EU's Rehn: Big depositors could suffer in future bank bailouts under new law

HELSINKI Sat Apr 6, 2013 6:03am EDT

European Economic and Monetary Affairs Commissioner Olli Rehn holds a news conference after a Eurogroup meeting in Brussels March 16, 2013. REUTERS/Eric Vidal

European Economic and Monetary Affairs Commissioner Olli Rehn holds a news conference after a Eurogroup meeting in Brussels March 16, 2013.

Credit: Reuters/Eric Vidal

HELSINKI (Reuters) - Big bank depositors could take a hit under planned European Union law if a bank fails, the EU's economic affairs chief Olli Rehn said on Saturday, but noted that Cyprus's bailout model was exceptional.

"Cyprus was a special case ... but the upcoming directive assumes that investor and depositor liability will be carried out in case of a bank restructuring or a wind-down," Rehn, the European Economic and Monetary Affairs Commissioner, said in a TV interview with Finland's national broadcaster YLE.

"But there is a very clear hierarchy, at first the shareholders, then possibly the unprotected investments and deposits. However, the limit of 100,000 euros is sacred, deposits smaller than that are always safe."

The European Commission is currently drafting a directive on bank safety which would incorporate the issue of investor liability in member states' legislation.

To secure a 10 billion euro EU/IMF bailout last month, Cyprus forced heavy losses on wealthier depositors. Initially it had also pledged to introduce a levy on deposits of less than 100,000 euros - even though they are supposedly protected by state guarantees - before reneging in the face of widespread protests.

Rehn also said that the European Central Bank should launch fresh action to help boost the recession-hit euro zone economy.

ECB President Mario Draghi, at a press conference on Thursday, opened the way for the bank to possibly cut interest rates and to take fresh 'non-standard measures' - steps other than classic rate moves, such as government bond purchases or funding operations like the twin three-year loans it offered banks just over a year ago.

Rehn said that high financing costs for companies, especially in southern Europe, were a major problem right now.

"Therefore, the ECB's talk on Thursday about both standard and non-standard measures is very important because the ECB may have a role in making the situation easier," Rehn said.

(Reporting by Jussi Rosendahl; Editing by Susan Fenton)

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Comments (6)
Bekaar wrote:
Countries in the Eurozone that can not compete with powerhouse Germany have no mechanism to adjust their economies relative to Germany (in pre Eurozone world, Italy used to regularly devalue it’s currency). Their economies are locked in a downward spiral until they quit Euro or find some other new mechanism.

Apr 06, 2013 2:35pm EDT  --  Report as abuse
MikeBarnett wrote:
They should confiscate all pay and bonuses for the CEOs, boards of directors, and senior managers of the banks above 100,000 euros before they hit investors and depositors. They should do the same for political leaders whose economic policies led to the crisis. Then, they should hit investors, and they should hit depositors last. CEOs, boards of directors, senior managers, and politicians have obvious guilt because they made the decisions. The investors should have studied their investments before investing their money. Depositors have been told all of their lives to trust banks and to work hard and save (Just ask the Germans.), so they should lose last and least.

Apr 06, 2013 2:46pm EDT  --  Report as abuse
MikeBarnett wrote:
They should confiscate all pay and bonuses for the CEOs, boards of directors, and senior managers of the banks above 100,000 euros before they hit investors and depositors. They should do the same for political leaders whose economic policies led to the crisis. Then, they should hit investors, and they should hit depositors last. CEOs, boards of directors, senior managers, and politicians have obvious guilt because they made the decisions. The investors should have studied their investments before investing their money. Depositors have been told all of their lives to trust banks and to work hard and save (Just ask the Germans.), so they should lose last and least.

Apr 06, 2013 2:53pm EDT  --  Report as abuse
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