The Government is set to strip the Bank of Portugal of its role in sorting out the ‘rescue’ of troubled banks, a task at which it has hardly excelled.
This show of strength by the prime minister, who has supported the Bank of Portugal's governor Carlos Costa with increasing difficulty, is as far as he can go to punish the lame duck governor for a lackluster performance that has cost the country billions.
Finance Minister Mário Centeno tomorrow is presenting a raft of new rules for banking supervision, neatly provided by a working group that has been evaluating the failed financial supervision system in Portugal and has come up with a list of amendments.
The creation of the working group was justified under the government's general work programme which states that it wants to "reorganise the regulatory and supervisory functions, reinforce the independence of regulators and supervisors vis-à-vis the regulated sectors and to prevent abuses in the financial sector."
The results of this work can be turned on Carlos Costa to reduce the financial areas over which he currently exerts control, or tries to.
The Government is to create a new independent entity for oversight to monitor the stability of the financial system and to resolve problems when banks get into trouble, replacing the National Council of Financial Supervisors and the National Council on Financial Stability.
This takes power from the Bank of Portugal which will no longer be responsible for protecting banks or banking resolution, such as Novo Banco (formerly BES) or Oitante (formerly Banif).
The Bank of Portugal’s governor has been facing a barrage of criticism of his performance, ignited recently by a TV programme that showed he knew about the financial situation at Banco Espírito Santo way before it went bust in 2014, yet did nothing about it.
Later, he went back on his word and transferred a €2 billion loan from Novo Banco back to the defunct BES, stripping creditors, including Goldman Sachs, of any chance of getting their money back
Then there was Banif... the list of Carlos Costa’s poor decisions is a long one but the bomb that is about to explode in his face is the imminent sale of Novo Banco to the US fund Lone Star for a bargain basement €750 million when there are offers in the market of up to €4 billion for the loss-making bank.
The Bank of Portugal says it will not entertain bids at this late stage as it is in ‘exclusive negotiation’ with Lone Star.
The Novo Banco sale programme rules were devised by the Bank of Portugal and seem designed to exclude bids that offer the best value for money for the Resolution Fund and the taxpayer - which together threw in €4.9 billion to set up Novo Banco when BES went bust, not that either had a choice.
Costa has been a liability even before his cozy lunches with Ricardo Salgado when he was assured that all was well with the Grupo Espírio Santo empire despite there being a €3.9 billion hole in the accounts of its Angolan banking business.
The prime minister cannot sack Carlos Costa from his position as governor of the Bank of Portugal but limiting his chances of making yet more expensive mistakes will be a victory for common sense and gives Carlos Costa an ideal opportunity to resign.
__________
A reader asked below how the government can appoint the Bank of Portugal governor, but not sack him.
"The Board of Directors of Banco de Portugal consists of the Governor, who will chair, one or two Vice-Governors and three to five Directors.
"The members of the Board of Directors are chosen from among persons of recognized standing, competence and management experience, as well as knowledge in monetary and banking matters. They are appointed by means of a resolution of the Cabinet, upon proposal of the Finance Minister. They are in office for a term of five years, renewable once for an equal term, by means of a resolution of the Cabinet.
"The Governor and the other members of the Board of Directors are independent in accordance with the Statute of the European System of Central Banks and of the Central Bank (ESCB/ECB) and cannot seek or take instructions from Community institutions, the State sovereign bodies or any other institutions.
"The members of the Board of Directors are irremovable from office; they may only be relieved from office should any of the circumstances envisaged in Article 14.2* of the ESCB/ECB Statute occur. This relief from office is made by means of a resolution of the Cabinet, upon proposal of the Finance Minister. They may vacate office upon expiry of their term, or due to permanent incapacity, resignation or legal incompatibility.
"The Board of Directors is responsible for all the acts required to achieve the purposes assigned to the Bank which do not fall within the exclusive competence of other bodies. On a proposal from the Governor, it may assign to its members responsibilities for one or more sectors comprising one or more services of the Bank.
"It is incumbent upon the Governor, inter alia, to carry out the tasks of member of the Governing Council and of the General Council of the ECB, pursuant to the provisions laid down in the Treaty establishing the European Community and in the ESCB/ECB Statute, to represent the Bank, and to act on behalf of the Bank with foreign or international institutions."
Board of Directors of the Banco de Portugal
__________
Before you ask what Article 14.2 states, here it is:
"14.2. The statutes of the national central banks shall, in particular, provide that the term of office of a Governor of a national central bank shall be no less than five years.
A Governor may be relieved from office only if he no longer fulfils the conditions required for the performance of his duties or if he has been guilty of serious misconduct.
A decision to this effect may be referred to the Court of Justice by the Governor concerned or the Governing Council on grounds of infringement of these Treaties or of any rule of law relating to their application.
Such proceedings shall be instituted within two months of the publication of the decision or of its notification to the plaintiff or, in the absence thereof, of the day on which it came to the knowledge of the latter, as the case may be"
