Monday

24th Apr 2017

Brussels: 'Banks should pay for banks'

  • Dexia was bailed out using tax-payers' money (Photo: Valentina Pop)

The European Commission in Wednesday (6 June) unveiled proposals designed to change the too-big-to-fail rationale that has seen billions of euros of tax payers' money pumped into Europe's ailing banking sector.

"We are going to break the links between banks and the public sector," said financial services commissioner Michel Barnier announcing the draft legislation. "Banks must pay for banks."

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

Under the proposal banks would be obliged to draw up recovery plans that would kick into place if their finances deteriorate and national authorities could appoint "special managers" to oversee weak institutions.

Each lender would also be obliged to set aside at least 1 percent of the deposits covered by their national guarantees for a special fund to help tide it over if it reaches failure stage.

The most headline-grabbing proposal is for senior bondholders to be made liable for the costs of bailing out a lender.

This is likely to attract much attention in Ireland - bailed out by the EU and International Monetary Fund in 2010 - where government attempts to make major bondholders pay were blocked by the European Central Bank for fear that markets would panic.

The €64 billion bank bill is currently being absorbed by the Irish tax payer.

The commission's new plans are both preventative and for the long-term.

"In both comedy and tragedy, timing is everything. The bulk of the crisis resolution is long overdue," said UK Liberal MEP Sharon Bowles, who heads up the parliament's economic affairs committee.

The bondholder clause would come into effect in 2018; the 1 percent deposit clause by 2024.

The commission aims to prevent tax payers being forced to foot the bill in the future, with the EU commission having approved €4.5 trillion (37 percent of EU GDP) in state aid measures to financial institutions between 2008 and 2011.

The proposed changes, which need to be agreed by member states and parliament, will not help Spain which urgently needs to recapitalise it banks which have an estimated credit shortfall of up to €100 billion.

Madrid has lately started to say its banks should be allowed to tap into the permanent eurozone bailout fund (ESM), due to be up and running at the beginning of July.

"I cannot say that this will affect the Spanish banks," said Barnier of Wednesday's plans.

On the ESM question, he said: "It's not possible, not today."

Wednesday's proposals are also a step towards the fully fledged banking union that high-ranking EU officials such as European Central Bank chief Mario Draghi suggest is needed to protect the eurozone.

A full union would include a single European bank regime rather than the new member-state-level rules proposed on Wednesday. It would also include a powerful EU banking supervisor and a European bank deposit guarantee scheme.

These ideas are set to be discussed at an EU leaders summit at the end of June.

Spain may speed up EU 'banking union'

The US has joined ranks with EU officials exploring ways to pump eurozone money directly into Spain's troubled banks, with creation of a "banking union" now considered a matter of eurozone survival.

Banks should separate deposits from risky trading, group says

An expert group advising the EU commission has said banks in Europe need to separate their entities dealing with deposits from those trading with risky investments, in order to prevent a re-run of the 2008 financial crisis.

Eurogroup makes 'progress' on Greek deal

Eurozone ministers endorsed an agreement in principle between the Greek government and its creditors over a new package of reforms. But talks on fiscal targets and debt could still block a final agreement.

New anti-trust complaint looms over Microsoft

At least three security software companies “met several times” with the European Commission to complain about Microsoft’s alleged abuse of its market position. A formal case could follow.

New anti-trust complaint looms over Microsoft

At least three security software companies “met several times” with the European Commission to complain about Microsoft’s alleged abuse of its market position. A formal case could follow.

Investigation

MEPs oppose EU agency to prevent Dieselgate II

The European Parliament said on Tuesday that there should be more EU oversight on how cars are approved, but stopped short of calling for an independent EU agency.

News in Brief

  1. Italy misses deadline on air quality warning
  2. Land mine kills OSCE observer in Ukraine
  3. Italy prosecutor claims NGOs are working with migrant smugglers
  4. Danish defence hacked by Russian cyberspies
  5. EU trade commissioner in US to pick up TTIP talks
  6. Juncker to meet Soros on Hungary next week
  7. Timmermans praises Romania's anti-corruption measures
  8. Trump says 'strong Europe' is good for the US

Stakeholders' Highlights

  1. Nordic Council of MinistersDeveloping Independent Russian-Language Media in the Baltic Countries
  2. Swedish EnterprisesReform of the European Electricity Market: Lessons from the Nordics, Brussels 2 May
  3. Malta EU 2017Green Light Given for New EU Regulation to Bolster External Border Checks
  4. Counter BalanceCall for EU Commission to Withdraw Support of Trans-Adriatic Pipeline
  5. ACCAEconomic Confidence at Highest Since 2015
  6. European Federation of Allergy and Airways60%-90% of Your Life Is Spent Indoors. How Does Poor Indoor Air Quality Affect You?
  7. European Gaming and Betting AssociationCJEU Confirms Obligation for a Transparent Licensing Process
  8. Nordic Council of MinistersNordic Region and the US: A Time of Warlike Rhetoric and Militarisation?
  9. European Free AllianceEFA MEPs Vote in Favor of European Parliament's Brexit Mandate
  10. Mission of China to the EUXinhua Insight: China to Open up Like Never Before
  11. World VisionViolence Becomes New Normal for Syrian Children
  12. International Partnership for Human RightsTime to Turn the Tide and End Repression of Central Asia's Civil Society

Latest News

  1. Les amis de Le Pen à la Trump Tower
  2. France's election run-off will be far-right versus EU
  3. Alternative for Germany party refuses to shun extreme right
  4. Brexit summit, Turkey and Hungary dominate EU This WEEK
  5. Russia threat triggers European military spending hike
  6. Voters 'change face' of French politics
  7. France holds nail-biting 'anti-system' vote
  8. Le Pen-Putin friendship goes back a long way