EU bank unveils plans allowing lender to KEEP customers’ cash in future crisis

Tuesday, November 14, 2017
By Paul Martin

THE European Central Bank has outlined plans to freeze cash deposits of customers at failing banks in order to halt collapses.

Tue, Nov 14, 2017

A year of European financial crises showed banks needed the ability to buy time to make decisions should they fall into turmoil, according to the ECB’s executive board member Sabine Lautenschlaeger.

Speaking in Frankfurt today, she suggested a ‘moratorium tool’ – which would temporarily freeze all of a bank’s liabilities, potentially including the cash held customers.

The move could mean people with money in their bank accounts could not withdraw anything while the bank was in crisis talks.

It is designed to avoid the type of “bank run” seen here in the UK at Norwich Union during the financial crisis, and long stretching queues outside cash machines in Greece in the 2015 summer.

Most EU member states are behind the ECB’s new proposals, as indicated by a paper published on 6 November that discusses the bloc’s stance on a bank-failure bill proposed by the European Commission.

According to Bloomberg, the paper suggests giving authorities the power to cap deposit withdrawals as part of a wider stay on payments for up to five days after an institution has been declared “failing or likely to fail.”

However, support is not unanimous with lobbying groups and regulators including the Bank of England warning that it could pose a risk to financial stability.

Lautenschlaeger said: “If we have a long list of exemptions and we have a moratorium that doesn’t work, I do not want to have a moratorium tool. Then you will never use it.”

A number of reforms were introduced following 2008, when a mass exodus of investors and depositors led to the collapse of a number of banks around the world – most famously Lehman Brothers.

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