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On Friday afternoon, President of the Fund for Financial Stability Paul Kloster resigned. This event, a few weeks before the start of the last stage of banks’ recapitalisation, leaves a gap in the main body of this process which not only supervises, but also controls the banking system through its significant participation in banks’ share capital.

The resignation, just weeks after the appointment of the current management of the Fund, raised serious questions. The increase of the capital of "good" banks, the management of small and medium-sized banks, as well as the duties of the new Proton Bank and TT Hellenic Postbank are critical issues for the future of the banking system in Greece.

Finance Minister Yiannis Stournaras explicitly stated that there is no option for changing the frame of recapitalisation in terms of its schedule, but there is no lack of movement either, since, several days ago, the Troika raised the question about the expedience of the merger of the National Bank and Eurobank. The preliminary plan of IMF’s staff described the problems of the "hard" pattern that would be created by this merger with regard to the ease with which the merged bank would run out of private capital. In turn, the National Bank stated that the merger would not be frozen. However, sources of Naftemporiki newspaper argue that the message has been delayed and is not in line with previous lenders’ recommendations to the domestic banking system.

Dutchman Paul Kloster, whose resignation has not yet been confirmed by the Ministry of Finance, said that he was leaving for personal reasons. He was President of the General Council of the Financial Stability Fund which is one the fund’s bodies - the second one is the Executive Committee, which is led by Anastasia Sakelariou. Ever since the first day of his appointment on 1 February 2013, the banking market has been criticising his thesis about the country’s banking system and recapitalisation. At meetings with representatives of banks and institutions Kloster openly stated that he supported the system’s nationalisation. He was criticised for having only visited Athens twice last month, in order to participate in meetings of the General Council, and otherwise he lived in Dubai, where he participated in the family business. According to unconfirmed information, besides personal reasons, his resignation was also a result of his opposition to the reduction of incomes that is sought by the Ministry of Finance.

Meanwhile, a cut in hybrid securities or other types of bonds will be of benefit for "good" banks in terms of savings of up to 1 billion euro. For example, a discussion on the implementation of this scenario has been recently held in Spain, but without a clear picture so far, according to banking sources.

This was mentioned for the first time by Eurogroup on 26 November, when a Greek bond buyback was discussed. According to the decision, Greek banks that are under a recapitalisation process should operate with liabilities for the rest of holders of subordinated debt, for the fair distribution of burden. The decision was interpreted as a bond buyback (perhaps an obligatory option for holders) by banks of their own bonds – an option that banks themselves would undertake voluntarily in order to improve their capital, quality and liquidity. Hybrid bonds buybacks by the National Bank, Alpha Bank, Eurobank and Piraeus Bank brought banks capital amounting to about 1 billion euro in 2012. Existing bonds – hybrid bonds and bonds with lowered guarantees, amount to 2.5 billion euro.

The decision of Eurogroup noted that the benefit would amount to 600 million euro. The offer for a voluntary buyback was made at prices lower than the nominal value of up to 40%, but it wasn’t successful, since bonds in this category are negotiated during this period of low market sales. A cut will also lead to a large discount.

The Banking Union

The IMF wants strict control over European banks, marking in the first study of the credit sector of the European Union, that priorities include balance restoration and completion of reform so that there will be no losses for banks. It is also necessary to accelerate the European Banking Union, which will include, among other things, a general framework for the recovery of credit institutions and other issues that Member States oppose. Another option is also being considered at European level – the option for banks to prepare for the use of the deferred tax to the amount of only up to 10% of their capital, as the third plan for the worldwide regulation of banks provides. Also, the option to increase the time for the implementation of changes up to 10 years is being considered, in order to make it easier for European banks in terms of meeting capital needs.