EU in deposit, recapitalisation deal as crisis rages

EU finance ministers, seeking a confidence-booster as the global financial crisis pounded tiny Iceland on Tuesday, agreed to increase the minimum level of bank deposit insurance across the 27 European Union countries.
They also pledged in a joint statement to recapitalise any critical bank if needed.
The ministers agreed to raise the minimum to 50,000 euros ($68,000), from 20,000 euros at present, after discussions in Luxembourg that had broached the idea of going twice as far, to 100,000 euros, to bolster faith in bank savings.
French Economy Minister Christine Lagarde, who chaired the talks, told a news conference the deal was a compromise between governments with big firepower and those with less, and that it was just one of a list of measures agreed.
"To paraphrase what someone said: 'what looks big to you, looks enormous to me'," she told a news conference. "So it's to take account of this diversity among member states … we applied the threshold of 50,000 to them."
As they agreed that move, shares in some of Britain's big high-street banks were hit by reports of talks on government cash injections and a source in the British banking industry said more urgent talks would take place in coming days.
Iceland said Russia was lending it 4 billion euros ($5.44 billion) to help it fight the financial firestorm after Reykjavik nationalised its second-largest bank and announced it would peg its currency as a stabilisation measure.
RECAPITALISATION PLEDGE
Under pressure from fast-moving events, the ministers issued a statement which followed up on pledges by EU leaders on Monday to do what it takes to protect depositors and ensure the stability of the banking system.
"We all commit to take all necessary measures to enhance the soundness and stability of our banking system and to protect the deposits of individual savers," the statement said.
"To protect the depositors' interests and the stability of the system, we stress the appropriateness of an approach including, among other means, recapitalisation of vulnerable, systemically relevant financial institutions," it said.
Lagarde said: "We're not going to tolerate a Lehman Brothers scenario."
U.S. authorities decided in early September to let Wall Street investment bank Lehman file for bankruptcy rather than save it, an event many now see as the catalyst for the latest phase of a fear-driven credit crunch both sides of the Atlantic.
"We will take measures including recapitalisation and we're very specific in what we say," Lagarde said. "We'll talk about terms and conditions. We will set down recommendations from the ministers of finance (regarding) under what conditions recapitalisation will take place."
On the deposit insurance rise, Irish Finance Minister Brian Lenihan, in the dog-house with some European partners after Dublin unilaterally took radical steps a few days ago, said: "Clearly anything we can do to give greater confidence among depositors is very important."
European governments are struggling to shelter banks and depositors from the financial crisis that snowballed from the United States and is now rattling confidence, pummelling stocks and paralysing wholesale money markets in Europe.
Central bankers are pumping emergency funding into interbank markets to keep a fear-riven financial system from seizing up and European Central Bank President Jean-Claude Trichet said on Monday night they would continue to do so as long as needed.
"COUNT ON THE ECB"
"You can tell the citizens they can count on the ECB," he told a news conference in a rare appearance after talks with euro zone finance ministers preceding Tuesday's wider meeting.
Other central bankers joined the fray on Tuesday to try to provide reassurance too as world stocks slid again after the big falls of Monday.
"We have no reason to think the stock markets will collapse. There is no reason for that to happen. The companies behind them are companies that are fundamentally solid," French central bank governor Christian Noyer said.
Portugal's central bank head Vitor Constancio said the financial crisis would clearly take a toll on the economy but he did not expect generalised recession.
The discussion of a collective increase in minimum levels of protection for savers follows a general political pledge by EU leaders on Monday that people should not fear for their savings.
Showing how hard it is to agree a common line with ease in Europe, Czech Finance Minister Miroslav Kalousek was quoted by a newspaper as saying ahead of Tuesday's compromise that Europe's politicians were going mad on rises in deposit insurance.
"Politicians in Europe are going crazy. We didn't live through 40 years of real socialism only to return to it on the soil of the European Union," he was quoted by daily Hospodarske Noviny as saying.
IRISH IRE
Germany and others are annoyed with the Irish for going it alone with state guarantees for all liabilities of six Irish banks, and doing so via legislation rather than the political commitment that is being made elsewhere so far.
One worry is that the measure discriminates against non-Irish banks and skews EU principles that business must compete on a level playing field.
What sets Ireland's plan apart is that its government not only guaranteed savers' deposits but also banks' wholesale liabilities, meaning an institution lending to an Irish bank on interbank money markets knows the borrower is state-protected.