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Tef Agreement

October 10th, 2021

Critics have rightly argued that the procedural changes recommended by the National Audit Office would not be sufficient to overcome the inefficiencies in the programme. Fast forward to 2019: A study showed that a number of agreements unknown to the public have been changed. Renegotiations of EFT agreements, which are generally business-friendly, include extending the period after which a company previously agreed to meet its employment target, reducing the total number of jobs the company has committed to create, or changing the definition of what a job created is. The authors of the study faced opposition from companies to exchanging information through public applications for registration, especially when a contract had been amended. This preliminary finding raises important questions of transparency as to the objective usefulness of the program. The EFT would make a key contribution to the banking union by providing banks with a “safe asset”, thus drastically reducing the “fall loop” between banks and their states, thus directly reducing banks` risk-taking. The indirect contribution of improving the economic governance process would be a more fundamental benefit in the longer term. At the highest levels of European politics, there seems to be a broad consensus that completing the banking union is an essential “next step”. Without this, there will be no Capital Markets Union. At the most technical level: the banking union would be strengthened, as tef-bills would be the most natural liquid assets (HQLA) for banks to comply with the liquidity rules of the Capital Requirement Regulation, as they would constitute the safest and most liquid asset in the euro area. Tef-bills should easily meet the EBA test “Transferable assets with extremely high liquidity and credit quality”.

Based on the ESM submission, supervisors should allow the same 0% risk weighting for EFT claims. (At present, we can set aside the debate on whether eurozone sovereign debt should be defined as risk-free and should therefore be weighted at 0% for banks. From the moment the euro was proposed, this author opposed this definition – see my last submission to the BCBS”… .


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