EU considers protecting savers against future bank collapses

BRUSSELS Mon Apr 29, 2013 1:43pm EDT

An employee of Laiki Bank gestures to depositors before the opening of the bank in Nicosia March 29, 2013. REUTERS/Bogdan Cristel

An employee of Laiki Bank gestures to depositors before the opening of the bank in Nicosia March 29, 2013.

Credit: Reuters/Bogdan Cristel

BRUSSELS (Reuters) - Depositors should be the very last to suffer losses when a bank collapses, according to a proposal being discussed by European Union countries and seen by Reuters, which would shield savers from the kind of losses they face in Cyprus.

The idea comes as member countries finalize a new draft law for the European Union that could make losses for larger savers a permanent feature of future banking crises. EU officials, however, are nervous that such a regime will panic savers, prompting them to withdraw money.

In the paper, outlining the process of 'bailing in' savers and other steps to deal with troubled banks, officials in Brussels said that it might be wise to put depositors behind all bondholders when dividing losses from a bank collapse.

Small savers, with less than 100,000 euros, will, in any event, be protected. But officials also raise the possibility of allowing national exemptions from losses for big depositors in their country if a bank fails.

By striking such a compromise, officials hope to rebuild confidence after a botched attempt earlier this year to impose losses on depositors in Cyprus - initially also aimed at small savers although this was later changed.

A more favorable treatment of big depositors in the new EU law, charting how to deal with failing banks in a regime that could start in 2015, is backed by the European Central Bank and the International Monetary Fund.

Ireland, which currently holds the rotating EU presidency, is also pushing for such concessions ahead of a meeting of EU finance ministers in May.

"This would mean that they are not excluded from bail-in, but other creditors would first absorb losses to their capacity before eligible depositors are bailed-in," officials said in the paper, dated April 29.

Before any such softening of provisions, however, EU diplomats will need to convince Germany, which remains skeptical about making such concessions, according to one official familiar with the talks.

Policymakers have sought to portray the losses suffered by depositors at two of Cyprus's banks as a one-off, but experts believe it marks a change in approach in how Europe deals with troubled banks, sparing taxpayers who have been on the hook for previous bailouts.

"After Cyprus, a number of states would like more clarity," said one official who is involved in the discussions.

"It may be that we give depositors preference, which means that they have a higher likelihood of getting back their money."

(Editing by Greg Mahlich)

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Comments (3)
ShovelyJoe wrote:
They might claim to protect people. But the fact is that the next time they will probably find some other “Special circumstances” to justify steeling like they did with Cyprus. LOL

Apr 29, 2013 5:09pm EDT  --  Report as abuse
Willvp wrote:
They are going to put another color of lipstick on that pig.

If one of the big banks fail who is going to repay the garantuee of 500 billion euro’s or 1 trillion?

Will those bankers have to repay their bonus for the last 5 years? Confiscate their mansions? Put them in jail ?

Apr 30, 2013 5:58am EDT  --  Report as abuse
dareconomics wrote:
ThThere are two issues with protecting depositors from banking crises. As we have observed in prior EU led bailouts, no law is applicable to the troika when its handing out bailout euros. Whether its confiscating deposits in Cyprus, ignoring bond covenants in Greece or changing member governments, anything and everything is on the table once a country enters the crisis zone.

The only rule that they follow is that Germany and the northern tier will not pay any more money for bailouts. Hence, a banking deposit guarantee is only as solid as the country issuing it. Perhaps, we will soon see how this will all work. Spain’s NPLs have gone parabolic, and Italy has reached the launch point. (TIP: move your money from Eurozone banks now, like the rich have already done. Do it now. Don’t wait.)

Full post here:

Apr 30, 2013 1:14pm EDT  --  Report as abuse
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