Savers with €100k to lose if bank fails

Investors and depositors with over €100,000 in savings will in future lose their money first when a eurozone bank fails, EU finance ministers have agreed, as part of a major step towards creating a banking union.

EU funds will be the last resort when winding up or sorting out a troubled bank, and this is likely to come into force in 2015, three years sooner than expected. 

The ministers took giant steps towards a banking union at their meeting in Dublin Castle, urged on by fears that the euro crisis could escalate after the Cypriot bailout catastrophe. 

Germany had been reluctant to push forward on the union but has now taken its foot off the brake and, as a result, arrangements on two essential elements of the banking union are expected to be finalised by the end of June. 

The first is the creation of the Single Supervisory Mechanism (SSM) where the ECB will be in overall charge of supervising the more than 6,000 banks in the EU, with a role for national supervisors. 

There was unanimous political agreement on this at the meeting and, once this is achieved, the European Stability Mechanism — the EU’s €700bn rescue fund — will be in a position to provide finance directly to banks experiencing difficulties, rather than taxpayers’ money being used to bail them out. 

However, there will be a hierarchy of who loses money first, which Internal Market Commissioner Michel Barnier listed as shareholders, junior debt holders, senior debt holders, then depositors over €100,000 and then the resolution fund. 

ECB policy director Jorg Asmussen insisted that this was not the same as happened in Cyprus — which he described as ‘unique’. It was important, he said, to have clear rules that are known across the globe, and he believed it was preferable to have the bail-in rules and pecking order operating from 2015 and not 2018 as originally suggested. 

Berlin is still pushing for a change to the EU treaties to ensure the independence of the ECB is maintained, and got an undertaking that in any future treaty change, the SSM will be included. Finance Minister Michael Noonan said: “Treaty change will be given careful consideration in relation to separating the supervisory role of the SSM.”

He told journalists after the discussions yesterday evening that banking union was key to stability in the eurozone.


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