The European Union on Tuesday proposed making it harder for states to bail out billions of euros in aid to a “sick” bank, as Italy did with Monte dei Paschi di Siena six years ago.
Executive Proposals EU aimed at ensuring that banks have sufficient resources, in particular debt, that can be written off to release cash in a crisis in order to avoid taxpayer bailouts.
The recent US collapses of Silicon Valley Bank and Signature Bank, as well as last month’s forced takeover of Credit Suisse by UBS, are reminders that crashes still happen.
The European Commission said its proposals “will enable the authorities to organize an orderly exit from the market for a bankrupt bank of any size and business model.”
The proposals update rules introduced in the aftermath of the 2007-2009 global financial crisis to prevent banks from “failing too much” leaving taxpayers on the hook.
Under current rules, the failure of a major bank in a bloc is reviewed by the Single Settlement Board, but the termination of next-tier creditors is subject to various national practices that could ultimately result in the use of taxpayer money.
The proposals aim to make it easier and more consistent to apply EU settlement rules instead of national practice to this lower level of creditors on a case-by-case basis, European Commission Vice President Valdis Dombrovskis told reporters.
German European Parliament member Markus Ferber, who wants to make an exception to some of the proposed rules, said not every ailing small bank needs a settlement.
A proposal to allow the use of deposit guarantee funds to close or sell part of a bankrupt bank should not support unviable creditors, markets group AFME added. “We don’t expect light debate on these issues,” Dombrovskis said.
EU countries and the European Parliament have the final say on proposals that also make it harder for governments to inject state aid into struggling banks, known as precautionary capital, a mechanism used by Italy for Monte dei Paschi in 2017. It will be necessary to establish a clear date for the return of the money or the sale of the bank.
In offers not done an attempt to revive a 2015 proposal to create a pan-European deposit guarantee scheme and does not change the protection of 100,000 euros ($109,450) per account.
[Reuters].
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