- Shareholders, creditors, and industry safety nets should mainly cover the costs of bank failures.
- More banks will be subject to resolution measures, using industry-funded deposit guarantee funds for failing banks.
- Retail customers and small to medium enterprises will have better protection against losses.
New rules were adopted by MEPs on Thursday to extend EU regulations on the orderly resolution of bank failures, minimizing economic disruption and safeguarding depositors.
These rules expand the bank coverage under EU legislation to safeguard taxpayer money while empowering authorities to manage potential bank failures and harmonizing depositor protection across the EU.
Enhanced depositor protection and improved access to resolution funding
In insolvency or resolution scenarios, the deposit guarantee scheme (DGS) holds the highest priority in repayment, protecting deposits up to €100,000 and recovering funds as a privileged creditor. Retail depositors and small to medium enterprises are second, followed by municipalities and regional governments, provided they’re not professional investors.
Beyond the standard €100,000 EU guarantee per depositor per bank, certain real estate-linked deposits will also be protected, ranging from €500,000 to €2,500,000.
Resolution for smaller banks
The framework for resolving failing banks safely will also cover small and medium-sized banks if it’s in the public interest.
To access external funds, a failing bank’s investors and creditors must absorb losses amounting to at least 8% of its total liabilities and own funds. The “bridge the gap” mechanism allows DGS funds to help meet this 8% requirement when deposit-funded banks lack sufficient capacity, facilitating a smoother business transfer and orderly market exit.
MEPs called for simpler conditions for using this mechanism to support smaller banks. Member states may allow DGS funds for preventive or alternative measures to prevent bank failure or ensure depositor access in insolvency.
Quotes
Luděk Niedermayer (EPP, CZ) noted the complexity of the file yet emphasized the strengthened EU crisis management framework, particularly for small and medium-sized banks, enhancing predictability and harmonizing tools across the Union. It clarifies citizens’, SMEs’, and municipalities’ funds handling during bank failures.
Key objectives included minimizing taxpayer reliance by promoting market-based and private funding mechanisms, achieved through careful negotiation. This facilitates agile progress towards completing the banking union, a crucial part of the EU’s agenda to improve the single market’s function.
Irene Tinagli (S&D, IT) highlighted the reform’s enhancement, making resolution credible and accessible for smaller banks while maintaining a prudent, loss-absorbing capacity framework. The agreement fortifies industry-funded instruments usage, preserving European governance’s integrity and independence, ensuring consistency and harmonization across the banking union. This strengthens financial stability and integration, emphasizing further progress towards a comprehensive European deposit insurance scheme (EDIS) for banking union completion.
Kira Marie Peter-Hansen (Greens/EFA, DK) stated that a robust regulatory framework is crucial in today’s volatile environment, ensuring banks finance the real economy. The CMDI review adoption, especially the Deposit Guarantee Scheme Directive, marks a step towards the banking union’s completion. The review expanded the resolution scope while maintaining sufficient safeguards, harmonizing the deposit guarantee scheme toolbox, moving towards a more integrated European banking sector. However, more action is required to fully complete the banking union with a comprehensive European deposit insurance scheme.
Background
The package includes three legislative files: the Bank Recovery and Resolution Directive
Leave a Reply