ECB's Banking Plan: More Bailouts & Customers Losses

The institution chaired by Mario Draghi is working on a radical plan to tackle the Eurozone crisis by acting on the European financial system, whose problems are slowing the banks lending and a possible recovery. The ECB will inspect, identify capital needs and where necessary, proceed to bail out banks with taxpayer participation, shareholders, creditors and customers.

As reported today in the German weekly Die Zeit, 140 European banks, about 80% of the market, will receive the visit of the ECB inspectors and private consultants, who will inspect balances of the entities in the Eurozone with national authorities.

The calendar is already decided and the accountants are ready to examine the books of financial institutions. The results of these new test should arrive in early 2014, as they need time to measure the ability of banks to weather a new downturn in the Eurozone.

Banks that are deemed not able to fill the potential 'holes' of capital should be bailed out by its member states. If they do not have money, the European bailout fund (ESM) will be able to lend it.

But according to Die Zeit, the burden will fall not only on taxpayers: shareholders, creditors and customers of affected entities must take first losses in the restructuring of the entities. Something similar to what has been done in Spain, but at the level of the Eurozone. There are still no details about possible losses on deposits.

However, the ECB's ambitious plan encounters problems, mainly from France and Italy, who do not accept external audits. Furthermore, the ECB can found another difficulty, since for early next year will not be ready bank resolution mechanism in charge of eliminating the non-viable entities, so you can not be too picky.