EU finance ministers say they will push banks, legislation to be ready if banks falter

BRUSSELS – European Union finance ministers vowed on Friday to make sure the region’s banks have restructuring plans ready in case they flunk a key review of their finances.

The European Central Bank is leading a yearlong review of the EU’s largest banks to find and then either fix or weed out weak banks. The question is what to do in case the review finds a bank needs to raise more capital.

The ministers in Brussels said that they would make sure to have the banks prepare “specific and ambitious strategies.”

They also said they would make sure that any restructuring favoured using private money first — from investors or shareholders — rather than taxpayer funds. The statement said governments would have any new legislation needed to restructure a bank ready before the ECB review is complete.

The ECB has pushed the finance ministers to make a clearer statement of their willingness to step in and rescue banks if they are found to be in need of new capital. Top ECB official Joerg Asmussen said that the bank review would lack credibility if there was not a willingness on the part of governments to take action and backstop troubled banks.

With the ECB review, the EU is trying to improve on two earlier reviews made under another agency, the European Banking Authority, in 2009 and 2011. Those reviews, or stress tests, lost credibility after some banks that had been given the all-clear later needed bailouts.

Fixing banks is seen as key to solving the debt problems afflicting the euro currency union and shoring up economic growth.

The ministers’ statement repeated an earlier vague promise to have “national backstops” ready that didn’t satisfy the ECB. It also went over a previously stated pecking order in case off bank losses: first, private money would be used to resolve the problem, and only then would governments use taxpayers funds. Governments that could not afford the rescue could turn to the eurozone’s bailout fund.

They restated the principle that money spent on saving banks would not count against their defict and debt limits under European Union rules aimed at safeguarding the euro from overspending governments.