The eurozone's biggest banks will be watched over by the European Central Bank (ECB) after the Parliament approved the establishment of a single supervision that is democratically accountable. However, MEPs already focus on the next necessary step for a banking union: a mechanism for dealing with failed banks. They want to protect small depositors by ensuring shareholders and big creditors are first in line to take a hit when a bank goes bankrupt.
The Parliament's economic committee voted on a regulation on a uniform procedure for dealing with failing banks on 17 December.
How it would work
When a bank gets into trouble, it is up to the member state it's located in to save it. However, if the bank is in such serioius problems that the country needs to borrow significant sums to do so, financial markets will punish it with higher interest rates. This makes saving the bank even more difficult and endangers the financial system's stability.
The new regulation aims to prevent this by establishing a resolution fund, funded by the financial industry on the European level. "The resolution fund is not supposed to cover losses," said Elisa Ferreira, the MEP in charge of steering the regulation through the Parliament. The Portuguese member of the S&D group, said the money would be used for managing the failed bank, for example by splitting the bank into good and bad parts in order to protect the financial system's stability.
Protecting small depositors
MEPs believe small depositors should not suffer any losses when banks fails as confidence in the banking system depends on people feeling their savings will be safe. Ms Ferreira said the resolution fund would be linked to a new bank directive stating that shareholders and big creditors will be the first to suffer losses when banks go bankrups. She said a European deposit guarantee system would be needed as the last necessary step towards a banking union. "I hope the momentum is not lost and we don't end up with just national guarantee schemes," Ms Ferreira said.
EU countries have a scheme to guarantee bank deposits up to €100,000 but this is a national measure.
For more details and contacts, click on the links for the press release on the right.