EC plan to stop taxpayers money being used for bailout of banks
Moving a step towards banking union, the European Commission Wednesday unveiled proposals designed to safeguard taxpayers' interests and money while ensuring that shareholders and creditors bear the burden of losses by failed banks.
In order to maintain essential financial services for citizens and businesses, between October 2008-2011 the European Commission has had to approve 4.5 trillion euros (equivalent to 37 per cent of EU GDP) of state aid measures to financial institutions, the Brussels based institution stated.
While this helped to avert massive banking failure and economic disruption, but it "has burdened taxpayers with deteriorating public finances and failed to settle the question of how to deal with large cross-border banks in trouble".
The proposals adopted Wednesday by the European Commission for EU-wide rules for bank recovery and resolution will change this, the EU authority stated.
The proposals will ensure that in the future authorities will have the means to intervene decisively both before problems occur and early on in the process if they do.
Jos Manuel Duro Barroso, President of the European Commission, said: "The EU is fully delivering on its G20 commitments. Two weeks ahead of the summit in Los Cabos, the Commission is presenting a proposal which will help protect our taxpayers and economies from the impact of any future bank failure."
He underlined that the new proposals are a step towards banking union in the EU and will make the banking sector more responsible.
The post 2008 financial crisis scenario has clearly revealed the interdependence of the financial system leading to problems in one bank spreading "to the whole financial sector and well beyond the borders of any one country" the EC stated.
It has also demonstrated that systems were not in place to manage financial institutions facing difficulties. That is why the G20 agreed in September 2009 that crisis prevention and crisis management frameworks had to be set up, the EC stated.
Internal Market Commissioner Michel Barnier said: "The financial crisis has cost taxpayers a lot of money. Today's proposal is the final measure in fulfilling our G20 commitments for better financial regulation."
In the absence of mechanism to help public authorities intervene in the event of a bank crisis, Barnier warned "citizens will once again be left to pay the bill, while the rescued banks continue as before knowing that they will be bailed out again."
The new legislation is however unlikely to come into force before 2014 at the earliest, too late to protect taxpayers from any further immediate bank failures, said Sharon Bowles, chair of the European Parliament's economic and finance committee."
"In the short term we need further measures," she said.
If the proposals win the backing of EU countries and the European parliament, the law would mark a step in the direction of the banking union supported by European Central Bank president Mario Draghi.
Bowles criticised the delay in announcing the "long overdue" rules, which come almost five years after a collapse in U.S. subprime mortgages started a banking crisis in Europe.
The EU executive hopes tighter links between wind-down schemes across the European Union will be the "embryo" for a single resolution fund to close or salvage parts of a flagging bank, although such a fund is some way off.
The new proposal seeks to introduce an insolvency regime for banks through an annual levy for creation of national funds, equivalent in size to 1 per cent of deposits. That money would cover both the wind-down of a bank and any emergency payout to worried savers.
It is estimated that the euro zone should, after 10 years, have collected roughly 70 billion euros ($87.25 billion) in cash as well as country pledges to pay in, according to estimates by the European Commission.
That figure rises to 100 billion euros for the 27 countries in the European Union.
Source: Europe News.Net
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