ECB Tightens Noose Around Bank Accounts

The European Central Bank (ECB), arguably the European Union’s most powerful and least accountable institution, apparently needs more power, according to Daniele Nouy, the ECB’s top supervisor. Chief among the fresh powers it seeks is the power to temporarily prevent people from withdrawing their money from their accounts at banks that are in distress, including by electronic fund transfers.

“In my view… the introduction of adequate moratorium power for authorities is needed in order to react with the needed flexibility, if the situation of a bank deteriorates rapidly,” Nouy told a member of the European Parliament in a letter. “Given the potentially swift evolution of liquidity crises, a moratorium tool could be necessary to ensure there is adequate time for ensuring a credible solution,” Nouy said, adding that the ECB will soon publish an opinion on this issue.

The recent collapse and resolution of Spain’s Banco Popular and Italy’s Monte dei Paschi di Siena lent more impetus to this new regulatory push that has been quietly in the works for a while.

Late last year, the European Commission, the same entity that wants to impose increasingly draconian limits on the use of cash in Europe, proposed giving banking supervisors the authority to suspend some deposit withdrawals and payments obligations in exceptional circumstances.

But that was not enough to placate Europe’s senior ranks of central bankers. While the Commission proposal would exclude deposits under 100,000 euros, which to all intents and purposes are insured by their respective national governments, the Single Resolution Board has warned that significant amounts of cash could still leave the bank if the moratorium was “excessively narrow.”

As such, if the new proposal is passed — and given that its passage will involve very little in the way of democratic process, that’s more or less guaranteed — pay-outs to insured depositors could be suspended for five working days, according to an Estonian document recently seen by Reuters. The freeze could even be extended to a maximum of 20 days in “exceptional circumstances.”