EU to shift bill for bank failures to creditors
BRUSSELS (AP) — European Union governments want to shift the cost of rescuing troubled banks from taxpayers to the banks' creditors, including the holders of large deposits as a last resort.
The finance ministers from the 27-nation bloc met Tuesday in Brussels to hammer out the new rules on how to fund bank rescues as part of their wider project to set up a banking union. The union is key to their plans to strengthen the financial sector avoid a repeat of the crisis.
"This is at the moment the biggest project for Europe," said Dutch Finance Minister Jeroen Dijsselbloem. "It's absolutely important to get it right."
The bloc should move swiftly and get all elements of the banking union running by 2015, well before the initial deadline of 2018, added Dijsselbloem, who also chairs the meetings of the 17-country eurozone's finance ministers.
Tuesday's meeting focused on establishing a hierarchy of which bank creditors have to take losses — to be involved in a so-called "bail-in" — in case the bank needs rescuing. The ministers mostly agreed that banks' shareholders and capital must take the first hit. After that, the pecking order becomes less clear, with junior and senior bond holders and, ultimately, all the banks' clients on the line.
The ministers said holders of deposits of over 100,000 euros ($130,000) — the EU's deposit insurance ceiling — could be asked to suffer losses. They said, however, that depositors would only be asked to take losses as a last resort and that there could be exceptions. All deposits below 100,000 euros must and will be "sacrosanct," insisted EU Commissioner Michel Barnier, who is in charge of financial market reform.
The issue has become important since the bailout for Cyprus, agreed on in March, inflicted losses on deposits over 100,000 euros at the country's two biggest banks. An initial proposal was to have all deposits, even those covered by the 100,000 euro insurance limit, suffer losses. The proposal was quickly rejected, but raised concerns and confusion across Europe on how bank creditors would be treated in future bank rescues.
The European Central Bank and EU officials have since called for the establishment of clear rules on the matter so that investors can gauge their risk beforehand.
"That's the lesson from Cyprus: it must be clear what will happen," said German Finance Minister Wolfgang Schaeuble.
National authorities could in some cases decide to spare some creditors. But such exceptions must be kept to a minimum to keep the playing field level, he argued.
The ministers were not expected to make a final decision on the new rules Tuesday, but they sought to provide political guidance for the technical work of establishing the rules.
Dijsselbloem, Britain's George Osborne and others argued that — in addition to existing capital requirements — bigger banks should be forced to hold a certain amount of investments that can be used to pay for potential rescue operations.
The ECB said it will push hard for a swift agreement on all elements of the bloc's banking union. That includes a central authority with the power to rescue or unwind ailing banks that would accompany the ECB's new role as an overseer of the bloc's banks.
"We want to make progress on all elements of the banking union in parallel," said ECB executive board member Joerg Asmussen, adding this should be achieved "hopefully by the summer of next year."
The establishment of the banking union will get credit flowing again to some of the eurozone's troubled nations, helping to "kickstart growth and employment," he said.
Asmussen's comments were backed by most ministers, but were at odds with the stance of Germany, Europe's biggest economy. It argues that the creation of some parts of the banking union will require changes to the EU's treaties first — which is a cumbersome and time-consuming process.
The finance ministers also pushed ahead in their fight against tax evasion.
Schaeuble said they agreed to direct the European Commission, the EU's executive branch, to begin talks on an automatic exchange of banking information with five small countries that aren't EU members — Switzerland, Andorra, San Marino, Monaco and Lichtenstein. The deal would ensure EU citizens can no longer hide capital gains made there from tax authorities at home.
They failed, however, to agree on a long-delayed program to automatically exchange banking information between all EU countries so that interest income can be properly taxed.
The measure requires unanimous approval from all 27 EU members and Austria — renowned for its culture of banking secrecy — vetoed the decision for now, said Austrian Finance Minister Maria Fekter.
Austria and Luxembourg had long held up the regulation but increasing pressure from the U.S. and their European peers had given new hope they could let the measure pass this time.
The issue will now be handed over to the EU's heads of state and government to discuss at their summit next week.
Meanwhile, the ministers reached agreement on an amended budget for 2013.
The Commission said there was a shortfall of about 11 billion euros in its 130 billion euro budget, resulting mainly from unpaid bills from last year. A majority of ministers decided to propose an amendment to the budget to cover about 7 billion euros, Noonan said.
EU Budget Commissioner Janusz Lewandowski, however, insisted that member states will have to fund the remaining 4 billion euros later this year.
Britain led the minority front opposing the amended budget altogether. Osborne said it was impossible to explain to citizens why the nation states are pushing through budget cuts and other austerity measures while the EU is getting increases.
The shortfall reflects "poor management at the European level" and the Commission should go back to the drawing board and shift funds around to find the money, he added.
The decision to amend the budget is significant since the European Parliament had made it a precondition for reaching agreement on the EU's long-term 1-trillion-euro budget, which covers the years 2014 through 2020.
Don Melvin in Brussels contributed reporting.
Juergen Baetz can be reached on Twitter at http://www.twitter.com/jbaetz