Strengthening the capital position of a bank through capital injections, for instance by acquiring common shares. Often accompanied by additional measures, such as restructuring, raising capital privately, the sale of assets, or segregating impaired assets into an asset management agency (‘bad bank’).
The ESM can provide financial assistance for the recapitalisation of banks in three ways: (i) via a general loan to an ESM Member in support of a macroeconomic adjustment programme; (ii) via a loan to an ESM Member for the dedicated purpose of bank recapitalisation (indirect bank recapitalisation); and (iii) via the ESM direct recapitalisation instrument.
The bank(s) concerned should have a systemic relevance or pose a serious threat to the financial stability of the euro area as a whole or of its members.
A contractual arrangement between two parties, whereby one party agrees to sell a security at a specified price with a commitment to buy the security back at a later date for another specified price. In essence, this makes a repurchase agreement much like a short-term interest-bearing loan against specific collateral.
Various kinds and motivations for trading repos are common and well-established in financial markets. Central banks use repurchase agreements to increase or reduce the money supply - a basic function of monetary policy. For example, by offering to buy securities in exchange for cash, central banks can inject money into the economy. Commercial banks often use repurchase agreements to borrow cash for short periods.
A fund established by the Board of Governors for placing net income generated by the ESM operations, as well as the proceeds of the financial sanctions received from the euro area countries under the multilateral surveillance procedure, the excessive deficit procedure and the macro-economic imbalances procedure. The resources of the reserve fund are invested in accordance with guidelines adopted by the Board of Directors.
Resolution (of banks) – is a legal process in which a failing bank is restructured or wound down (liquidated) in an orderly manner.
Financing the repayment of a maturing bond by issuing a new bond. The ESM and EFSF roll over some of their bonds, as their maturity is usually shorter than the maturity of loans that either institution has granted.