* Bondholders, big savers of bad banks face losses from 2016
* New EU rules follow in vein of harsh treatment of Cyprus
* Final approval of regime needed by EU ministers
By John O'Donnell
BRUSSELS, Dec 11 Bondholders and large
depositors in a failing European bank face losses from the start
of 2016, European Union negotiators agreed on Wednesday, in a
deal to spare taxpayers from further bailouts.
The law, if approved by EU ministers, will make losses for
senior bondholders and large savers a permanent feature of the
bloc's response to banking crises and mark another milestone in
the reform of an industry that triggered economic turmoil.
It signals a hardening of approach and follows in the vein
of the tough treatment earlier this year of big depositors in
Cyprus. That country's bailout broke a taboo that savers should
be spared when a bank is in trouble.
The agreement to accelerate the introduction of the regime
by two years to Jan. 1, 2016 was reached between lawmakers from
the European Parliament and negotiators representing EU
countries. It now goes to EU ministers for approval next week.
Michel Barnier, the European commissioner in charge of
writing the law, said it was a "big step" to ensure that
"taxpayers are no longer in the front line to pay for banks'
If given the green light, it will lay down clear rules for
closing a bank in any of the 28 countries in the EU, ensuring
that it is not only shareholders and governments who have to
foot the bill.
It provides an important building block for a wider reform
dubbed banking union in the smaller 17-member euro zone, which
will see the European Central Bank police the sector in tandem
with a new agency to shut weak lenders.
The prospect of the new law, which officials had long
postponed for fear that it would exacerbate investor nerves and
bank borrowing, has yet to curb enthusiasm for bank bonds. Nor
has it prompted large savers to move their cash to safe havens.
Sharon Bowles, a lawmaker from the European Parliament
involved in the talks, played down any such threat.
"I think it's not as mind-blowing as it was when it was
first dreamed up," she said. "Everyone knows it has been
But there is a lot of money potentially at stake and
economists fear that some investors may take fright at the
Banks across the 17 countries in the euro zone have 860
billion euros ($1.2 trillion) of unsecured bonds, with German
banks accounting for almost 200 billion euros, according to
Thomson Reuters data.
The rules that savers with more than 100,000 euros and
senior bondholders should suffer in the same way as shareholders
did during the financial crisis, had originally been pencilled
in for 2018.
Germany pushed for their earlier introduction so that the
law would be in place in time to hit banks exposed as weak by
European Central Bank tests next year.
An early start date also has the backing of the ECB, which
is uneasy over banks' reliance on its own financial support.
But many European Union countries, including struggling
Portugal, are nervous that the early introduction could rattle
fragile markets, reviving memories of the debt crisis and the
controversial Cyprus rescue.
At a meeting of finance ministers earlier in the week, many
spoke out against suggestions to accelerate.
Having such 'bail-in' rules in place early will mean that it
may not fall solely to governments to pay for the repair of
banks that the ECB finds weak after health checks late next
Some exceptions to the rule are, however, allowed. Sven
Giegold, a lawmaker in the parliament, criticised one such
clause that he said could allow a country to assist a struggling
bank without first pushing losses on bondholders and other
The size of banks' potential liabilities has long overtaken
government's ability to save them.
ECB data shows that euro zone banks have issued more than
3.8 trillion euros of home loans - more than a third of the
bloc's output and one-and-a-half times the German economy.
This helps explain why Germany, the euro zone's biggest
economy and the country most likely to be called on to bear the
brunt of bank clean-up costs, wanted the tough rules early.
The agreement is positive for negotiations over banking
union because having a scheme for sharing the costs of bank
failure is essential for a new system of policing by the ECB.
Germany wanted the early introduction in return for giving its
full backing for the project.