June 20, 2013 / 7:54 AM / 4 years ago

Bundesbank's Dombret: ESM bank recapitalization should be last option

FRANKFURT (Reuters) - European policymakers should agree to use all other methods of bank recapitalization before allowing countries to apply for funds from the joint bailout fund, Bundesbank board member Andreas Dombret said on Thursday.

Board member of Bundesbank Andreas Dombret speaks during a news conference in Frankfurt November 14, 2012. REUTERS/Lisi Niesner

EU leaders agreed in June 2012 that the European Stability Mechanism, which has a lending capacity of 500 billion euros, should be able to directly recapitalize stricken banks if a government is unable to do so.

But the exact rules for such capital injections have so far not been set, with policymakers due to agree a limit on how much money the ESM may use for recapitalizations to ensure that they do not eat into its resources.

Olli Rehn, the European Union’s top economic official said on Tuesday that euro zone finance ministers must hammer out an agreement at a meeting this week over how to recapitalize banks.

“Direct recapitalization of credit institutions through ESM rescue fund should be allowed only after all other methods have been exhausted,” Dombret said in the text of a speech to be given at a conference organized by Handelsblatt newspaper.

Reporting by Sakari Suoninen; Editing by Toby Chopra

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