Brussels, 02/05/2013 (Agence Europe) - On Thursday 2 May, member states' ambassadors to the EU discussed the draft directive to harmonise national bank restructuring schemes. The Irish Presidency of the Council of the EU asked them about the best approach to bail-in options in EU law.
In the event of a bank going under, bail-in measures will raid the investments and savings in the bank before any call is made in the last resort for taxpayers' money. Harmonised rules have become urgent because the Cypriot bailout raided the savings of some people and companies with more than the protected €100,000 in their bank accounts.
The general feeling at the Council of Minsters is that the scope of bail-in instruments should be as wide-reaching as possible. Some countries want bail-in to be defined in detail at EU level, while others want member states to have more room for manoeuvre to be able to exempt some people or bodies, on a case-by-case basis, even though they might belong to the same category of creditor (shareholders, junior bond-holders, senior bond-holders, savers with more than €100,000 in the bank and savers with less than €100,000 in the bank).
In a document given to the delegations, Dublin outlines three options for what to do with regard to unguaranteed depositors (see our Twitter account @AgencEurope), viz: - establishing a limited list exempting some savers from the bail-in, but not savings of more than €100,000; - giving the country the option to decide to exempt savers with more than €100,000 if other investments (derivatives and amounts in payment systems are included in the figure), as long as the bank in question holds a sufficient level of capital to make up for the exempted amounts; - giving eligible savers preference in the hierarchy of savings that can be raided, so that savings of more than €100,000 are raided last. The Irish Presidency prefers the final option because the ECB and IMF are in favour of it and this rule is already in force in the United States, Japan and Australia.
There is disagreement among countries about when exactly the harmonised bail-in rules should come into force. Some countries, like Germany, say they should apply in 2015, while others want to leave time for creating insolvency funds and for banks to increase their solvency ratios. The Commission suggests 2018 in its initial proposal.
Restructuring funds. Member states will be required to set up national restructuring funds, financed by the financial industry ahead of any crisis. The nub of the talks is how much cash should be in these funds and how they will interact with existing deposit guarantee funds. The Irish Presidency says each country must be free to decide whether to merge restructuring and deposit guarantee funds. The restructuring funds will be expected to eventually hold 0.5% of the savings covered by it. In the event that the two funds are merged into one, it would be expected to hold 1% of savings.
On the use of national restructuring funds, the Irish Presidency says that aid for a failed bank could take the form of temporary cash, if toxic loans are hived off, or money to cover financial losses. Recapitalisation to boost a bank's solvency should not be allowed, says Dublin, because the draft EU directive aims to reduce moral hazard whereby dealers feel they can do what they like because the bank is too big to be allowed to fail and will therefore always be bailed out by the government. (MB/transl.fl)