EU implements major changes to state bail-out rules for banks

11 July 2013

The European Union (EU) has made significant changes to the rules covering state aid to failed banks and will make them more stringent from 1 August.

It is seeking to ensure taxpayers do not take as much of a hit when banks come to the brink of collapse, which has happened in recent years. For example, in the UK the Royal Bank of Scotland and Lloyds Banking Group both needed to be propped up by the government in order to stay afloat.

These two banks are closing in on a return to the private sector, but the EU is keen on not letting this situation happen again.

In order to do this private creditors will be the first to take a hit, while bailed-out lenders will be forced to slash the amount spent on wages. Taxpayers will be last in line to foot the bill.

From August, any bank in the EU that requires financial assistance from the state will first need to present a detailed restructuring plan that ensures its viability before any help is given, instead of the previous model, which saw aid dished out before a scheme was put in place.

By Asim Shah

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