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14.11.19 10 INTERVIEW The fire brigade that wants to ensure CLOUDS had been gathering since 2007 with the emergence of sub-prime loan losses in the US market but nothing could prepare the world for what was to come. e unimaginable happened in September 2008 when Leh- man Brothers crumbled, send- ing shockwaves in the banking sector. e sub-prime loan losses had exposed the high risks banks were taking when loaning mon- ey to each other and the fall of a major institution like Lehman caused panic. e reverberations could be felt far and wide, snowballing into a major financial crisis that hit large and well established banks in the US and Europe, some of which faced bankruptcy. e crisis forced governments to intervene with large bail- outs, precipitating the worst the worst economic crisis since the Great Depression of the 1930s. In Europe, government bail- outs saw countries getting crushed by soaring public debt that necessitated hurtful auster- ity measures and the introduc- tion of EU-wide rules to avoid a repeat of the banking crisis. e recovery has been long, painful and remains tenuous but according to Elke König, who heads the Single Resolu- tion Board, an independent EU agency, the banking sector and supervisory authorities are in a much better position than they were 10 years ago. König's job did not exist in 2008. e SRB she chairs was created in January 2015 as part of the EU's drive to create a sin- gle banking union. I meet König at the Panorama Restaurant in Valletta where breath-taking views of the Grand Harbour unfold in front of us. e weather is glum, a grey sky hangs overhead. She is in Malta to visit the Mal- ta Financial Services Authority, which is the national focal point for the SRB. "e SRB is like a fire brigade that was created in the after- math of the 2008 financial crisis to ensure that banks of system- ic importance to EU member states are resolvable," she tells me. e long and short of her job is to ensure that if a large bank is going to fail, the burden is not carried by taxpayers as was the case a decade ago. e SRB works with banks to help them draw up resolution protocols and have the organi- sational capabilities to react ap- propriately if a crisis hits. "ese protocols and the or- ganisational arrangements are important, especially if we have to take control of a failing bank," she says. Banks have been beefing up their capital requirements over the past few years with shareholders feeling the pinch through low, or no, dividends, as a result. But according to König this is not just about having adequate capital requirements. "Capital build up has in- creased over the years as new requirements were imposed but it is also important to have the necessary structures in place to enable an orderly resolution if a crisis hits. is is a mul- ti-year project and I am not sure whether we will ever reach the point where we can just sit back and relax," she says. e SRB had its baptism of fire in 2017 when Spanish bank Banco Popular was on the brink of failing. Shareholders had been trying to sell the bank for 18 months, to no avail. e Spanish government had recapitalised the banks in the wake of the crisis that hit the country in the previous years. But in 2017, Banco Popular was going under and the SRB stepped in with its tools to en- sure an orderly resolution. "We used our tools to sell the bank, almost overnight. But we were also lucky because there was an interested buyer. e decisions were taken in Brussels by us but they were implement- ed by our Spanish counterparts, who were fully prepared and knew how to go about the pro- cess within the context of Span- ish laws," she says. Banco Popular was sold for €1 to Banco Santander, a Spanish bank, and the following morn- ing, the bank opened its doors to continue its operations. Speaking at the time, König defended the success of the res- olution because financial stabil- ity was preserved, no taxpayers' money was used and the oper- ation had no impact on Spain's public debt. e SRB had passed its first major test. She looks back at that experi- ence with pride. "In the summer of 2017, the framework worked well and it showed the impor- tance of having an ongoing di- alogue with our counterparts in the member states," she adds. roughout our conversation, König makes constant reference to stability as an important aim of the SRB's job. Why is stability important, I ask? "Banks were so intertwined when Lehmann Brothers failed in 2008 that the clock stopped ticking. Trust was breached and with a banking system that was so interconnected, everything stopped functioning," she re- plies. Elke König chairs the Single Resolution Board that was set up in 2015 as part-response to the financial crisis. She tells KURT SANSONE how the SRB functions to ensure failing banks no longer threaten countries and taxpayers.

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