European Union (EU) finance ministers have agreed an outline plan on how to rescue failed banks, which would force losses on creditors and shareholders who would bear the main impact followed by savers with deposits of more than €100,000. Government help and looking to tax payers to shoulder losses would in future be used only as a last resort.
Dutch finance minister Jeroen Dijsselbloem described the outline deal as marking a major change in the way that distressed banks are bailed out. “If a bank gets in trouble we will now, throughout Europe, have one set of rules on who pays the bill,” he said.
“The financial sector itself will now to a very, very large extent become responsible for dealing with its own problems.”
The agreement comes after more than a year of complex negotiations – described by Germany’s finance minister, Wolfgang Schäuble, as “quite difficult and intense” – on how to lift the burden of paying for bank rescues from taxpayers. He said the reforms were an “important step” in demonstrating that shareholders and creditors are “liable first and foremost”.
To become law, the package must now be agreed with the European parliament in order to become law, a process that could take until the end of this year.
Under the proposals, from 2018 the so-called ‘bail-in’ regime can force shareholders, bondholders and some depositors to contribute to the costs of bank failure. Insured deposits under €100,000 are exempt and uninsured deposits of individuals and small companies are given preferential status in the bail-in pecking order.
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