Tuesday

6th Dec 2022

EU lawmakers reach agreement on bank rescue rules

  • A symbol of the crisis? EU lawmakers say new bank rules would prevent a repeat of the RBS bailout. (Photo: Fergus Ray Murray)

MEPs and ministers have agreed new rules to rescue insolvent banks that would target bondholders not savers, following the final round of talks in Strasbourg.

The bank recovery and resolution directive, which will apply to all 28 EU countries, sets out the hierarchy of creditors to be 'bailed-in' in the event of a bank crisis.

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Shareholders and bondholders would be first in line, with savers last in the queue, while tapping public money to prevent a bank collapse would only be done as a last resort.

The new rules on bail-in will take effect from January 2016.

Under the agreement, the bail-in rules would apply at least until 8 percent of a bank's total assets have been wiped out.

Welcoming the deal on Tuesday night (11 December), Gunnar Hökmark, the centre-right MEP tasked with steering the legislation through Parliament, said that the bail-in mechanism "sends a clear message that bank shareholders and creditors will be the ones to bear the losses on rainy days, not taxpayers. "

"We also established clear rules to deal with the most exceptional cases in which overall financial stability is in danger," he said.

 

For his part, financial services commissioner Michel Barnier remarked that the deal was "a fundamental step towards the completion of the Banking Union."

The bill will also require all EU countries to set up a national fund to cover the potential costs of bank resolution.

The fund will be worth 1 percent of the total deposits held in a country's banks by 2025 and be financed by a bank levy.

Negotiations on the directive began in 2012 but were given added political charge in spring in the wake of the hurriedly agreed Cypriot bail-out.

The first offer to Nicosia from eurozone finance ministers in March featured a one-off 6 percent levy on all savings worth more than €20,000 to raise a €7 billion contribution from Cyprus as part of the €17 billion rescue package. The proposal panicked markets and saw savers scramble to take their money out of Cypriot banks.

Since then, lawmakers have been keen to reassure citizens that their savings will be safe. They have also been anxious to avoid a future repeat of the multi-billion euro taxpayer funded bailouts given to banks during the 2008-9 crisis.

The agreement secures the first part of an ambitious wish-list of banking reforms. EU lawmakers are also hoping to sign off on reforms to the EU's rules on deposit guarantee schemes which protect the first €100,000 of individuals' savings.

Meanwhile, finance ministers will return to the negotiating table next week in a bid to agree their position on plans to create a single resolution authority and fund for the eurozone.

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