I think this is some padding out of the direct bank recap story I posted earlier.
- ESM will be able to set caps on wages and bonuses in rescued banks
- Can suspend government contributions in exceptional circumstances
- Before ESM aid governments must boost banks common equity tier ratio to 4.5%, if met governments will contribute 10-20% of shortfall to ECB
- Before ESM recapitalisation a bank will have to write down or convert to equity an appropriate amount of debt
- ESM will only directly recap a bank if government cannot and if eurozone financial stability is at stake
This isn’t likely to go over well, in Germany in particular, as it looks like the message is that governments will have to stump up on top of pumping into the ESM should a bank fail.
