The by-now infamous Dutch FinMin Jeroen Dijsselblom - and head of the Eurogroup of finance chiefs - made some fascinating comments this morning with Reuters and the FT that are changing the shape of European markets rapidly. From banks need to save themselves to forcing "all financial institutions, as well as investors, to think about the risks they are taking on because they will now have to realize that it may also hurt them," he is making a lot of sense - though we suspect Mr. Draghi will not be amused as his 'promise' looks like being tested. Simply put, Dijsselblom is saying that a balance sheet can be 'normalized' not only by boosting assets (courtesy of the ECB) but by collapsing liabilities (or remarking bad loans to market) - something that no one in power has admitted to date. While this is upsetting to markets - so used to the visible hand of central planning saving themfrom themselves - this is very positive step for 'real people' as taxpayers appear to be 'off the hook' and the responsible parties beginning to be punished.
Dijsselblom's direct quotations in the interview were confirmed by his spokeswoman, Simone Boitelle.
• “What we’ve done last night is what I call pushing back the risks,” Dijsselbloem says in the interview
• “If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalize yourself?’. If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders,” he says
• “If we want to have a healthy, sound financial sector, the only way is to say, ‘Look, there where you take on the risks, you must deal with them, and if you can’t deal with them, then you shouldn’t have taken them on,’” he says
• “The consequences may be that it’s the end of story, and that is an approach that I think, now that we are out of the heat of the crisis, we should take,” he says
• “It means deal with it before you get in trouble. Strengthen your banks, fix your balance sheets and realise that if a bank gets in trouble, the response will no longer automatically be that we’ll come and take away your problem. We’re going to push them back. That’s the first response we need. Push them back. You deal with them,” he says
• “We should aim at a situation where we will never need to even consider direct recapitalization,” he says
• “If we have even more instruments in terms of bail-in and how far we can go on bail-in, the need for direct recap will become smaller and smaller,” he says
• “I think the approach needs to be, let’s deal with the banks within the banks first, before looking at public money or any other instrument coming from the public side. Banks should basically be able to save themselves, or at least restructure or recapitalise themselves as far as possible,” he says
• “Now we’re going down the bail-in track and I’m pretty confident that the markets will see this as a sensible, very concentrated and direct approach instead of a more general approach,” he says
• “It will force all financial institutions, as well as investors, to think about the risks they are taking on because they will now have to realise that it may also hurt them. The risks might come towards them,” he says