6th Jul 2022

EU reaches deal to protect bank savings

  • Savers are guaranteed the first €100,000 under the deal agreed by MEPs and ministers. (Photo: Valentina Pop)

EU lawmakers have made a breakthrough in banking union talks after agreeing on rules to protect people's savings, ending a two-year impasse between MEPs and ministers.

Under the deal brokered on Tuesday night (17 November), the first €100,000 of savings per depositor and per bank will be guaranteed if the bank gets into financial difficulty.

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Banks will also be required, for the first time, to put in place financing schemes to ensure that money is available to reimburse savers.

EU officials have long regarded a deal on banking savings as one of the three main pillars of a eurozone banking union, together with a single regime for bank supervision and resolution in times of crisis.

The European Commission tabled the legislation in autumn 2010. But progress on the draft directive was stalled by a two-year log-jam between MEPs and ministers over the funding requirements and the timetable for paying out to savers.

The move leaves the resolution mechanism as the last outstanding as lawmakers bid to ensure that the costs of future banking crises will be borne by the banks themselves rather than the taxpayer. Finance ministers will reconvene this morning in Brussels in a last attempt to reach a compromise before the Christmas break.

Last week, officials agreed on rules governing the hierarchy of who would bear losses if a bank became insolvent, putting shareholders and bondholders first in line and savers and the taxpayer last in the queue.

However, it was called into question in March this year when eurozone finance ministers attempted to impose a levy on all savings held in Cypriot banks worth more than €20,000 as part of the country's €17 billion bailout.

The plan was swiftly rejected by the Cypriot parliament, but not before a run on the island's banks as panicked savers sought to withdraw their money.

Banks will have ten years to create a fund worth at least 0.8 percent of their deposits, with institutions engaged in more risky activities required to pay in more. 

The agreement also reduces the time depositors will need to wait to receive their deposits from the current 20 days to 15 days in 2019 and, ultimately, to 7 days by 2024.  This provision was trumpeted as a victory for MEPs, with governments eventually backing down from insisting on the current time limit. 

However, the deal does not include plans for a common deposit guarantee fund for the eurozone, following resistance from a number of governments, including Germany.

In a statement, Internal market commissioner Michel Barnier said that the deal marked "another important step towards completing the single rulebook on crisis management for credit institutions in the EU."

For his part, Peter Simon, the German centre-left deputy leading the European Parliament's negotiating team, remarked that the agreement was "good day for the taxpayer and for depositors."

"We have further severed the link between taxpayers and banks, and depositors will be able to receive their money more quickly," he added.

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