European Union (EU) finance ministers have agreed an outline plan on how to rescue failed banks in the future. The draft proposals prioritise ‘bail-ins’ in future and would force losses on creditors and shareholders in future with them bearing the main impact, followed by savers holding deposits of more than €100,000. Government help and looking to taxpayers 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 European banks would be bailed out in the future. “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, suggesting some lessons have been learnt after the bungled Cypriot rescue when all savers were facing losses. In future the uninsured deposits of individuals and small companies will also be given preferential status in the mew bail-in pecking order.