Friday

1st Jul 2022

EU ministers agree rules on bank collapses

  • RBS was among the biggest banks to be nationalised in the 2008-2009 crisis (Photo: Fergus Ray Murray)

Bank shareholders and creditors will be first in line to suffer losses if their bank gets into difficulties, according to draft rules agreed by ministers in the early hours of Thursday morning (27 June).

Ministers had been hoping to seal a deal last Friday (21 June) in Luxembourg but nearly 20 hours of talks broke up with disagreement on how much flexibility governments would have to fire-fight in a crisis.

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However, with the final EU summit before the summer recess just hours away, and with the European Commission anxious to table its delayed proposal for a single resolution mechanism (SRM), finance ministers managed to agree a compromise

Under the new regime, banks' creditors and shareholders would be the first to take losses. But if this proves insufficient to rescue the bank in question, savers holding uninsured deposits worth more than €100,000 would also take a hit.

The forced losses could account for as much as 8 percent of a bank's total liabilities. Only then would national governments step in and provide a taxpayer-funded bailout worth another 5 percent of the liabilities.

The text also gives nations a clear right to take a taxpayer-funded stake in failing banks, if the step is seen as essential to preserve financial stability and to prevent panic spreading to other lenders.

The main difficulty was in brokering a deal between a group of member states including France, Sweden and the UK, who want national regulators to have enough autonomy to save banks in an emergency, and others such as Germany, Finland and the Netherlands, who wanted a more rigid rulebook.

Swedish finance minister Anders Borg said the accord leaves open the path for nations to take stakes in their most important banks.

“There is a reasonable degree of flexibility when it comes to inject capital into banks,” he noted.

Germany's finance minister Wolfgang Schaeuble said the agreement is "an important step" towards establishing a eurozone banking union.

"We make progress step by step," he added.

Meanwhile, French finance minister Pierre Moscovici told reporters his government got “what we wanted” by ensuring a role for the the European Stability Mechanism (ESM) the eurozone bailout fund.

“It would not have been coherent on the one hand to put in place a direct mechanism for recapitalization by the ESM and on the other to exclude the ESM from the game of flexibility,” he told reporters on Friday.

Last week, ministers agreed to allocate up to €60 billion of the ESM's capital to direct bank recapitalisation.

EU governments will now start negotiating the bill with MEPs.

The assembly adopted its position on the legislation in May, with Swedish centre-right deputy, Gunnar Hokmark, tasked with piloting the bill through parliament.

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