Eurozone banking rescue fund rules

CNC report from Luxembourg
Added On June 21, 2013

After months of preparation and discussion, eurozone Finance Ministers finally reach an agreement on broad guidlines on how to use the bloc's banking rescue fund.

This delivers a long-promised goal to stabilize the euro area's financial system.  

On Thursday, eurozone finance ministers agreed on the main guidlines of how the European Stability Mechanism (ESM) could inject funds directly into failing banks.

European Union Commissioner for Economic and Monetary Affairs Olli Rehn says with the new agreement quote "we are closer to banking union."
Currently, the ESM fund cannot directly inject capital into failed banks in the euro area.

Only the member states can do so.

But the establishment of the direct recapitalization instrument (DRI) mechanism doesn't mean that eurozone member states are automatically equipped with the banking bailout program.

To preserve the ESM's lending capacity for other instruments, the ESM has set a cap of 60 billion euros (that's roughly 80 billion USD) for the amount of financial assistance available for DRI.

But this limit can be reviewed by the board if deemed necessary

The 500-billion-euro ESM was set up initially to bail out struggling member states.

But in June last year when Spain's banks looked on the point of collapse, Brussels decided to extend its scope to allow direct aid for struggling lenders.