Oireachtas Joint and Select Committees

Wednesday, 8 October 2014

Committee on Finance, Public Expenditure and Reform: Select Sub-Committee on Finance

European Stability Mechanism (Amendment) Bill 2014: Committee Stage

5:10 pm

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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No. After the 8%, which I understand will become operational from 16 January, the next phase is sovereign resolution funds. The sovereign resolution funds in year 1 are sovereign resolution funds but then there is an agreement to mutualise them over a period of time when one is beginning to get access to one's neighbour's resolution fund.

As they mutualise the funds, the taxpayer goes out of the equation. Until they are fully mutualised, there is a potential taxpayer liability but when they are fully mutualised - after the period of time - then the taxpayers' liability will be very remote. It will only be when the mutualised resolution funds in future are insufficient for the bailing in of a bank that one will move on to the European Stability Mechanism, ESM. It has become very much the final backstop and most sensible people who consider the waterfall and the hierarchy would say there will be a decision point before one gets to the ESM that one would be better off were one to liquidate the institution. While one really will not know until one sees the first case study, I could not now describe for the Deputy the circumstances in which some bank somewhere in the eurozone will end up being directly recapitalised by the ESM even though all the powers are there. However, it is important to have those powers because even if they are never used, their existence steadies the market.