benoit cœure : interview in politis interview with mr benoit cœure, member of the executive board of the european central bank, in politis, conducted by mr yannis seitanidis on 8 march 2015. * * * the ecb ’ s governing council had a meeting in nicosia, two years after the “ bail - in ” agreement on the recapitalisation of cyprus ’ banking system. many questions about the role of the ecb during the crisis of march of 2013 still remain unanswered. did the ecb play a constructive role or did it put pressure on the cypriot government through the emergency liquidity assistance ( ela ) mechanism? under the rules of the eurosystem, ela can only be provided by national central banks to solvent banks. so, what was the situation in march 2013? the central bank of cyprus had been providing ela to the two largest banks, which the central bank, as the supervisor, had deemed solvent. but the negotiations on an eu / imf programme, which had started in june 2012, had dragged on until the situation of the banking sector had become critical, and the solvency of the two largest banks came under much closer scrutiny. the ecb simply implemented the existing rules when it concluded on 21 march 2013 that a programme would need to be in place in order for the ela provision to continue. the bail - in was something unexpected two years ago and now is a part of the resolution procedure for european banks. was cyprus a laboratory where the resolution of banks was tested? no. the truth is that the financial sector of cyprus was exceptionally large – in relative terms – by european standards, and its capital needs were significant. the two largest banks were estimated to need fresh capital in excess of 40 % of gdp, as an independent due diligence process revealed. if the sovereign were to shoulder this burden, on top of already strained public finances, public debt sustainability would be critically endangered. burden - sharing with private investors was not only inevitable, but it also significantly reduced the financial impact on cypriot taxpayers and protected the vast majority of depositors. i wouldn ’ t expect this to happen again in any other place, given that the bank recovery and resolution directive now requires banks to build a significant buffer of so - called “ bail - in - able ” debt, meaning that investors will be hit before depositors have to pay. the unpleasant legacy of the banking crisis – which still causes pain in the real

s been complete pass - through. is it your expectation that tiering is going to be successful in buffering consumer rates 3 / 11 bis central bankers'speeches from unwanted outcomes? the motivation for tiering is, essentially, in a world where … i wouldn ’ t want to take a position about the extent to which banks can pass through negative rates to depositors. but to an extent there is some friction where the net interest margin is compressed – they can ’ t fully pass through these cuts to depositors. the role of tiering is to basically strike a balance, where the ability of banks to sustain credit is what we care about, we don ’ t take a direct view about what ’ s in the interests of bank shareholders, that ’ s not our concern. our concern is whether there are risks to the credit transmission channel. by tiering, by providing some relief in terms of the net income effects of our policy moves, we think it gives protection against any risk to the credit transition channel. it ’ s not the case that it ’ s a situation about making a call about what type of depositors should be protected. banks may do so, in terms of their own strategy, in terms of who they want to protect and who they want to pass the deposit rate cut through to. that ’ s a commercial decision. on efficacy of tools, i believe the latest tltro auction at – 50 attracted almost zero bids. we also had a fairly hefty prepayment of bonds coming due, so you actually had balance sheet shrinkage in the near term. do you expect that to be corrected? and to what degree do you expect it to be corrected with the resumption of the app? let me make two points. one is that the recent tltro take - up was based on submissions before the policy move. so it is nothing to do with the new policy because the submissions came in before we made our announcement. i think what ’ s important with the tltro programme is that it ’ s a facility. the most obvious interpretation if there ’ s a low take - up is that financial conditions are so great that there ’ s no need to come to the ecb for funding. it ’ s always been the case that tltro take - up has varied quite a bit across banks depending on their ability to raise money cheaply in the wholesale markets. so i wouldn ’ t draw a direct conclusion. we do expect a significant tlt