Wednesday

18th Oct 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."

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

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.

News in Brief

  1. Spanish Court declares Catalan referendum law void
  2. EU to keep 'Dieselgate' letter secret
  3. No deal yet on Mediterranean alliance for EU agencies
  4. EU Commission condemns Maltese journalist's murder
  5. Poland denies wrongdoing over forest logging
  6. Risk to asylum kids in EU increasing, says charity
  7. Schroeder warns of Turkey and Russia drifting towards China
  8. EU parliament wants equal pay for posted workers

Stakeholders' Highlights

  1. EU2017EENorth Korea Leaves Europe No Choice, Says Estonian Foreign Minister Sven Mikser
  2. Mission of China to the EUZhang Ming Appointed New Ambassador of the Mission of China to the EU
  3. International Partnership for Human RightsEU Should Seek Concrete Commitments From Azerbaijan at Human Rights Dialogue
  4. European Jewish CongressEJC Calls for New Austrian Government to Exclude Extremist Freedom Party
  5. CES - Silicones EuropeIn Healthcare, Silicones Are the Frontrunner. And That's a Good Thing!
  6. EU2017EEEuropean Space Week 2017 in Tallinn from November 3-9. Register Now!
  7. European Entrepreneurs CEA-PMEMobiliseSME Exchange Programme Open Doors for 400 Companies Across Europe
  8. CECEE-Privacy Regulation – Hands off M2M Communication!
  9. ILGA-EuropeHealth4LGBTI: Reducing Health Inequalities Experienced by LGBTI People
  10. EU2017EEEHealth: A Tool for More Equal Health
  11. Mission of China to the EUChina-EU Tourism a Key Driver for Job Creation and Enhanced Competitiveness
  12. CECENon-Harmonised Homologation of Mobile Machinery Costs € 90 Million per Year

Latest News

  1. EU rejects UK claim it's slowing Brexit talks
  2. Nepal troops arrive in Libya to guard UN refugee agency
  3. Is Banking Authority HQ the Brexit 'booby prize'?
  4. EU-Russia trade bouncing back - despite sanctions
  5. No sign of Brexit speed-up after May-Juncker dinner
  6. EU defence strategy 'outsourced' to arms industry
  7. EU privacy rules tilt to industry, NGO says
  8. Malta in shock after car bomb kills crusading journalist