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EU nations agree new rules on bank bailouts

PUBLISHED : Friday, 13 December, 2013, 4:30am
UPDATED : Friday, 13 December, 2013, 4:30am

European Union nations have agreed new rules for bank bailouts or "bail-ins" to save taxpayers from paying for the rescue of ailing financial institutions.

"Big step tonight," EU commissioner Michel Barnier wrote on Twitter on Wednesday. "Taxpayers no longer in front line to pay 4 banks mistakes."

"Banks will have to put money aside for rainy days. We are learning lessons of crisis," Barnier said after the agreement was reached by representatives of the European Parliament, the European Council - the EU's executive arm - and the 28 member states.

The aim is to make European banks stronger so that they "can lend to the real economy".

The new directive will eventually dovetail with the EU's "Banking Union", which is being hammered out.

All countries now accept the principle that if banks get into difficulty, then it will not be the taxpayer but investors and creditors that bear the costs. But differences remain as to how to put that into practice.

EU ministerial talks in Brussels on Tuesday focused on a so-called Single Resolution Mechanism that would step in to close a bank at risk before it could do too much damage to the wider economy. The SRM would have a pot of cash at its disposal - funded by the banks themselves - to cover the cost involved so the taxpayer does not have to pick up the bill.

The SRM would follow a Single Supervisory Mechanism that the European Central Bank will run to oversee the top 130 or so euro-zone banks directly, and thousands more indirectly through national authorities.

While all agree in principle, the political issues are fraught since the new system would effectively hand control of national banks to the EU.

Talks will resume at the ministerial level next week, with hopes for an agreement by the end of the month.

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singleline
Handing control of national banks to the EU is a price that has to be paid in setting up the EU’s Banking Union, ‘with common supervision, common deposit insurance, and common resolution; without this, money will continue to flow from the weakest countries to the strongest,’ as was said by Joseph Stiglitz.
Eurobonds are also needed. ‘(G)iven the lack of a single debt instrument equivalent to a US Treasury bill, the crisis caused eurozone member states’ public-debt yields to diverge. Bank lending subsequently withdrew to national borders, and the idea of a European capital market disintegrated.’ (by Harold James and Domenico Lombardi)
China must also develop a deep and sophisticated debt market.

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