LONDON/PARIS, June 7 (Reuters) - The UK, France and Sweden are leading a final push for countries to have some national discretion over which creditors are forced to foot the bill for bank rescues, three sources with knowledge of the negotiations told Reuters.
Policy-makers are in the final throes of agreeing an EU-wide package on how people owed money by the banks would share losses in a bank failure, negotiations that came into sharp focus after Cypriot depositors suffered heavy losses when two of the island’s banks imploded in March.
Officials hope to reach agreement ahead of a meeting of European finance ministers on June 20.
Depositors with less than 100,000 euros will have absolute protection, since they are covered by government guarantee schemes, and larger unguaranteed deposits of SMEs are also likely to be shielded.
Three sources with knowledge of the discussions said there was broad agreement on most of the measures, but that the UK, Sweden and France were arguing for more national flexibility so that countries could safeguard their financial stability by choosing which creditors got hit on a case-by-case basis.
A source familiar with the UK position said the country was broadly happy with an initial European Union blueprint for resolution measures discussed by commissioners earlier this week.
But the source said the UK continues to argue for “constrained flexibility” allowing national authorities to avoid bailing in some liabilities on a case-by-case basis if including them would pose a significant threat to financial stability.
The liabilities likely to be involved are market-related liabilities such as interbank deposits and derivatives, the source said.
The flexibility would be “constrained” because the rules would make clear the basis on which case-by-case decisions would be made, and any undue use of discretion would be examined by the EU and policed by state aid rules after the fact.
French Finance Ministry sources confirmed they shared the UK’s views, with one saying that those countries which had already dealt with banking crises themselves tended to favour flexibility.
“There are some states which don’t have good financial backing who say that if we introduce flexibility that could give an advantage to those banks located in big countries that want to be able to provide arbitrary aid to their banks,” one French source said.
“They aren’t against flexibility itself, but they say be careful, you have to oversee it, which is understandable.” (Additional reporting by Yan Le Guernigou and Christian Plumb in Paris; Editing by Bernadette Baum)