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The Council of the European Union finance ministers reach agreement on how to force losses on creditors of failed banks
The Council yesterday has set out its position on a draft directive establishing a framework for the recovery and resolution of credit institutions and investment firms (11148/1/13 REV 1). The Council called on the presidency to start negotiations with the European Parliament with the aim of adopting the directive at first reading before the end of the year.
The proposed directive is aimed at providing national authorities with common powers and instruments to pre-empt bank crises and to resolve any financial institution in an orderly manner in the event of failure, while preserving essential bank operations and minimising taxpayers’ exposure to losses.
Although it still needs to be voted by the European Parliament before coming into effect in 2018, the agreement would be able to “force shareholders, bondholders and some depositors to contribute to the costs of bank failure”, while exempting individuals, small business and insured deposits of less than €100,000.
The directive would establish a range of instruments to tackle potential bank crises at three stages: preparatory and preventative, early intervention and resolution.
The proposed directive is aimed at transposing into EU law commitments made at the G20 summit in Washington D.C. in November 2008, when leaders called for a review of resolution regimes and bankruptcy laws “to ensure that they permit an orderly wind-down of large complex cross-border financial institutions.”
Based on article 114 of the Treaty on the Functioning of the European Union, the directive requires a qualified majority for adoption by the Council, in agreement with the European Parliament.
This decision, which can be consulted on the Council’s website
, is a step further towards a banking union in the EU.
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