Monday, August 4, 2014

France Rounds up EU Support to Discuss US Bank Fines

Recently, the US levied a massive fine on the French Bank BNP Paribas, SA. This caused quite a stir and some ill feelings from the French towards the US. Russia seized on the event to urge the EU to move away from a US dollar based system.  In case you think France has forgotten about this issue, here is the latest news.

France has been  busy gathering up support in the EU to try and reign in the US on this issue. This  article states that Berlin, London, and Rome have been supportive of the French position. Below are some quotes from the article:

"France has gathered support to challenge U.S. regulators imposing heavy penalties on foreign banks at a G-20 meeting of world leaders later this year after the record $8.9 billion fine levied on BNP Paribas last month.

Berlin, London and Rome have backed Paris in its push to have its concerns about so-called US extraterritoriality discussed when leaders of the world's top 20 economies meet in Brisbane in Australia in November, according to French and other European officials."

"French finance minister Michel Sapin sought support for France's stance in recent meetings with Wolfgang Schäuble and Pier Carlo Padoan, his German and Italian counterparts, according to French officials. There was a "positive reception", one said."

"In Berlin, officials said Germany had agreed to back Paris, saying it supported a common EU approach to the U.S. over extraterritorial jurisdiction. Berlin sees that a union-wide approach to Washington is more likely to bear fruit than case-by-case discussions."

"Top regulators have been raising concerns about the impact of the long procession of fines on their efforts to strengthen banks' finances. Andrew Bailey, the head of the UK's Prudential Regulation Authority, warned in July that the large fines coming from the U.S. and other big jurisdictions were making a "considerable dent" in banks' efforts to rebuild capital."

My added comment: This article does not emphasize the earlier statements made by EU officials that they need to move away from a US dollar dominated system in response to these actions by the US. However, we can assume that thought is still circulating in EU circles.

Other news: The Banco Espirito Santo of Portugal had to be bailed out and this bailout gives a hint that some bondholders will no longer get to be covered by taxpayer funds.  While some were speculating that bank depositors might get "bailed in" on this one, it appears that bondholders and shareholders are going to take a the hit instead of depositors. From the article:

“The likelihood of recovery for junior bondholders is minimal,” said Nuria Alvarez, an analyst at Renta 4 BAnco SA, a Madrid-based financial services and brokerage firm. “They’re probably going to lose everything they invested. Banco Espirito Santo is going to become the bad bank in comparison with the new good bank. It will be left with all the toxic assets.”

Many nations have issued work papers suggesting that bail ins could be used in the future and some allow for bank depositors to get bailed in. So many are watching each of these cases to see how they get resolved. And many also watch for signs that these defaults trigger contagion due to unknown derivative products that may be out there in the marketplace but are not disclosed. Unfortunately, we have to watch every case even if they appear to be isolated events because of the unknown derivative products that exist around the world.

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