European Union finance ministers hammered out a deal early Thursday on new rules for winding down banks, delivering good news ahead of an EU summit and bringing taxpayers one step closer to no longer being called upon to rescue the troubled lenders.
“The rules of the game have now changed — gone are the days when European taxpayers will be forced to bailout a failing bank,” British Treasury Secretary Greg Clark said in a statement.
“A good agreement, which enables us to build the banking union and boost financial stability in Europe,” French Finance Minister Pierre Moscovici wrote on Twitter.
The new bail-in system puts in place a “pecking order” of parties who will have to take a hit if a bank collapses.
Creditors, shareholders, depositors and bank-funded national resolution funds would all have to contribute first, so that taxpayers are shielded. Depositors with accounts under €100,000 ($132,000) would not be affected.
“Savers will have to think very carefully in the future about where they put their money,” Austrian Finance Minister Maria Fekter noted.
“Choosing the institution with the highest interest rates — no matter how credible it is — these times are over.” “The financial sector itself ... will now become for a very, very large extent responsible for dealing with its own problems,” Dutch Finance Minister Jeroen Dijsselbloem added.
New rules
The 27 ministers had fought the hardest over how much flexibility EU countries should be granted under the new rules.
Their agreement allows for some exceptions in a limited number of cases, for instance “to avoid contagion” or “ensure continuity of critical functions’’.
France had argued for such flexibility to protect small companies and individuals who would have deposits in troubled lenders. Non-euro countries had also pushed the issue, in part because they don’t have access to the Euro Zone bailout fund as a last resort.
Swedish Finance Minister Anders Borg indicated that he was not fully satisfied with the outcome, saying that he would try to seek more changes during negotiations with European Parliament — which has to approve the new measures for them to become law.
“We still think that there should be ... increased flexibility and that is what we will argue for,” Borg told journalists after the Brussels meeting.
“We will continue to argue that we should be able to take over banks and thereby safeguard taxpayers’ money.” The ministers had been under pressure to deliver a deal this week amid fears that a delay would not leave enough time to complete the legislative process before next year’s European elections.
They said that they would now like to find common ground with Parliament by the end of the year.
EU crisis
The new measures are one piece of a new banking union that is considered key to restore trust in the crisis-battered EU, keep financial market jitters in check and prevent future instability.
The measures would help pave the way for the second pillar of the union, a Euro Zone-wide scheme to close or restructure troubled lenders. The European Commission, the EU’s executive, intends to bring forward that proposal in early July.