Business & Economy

MEPs to seal protection package for taxpayers, not banks

12 April, 2014

MEPs will debate and approve a package of measures in Strasbourg on Tuesday to ensure that banks shoulder the risks of failure rather than relying on taxpayers to bail them out. The measures, two dealing with troubled banks and one updating the scheme guaranteeing deposits under €100,000, complement the single bank supervision system, already in place, and take the EU far down the road of banking union.

The “bank resolution” rules will ensure that a bank's primary beneficiaries (shareholders and bondholders) will also be first in line to suffer losses if a bank runs into trouble.

They will also require banks to finance reserve funds which would be called upon before resorting to taxpayers’ money if further losses need to be absorbed after a bank's main beneficiaries have been wiped out.

Banking union countries will share a bank-financed €55 billion single resolution fund, to be established gradually over 8 years. Those outside banking union will be required to set up their own fund amounting to 1% of covered deposits within 10 years.

Finally, every bank will be required to have a contingency plan in place, ensuring that it can be restructured or wound up in an orderly way.

The update of the deposit guarantee scheme would oblige EU countries to set up their own bank-financed schemes to reimburse depositors of guaranteed deposits when a bank is not able to do so itself, so that taxpayers would not have to bear the costs.