The European Union moved within reach late on Wednesday of new rules on who should take a financial hit if a bank collapses, as the bloc’s governments and parliament struck a deal.
The measures are one piece of a new banking union that is considered key to restoring trust in the crisis-battered Euro Zone, calming financial market and preventing future instability.
The new rules have paved the way for the second pillar of the banking union: a Euro Zone-wide scheme to close or restructure troubled lenders, which is still being hashed out. Both measures are meant to shield taxpayers from having to contribute to bank bailouts.
“Big step tonight,” Michel Barnier, EU market regulation commissioner, wrote on Wednesday on Twitter after seven hours of negotiations. “Taxpayers no longer in front line to pay for banks’ mistakes.” “Banks will have to put money aside for rainy days,” he said. “We are learning lessons of crisis, making financial sector stronger so it can lend to real economy.”
The new bail-in system sets a pecking order of parties who will be affected if a bank gets into trouble. Creditors, shareholders, depositors and bank-funded national resolution funds would all have to contribute first, so that taxpayers are shielded.
The new system should be in place by January 2016, the European Parliament’s economic and monetary affairs committee said.
The compromise reached on Wednesday still has to be officially endorsed by the legislature and EU member states, which is usually a formality.
The EU is witnessing a flurry of negotiations as the year nears its end, with the legislative process expected to grind to a halt next year ahead of European elections in May.