EU toils on status for big depositors in future bail-ins

BRUSSELS - Agence France-Presse

French Finance Minister Pierre Moscovici, center, talks with Swedish Finance Minister Anders Borg, left, and British Chancellor of the Exchequer George Osborne, during the EU finance ministers’ meeting at the European Council. REUTERS photo

European finance ministers struggled on May 14 to agree ground rules on how to treat big depositors in future Greek Cyprus-style bank “bail-ins” when lenders go to the wall.

Ministers debated an existing draft law for the first time since what appeared to be an ad hoc approach in Nicosia turned into the beginnings of a template for possible future debt bailouts, with struggling Slovenia seen as the next most likely candidate.

But positions were far apart on what to demand of depositors with more than 100,000 euros in accounts - the threshold for EU deposit guarantees, first introduced at the height of the global financial crisis in 2008 in an effort to reassure savers.

In Greek Cyprus, deposits of both less and more than 100,000 euros were initially hit with a levy to help cover the bailout costs but uproar over the apparent breach of the guarantee forced a quick rethink.

The upshot was that those with above 100,000 euros ended up with massive losses, stirring debate on where depositors should come in the ranking of creditors when a bank is closed down.

Resolution to be key pillar in banking union

This bank resolution process is meant to become a key pillar in the eurozone banking union being built to prevent any repeat of the debt crisis.

The aim is to break the bank-sovereign link whereby governments use taxpayer funds to bail out failing lenders, sometimes going broke themselves in the process, as in Ireland.

German Finance Minister Wolfgang Schaeuble, broadly backed by Dutch counterpart and Eurogroup chair Jeroen Dijsselbloem and non-euro ally Denmark, wants insured and uninsured depositors above the 100,000-line treated equally.

However, Schaeuble did leave limited “room for discretion,” in recognition of lessons learned in Greek Cyprus.

Ministers, reflecting the different financial systems in their countries, saw different ways to share out the burden of losses on different classes of private capital, as opposed to the sovereign bailouts that resulted in governments going to the wall.

EU Markets Commissioner Michel Barnier told ministers that depositors should be given “preferential” treatment.