European Parliament adopts three legged package to stabilise banks and protect taxpayers

15-Apr-2014 @ 19:0

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Anthea McIntyre Anthea McIntyre

Anthea McIntyre Anthea McIntyre

A new package of legislation adopted by the European Parliament today will protect taxpayers and ordinary bank depositors from bank failure, Vicky Ford MEP, one of the parliament’s lead negotiators on the proposals, said today.

The three-legged reforms would see new measures to prevent taxpayer bailouts, measures to protect bank depositors, and Banking Union, which would enable the euro zone to take more decisions regarding failing banks centrally, whilst protecting non-euro zone taxpayers.

The measures on banking resolution would end the binary choice when a bank fails of either a messy, uncertain bankruptcy or a taxpayer-funded bailout. Instead, authorities will be able to adopt an orderly process of winding-down a bank, or bailing-in creditors to prevent taxpayer’s money being needed whilst also protecting ordinary depositors. This measure follows work coordinated at the G20, led by the Bank of England.

The second measure looks at deposit guarantees, and ensures that banks pay to protect depositors. Some countries have chosen to build up deposit guarantee funds, whilst others like the UK have chosen a bank levy worth over £2 billion in UK taxes every year. Mrs Ford has pointed out how important that this respects all of the different options that individual countries have decided to pursue instead of having a one size fits all approach.

Thirdly, the EU has agreed Banking Union, which will see euro zone banks brought under a single mechanism for resolution should they come into difficulty. The mechanism will be backed up by a fund, made up of levies on participating banks. Initially the agreement will see a series of national funds created, but they will gradually be ‘mutualised’ to create a central resolution fund for the euro zone. Mrs Ford has ensured that countries like the UK, which are not part of the Euro, are not required to pay into the central fund or share in its liabilities – thus creating a firewall between euro and non-euro countries. Mrs Ford argued in today’s debate that this model should be used in the future so that those countries that want to push ahead with greater integration are allowed, whilst ensuring protections for those that do not.

Speaking after today’s vote, Mrs Ford the Shadow rapporteur for the European Conservatives and Reformists Group in the European Parliament, said:

“In the past, the options for failing banks have been either an unpredictable collapse or taxpayer bailout. Now we have in place measures that will allow an orderly wind-down or restructuring which also require creditors, rather than small depositors or taxpayers to cover losses. Never again should taxpayers be asked to pay for bank failure in Europe. This is becoming a global standard.

“The euro zone has gone further and put in place a single decision mechanism. They will pool their funds for failing banks. However, we have made sure that non-euro countries are protected by a firewall. The UK and others will not pay into their fund or to take on any liabilities for their decisions. This shows that if the euro zone countries choose to integrate further they can do so without requiring non-euro countries to hand over our own powers or paying our taxpayer money to a currency which we have chosen not to join.

“These measures will ensure that money in ordinary bank accounts is safe and that taxpayers are protected. The financial world is a safer place. This shows that change can be achieved if you are willing to show up and fight for it.”

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