Bail-Ins Approved By EU Yesterday – Deposits Over €100,000 Vulnerable

Wednesday, April 16, 2014
By Paul Martin

GoldCore
GoldSeek.com
Wednesday, 16 April 2014

Yesterday the EU Parliament adopted three key texts outlining common rules on how to restructure and resolve failing banks.

The laws make up what has become more commonly known as Europe’s banking union and include the creation of a Single Resolution Mechanism and a €55 billion Single Resolution Fund for banks in difficulty. The law was approved by the parliament with 570 votes in favour and 88 against.

Importantly and little commented on is the fact that they also include the Bank Restructuring and Resolution Directive, which seeks to shift the burden of bank failure from taxpayers to creditors – both bond holders and depositors.

Another key piece of legislation approved yesterday was the Directive on Deposit Guarantee Schemes, which says that bank deposits up to €100,000 will remain protected from any loss that a bank may incur. This means that deposits over €100,000 are now vulnerable to bail-ins and deposit confiscation.

Now shareholders and creditors including depositors over the €100,000 level will be the first to face losses from a bank failure.

“Bail in will be the main way to solve the problems,” said Swedish MEP Gunnar Hökmark. “Bank resolution will be funded by creditors via bail ins and will also by resolution funds which will be funded by banks for banks.”

“Bail-in” enshrined in the two laws, means that the bank’s owners – the shareholders, and creditors – the bondholders and depositors, will be first in line to absorb losses banks will incur, before outside sources of finance may be called upon.

The two EU laws on bank resolution will also require banks to finance reserve funds to cover further losses, but only after bail-ins have been used.

The Rest…HERE

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