Europe Deal To Push Bank Failures Cost On Investors
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
Read more: https://www.ibtimes.co.uk/bank-bailout-costs-eu-taxpayer-savers-investors-483752