’s overhaul of bank capital rules show it’s forgetting some of the lessons of the financial crisis, according to Daniele Nouy, head of the European Central Bank’s supervisory arm.

Nouy pointed to a provision in the draft legislation that would stop the ECB requiring banks to meet firm-specific capital requirements using only the highest-quality capital, known as common equity Tier 1. Banks would be able to count some additional Tier 1 capital toward these requirements, an allowance Nouy said was unwise. The upside for the banks is that selling such instruments can be cheaper than raising money from shareholders.

Contingent capital — debt that converts into equity when triggers are met — is “useless” in helping a viable bank absorb losses, Nouy said in Frankfurt on Wednesday. This debt wasn’t used in the crisis before taxpayer money was pumped into banks. “We should not do the same mistake a second time so soon after it was done the first time,” said Nouy, who steps down from her ECB post at the end of the month.

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