Euro zone banks have suffered from low profitability and exceptionally low valuations for years, leading to concern that the inevitable surge in non-performing loans amid a pandemic-led recession would create a systemic risk.
"In exceptional cases, I support the introduction of a more flexible stance on state aid," Stournaras, Greece's central bank governor, said in a piece for German newspaper Handelsblatt.
He made the case for state-guaranteed Asset Management Companies, more commonly known as bad banks, with "appropriate remuneration of the state" to help lenders get rid of soured loans.
He also argued that all deposits should be excluded from the instruments that absorb capital losses, in part to protect small and mid-sized banks, which are primarily deposit-funded and cannot issue enough subordinated debt to be bailed in.
Stournaras also warned that more liquidity provisions may be needed to resolve failing banks in an orderly way.
"Liquidity needs in resolution may easily surpass what is currently provided for," he said. "I see a role for the ECB... the establishment of a special credit line by the ECB could be considered, subject to appropriate safeguards."
Stournaras also made the case for a Europe-wide deposit insurance scheme to shore up confidence, a long stalled project opposed by Germany on worries that its taxpayers could be forced to foot the bill for losses generated elsewhere.
(Reporting by George Georgiopoulos; Editing by Frances Kerry)
