articles | 22 May 2013

EU draft bank rescue law would not shield big deposits

A draft law that a group of European Union lawmakers voted for on Monday would shield small depositors from losing their savings in future bank rescues, but customers with more than €100,000 in savings when a bank failed could suffer losses.

A group of lawmakers in the European Parliament's economics committee overwhelmingly voted that, from 2016, large depositors in the EU might suffer losses if a bank gets into serious trouble. The plan was similar to the deal for Cyprus, which saw large depositors at Bank of Cyprus and Laiki taking hits.

Under the EU proposal, a bank would dip into large deposits of over €100,000 once it had exhausted other avenues such as shareholders and bondholders. But deposits under €100,000 would be spared. "The case in Cyprus showed how important it is to have clear procedures for making shareholders, bondholders and ultimately depositors foot the bill," a press release from the committee said after the vote. Some countries have also mooted the idea of using banks' deposit guarantee schemes. But lawmakers voted against this because it could hurt smaller savers.

The European Parliament has joint say with the 27 countries in the EU on the law that would give regulators powers to impose losses on creditors and take other steps during a bank rescue. EU finance ministers agreed last week that large, uninsured depositors should be subject to losses but some countries may still seek some flexibility on how they wind down their banks. "The struggle will be how binding the bail-in and the hierarchy of liabilities is," Sven Giegold, a German Green lawmaker said after the vote.

Source: Cyprus Mail

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