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EU aims to protect taxpayers from failing banks

EU aims to protect taxpayers from failing banks

Category: Banking

Updated: 06/06/2012
First Published: 06/06/2012

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The European Commission (EC) has today unveiled plans that aim to prevent future financial disasters of the scale seen in recent years.

The proposals mean that taxpayers' money will no longer be used to bail-out failing banks. The costs of restructuring and resolving failing banks will instead be borne by shareholders and creditors.

The EC said its proposals will protect everyday banking, such as ensuring there is enough money in cash machines so that customers can withdraw funds.

The EC said it aims to give regulators the means to intervene decisively both before problems occur and early on in the process if they do.

However, any new legislation is unlikely to come into force before 2014 at the earliest. This means that the proposals will be of no help to banks in the eurozone currently experiencing financial difficulty.

Today, the credit ratings agency Moody's announced that it had cut the ratings of six German banking groups and Austria's three largest banks. Whilst in a sign of the growing troubles in Spain, on Tuesday the country's finance minister, Cristoba Montoro, said the credit markets were "effectively shut" to his country.

The EC resolution plans form part of commitments agreed by the leaders of the G20 group of major economies in September 2009.

"Today's proposal is an essential step towards Banking Union in the EU and will make the banking sector more responsible," said José Manuel Barroso, president of the European Commission.

"This will contribute to stability and confidence in the EU in the future, as we work to strengthen and further integrate our interdependent economies."

"The financial crisis has cost taxpayers a lot of money," said internal market commissioner at the EC Michel Barnier.

"We must equip public authorities so that they can deal adequately with future bank crises. Otherwise 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."

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