Brussels, 21/05/2013 (Agence Europe) - In the early evening of Monday 20 May 2013, the European Parliament's economic and monetary affairs committee adopted a common position, by 39 votes to 6, on an EU system for solving bank crises. The MEPs feel that, in January 2016, two years ahead of the date suggested by the European Commission, a portion of deposits of more than €100,000 in a bank should be made available in the last resort to bail out banks in the event of a major crisis. Savings of under €100,000 (guaranteed under EU law) and savings guarantee funds cash should be totally protected against being raided.
Elisa Ferreira (S&D, Portugal) said that the committee didn't want any repetition of the Cypriot crisis because, at one point, the Cypriot government was prepared to raid all savings across the board to bail out two banks and this is totally unacceptable to the committee. The first Cypriot aid plan agreement, reached on 16 March, included a 6.75% levy on guaranteed savings of less than €100,000. The Eurogroup rapidly changed its mind about the decision after it was rejected by the Cypriot parliament. The Eurogroup now constantly repeats that the EU savings guarantee is “sacrosanct”. Protection of small savers is a fundamental principle of the European Single Market, says Wolf Klinz (ADLE, Germany).
The agreement reached by the committee gives a clear hierarchy for the raiding of savings to bail out a bank, which will soon become the general rule across Europe. Bank lenders will be raided first (shareholders, junior bond-holders and non-guaranteed senior bond-holders, followed by deposits of more than €100,000).
The 27 EU finance ministers agreed last week that non-guaranteed deposits of more than €100,000 can be raided to bail out a bank. The Commission is calling for preferential treatment for such savings, but has not been able to win over a number of member states (see EUROPE 10845). The Council of Ministers has yet to adopt a common position ahead of talks with the European Parliament.
EP rapporteur Gunnar Hokmark (EPP/Sweden) has welcomed the fact that the committee has backed the plan to clarify shareholder and investor liability and tools that can be used to provide stability on the financial markets in times of severe crisis in the financial system.
The new legislation aims to protect taxpayers from the risk of bank collapse, because it means that public money can only be used to bail out a bank as the final resort after everything has been written down and only if a public bailout is necessary to preserve financial stability or protect the public interest, even if exceptional financial aid and a special capital bailout have already been granted to the bank in question. Public funding will then be possible to guarantee either assets or liabilities either through a cash bailout or by temporarily nationalising the bank. Following the bailout of Cyprus, European leaders say that the Cypriot case is not a model for the future. Bail-ins were used for the first time to solve problems for the country's two biggest banks. Quizzed by Greek newspaper Ekathimerini about the reasons why the eurozone says that Cyprus is not a model, EU Internal Market Commissioner Michel Barnier said that he believed in prevention. He said that the rules should be known by everyone in advance. That didn't happen for Cyprus because Europe had to take action in the middle of the night in an emergency, but this must not be allowed to happen again.
The new rules envisage setting up bank bailout funds in the member states, funded by banks themselves as a proportion of the risk they represent. Within ten years of the directive coming into force, such funds must hold at least 1.5% of the cash deposited in participating banks. The draft legislation says that such funds must not be expected to lend cash to banks, but Elisa Ferreira said that there should be solidarity among member states, and bank bailout funds should be forced to lend to each other. Since banks do business across Europe, and most of them will soon be monitored by a single supervisory system at the European Central Bank, it would, she said, be fair to pool bank bailout funds. Belgian MEP Philippe Lamberts (Greens/EFA) said that, in the long term, the establishment of a single EU bank bailout fund, financed by the banks, would provide the greatest protection, but proposals to this effect have not yet been unveiled.
Over the next few months, the Commission will suggest setting up an EU bank bailout authority and bailout fund. On Monday, deputy Bank of England governor Paul Tucker said that bail-in tools and cross-border cooperation along could not solve the bigger problems facing banks seen as “too big to fail”. (EL/transl.fl)