Friday

21st Jul 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 and get 40% off for an annual subscription. Sale ends soon.

  1. €90 per year. Use discount code EUOBS40%
  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.

Greece to get €7.7bn loan next week

The ESM, the eurozone emergency fund, agreed on Friday to unblock a new tranche of aid as part of the bailout programme agreed upon in 2015.

Opinion

Greece needs a new plan

Two years into its third bailout, Greece needs to combine the necessary fiscal targets with a new vision. This can be done in the context of the ongoing industrial revolution.

Opinion

Ceta and pesticides: A citizens' rights issue

The trade agreement with Canada will begin to apply on 21 September. But there is still a potential conflict on the right to data protection vs. the right to access information.

News in Brief

  1. Polish parliament adopts controversial justice reform
  2. GMO opt-out plan unlikely to go anywhere in 2017
  3. Slovak PM threatens to boycott inferior food
  4. France takes Google's 'right to be forgotten' to EU court
  5. Turkey accuses German companies of supporting terror
  6. Israel's Netanyahu caught calling EU 'crazy'
  7. UK does not collect enough data to expel EU nationals
  8. Polish president threatens to veto justice reform

Stakeholders' Highlights

  1. European Jewish CongressJean-Marie Le Pen Faces Trial for Oven Comments About Jewish Singer
  2. ACCAAnnounces Belt & Road Research at Shanghai Conference
  3. ECPAFood waste in the field can double without crop protection. #WithOrWithout #pesticides
  4. EU2017EEEstonia Allocates €1 Million to Alleviate Migratory Pressure From Libya in Italy
  5. Dialogue PlatformFethullah Gulen's Message on the Anniversary of the Coup Attempt in Turkey
  6. Martens CentreWeeding out Fake News: An Approach to Social Media Regulation
  7. European Jewish CongressEJC Concerned by Normalisation of Antisemitic Tropes in Hungary
  8. Counter BalanceOut for Summer Episode 1: How the EIB Sweeps a Development Fiasco Under the Rug
  9. CESICESI to Participate in Sectoral Social Dialogue Committee on Postal Services
  10. ILGA-EuropeMalta Keeps on Rocking: Marriage Equality on Its Way
  11. European Friends of ArmeniaEuFoA Director and MEPs Comment on the Recent Conflict Escalation in Nagorno-Karabakh
  12. EU2017EEEstonian Presidency Kicks off Youth Programme With Coding Summer School

Latest News

  1. Dutch coalition talks lengthiest in 40 years
  2. Polish parliament steps up showdown with EU
  3. EU urges UK to clarify its Brexit positions
  4. Law expert: direct EU powers have become too complicated
  5. Winter is here for Spitzenkandidat, but he'll survive
  6. Mafia money pollutes the EU economy
  7. Central Europe should be wary of Brexit stopping
  8. Poland's 'July coup' and what it means for the judiciary