Finance Minister Edward Scicluna told Parliament yesterday the government was working on new legislation to allow it to borrow from foreign markets.
Introducing a Bill to amend the Local Loans (Registered Stock and Securities) Ordinance, he said it would empower the government to borrow money, should it need to do so, to safeguard an institution requiring a government bailout.
The borrowing would increase government debt and the interest would appear on the government’s financial estimates because it could well happen that the State would have to borrow large sums overnight, at higher interest rates. The government hoped Malta would never experience such a situation.
The Bill formed part of a package of measures aimed at having a framework with EU and international standards and followed the economic crisis that brought a number of countries to their knees.
The situation had to be resolved and a strategy for the way ahead had also to be drawn up. This was what had given rise to the need of a banking union.
The idea for an EU resolution fund, which was in the pipeline for next year, involved all member states contributing, with the target of raising about €50 billion over a period of eight years. The amount of contributions would depend on the size of the country. That said, Prof. Scicluna added, financial markets demanded more because, until the eight-year period was up, the fund would not be strong enough.
That placed the onus on governments to ensure they had the necessary funds to make good in case of a catastrophe occurring until the full fund was set up.
Banks that posed a systemic risk were identified by each member State – in Malta’s case HSBC, Bank of Valletta and Deutsche Bank – and a stress test carried out. The test only served to confirm the strength of the Maltese banks, Prof. Scicluna said.
The Bill aimed to permit the collection of funds to provide financing to such credit institutions in case of crisis to preserve the situation, in line with the terms of the directive of the European Parliament and of the Council. This mechanism was needed to complement the very strong and harsh supervisory system.
Prof. Scicluna said laws to protect the citizen were in the people’s interest.
Flexibility was important. Malta had always worked in the same way. Risks needed to be controlled and managed, so the best thing would be to monitor things and proceed carefully.