The European Union agreed on Thursday (June 27) to force investors and wealthy savers to share the costs of future bank failures, moving closer to drawing a line under years of taxpayer-funded bailouts that have prompted public outrage.
After seven hours of late-night talks, finance ministers from the bloc's 27 countries emerged with a blueprint to close or salvage banks in trouble. The plan stipulates that shareholders, bondholders and depositors with more than 100,000 euros (£84,981) should share the burden of saving a bank.
The rules break a taboo in Europe that savers should never lose their deposits, although countries will have some flexibility to decide when and how to impose losses on a failing bank's creditors.
The final agreement marked the end of complex negotiations following a failed attempt to reach a deal last weekend. Swedish Finance Minister Anders Borg was among those who declared himself satisfied with the new "bail-in" proposal which looks to investors to fund failed banks.
"We have seen a substantial increase of the flexibility in comparison to where we were at midsummer night and particularly for Sweden, we now have a bail-in proposal where risk rate assets of 20 percent will be the criteria which was a key point in our negotiations, so for us this is a clear step forward," said Borg.
Under the rules, which would come into effect by 2018, countries would be obliged to distribute losses up to the equivalent of 8 percent of a bank's liabilities, with some leeway thereafter.
Europe can now focus on building the next pillar of a project to unify the supervision and support of banks in the euro zone, known as "banking union."
But thorny issues lie ahead, not least whether countries or a central European authority should have the final say in shutting or restructuring a bad bank.
Presented by Adam Justice