© Reuters. FILE PHOTO: Buildings of Swiss banks UBS and Credit Suisse are seen on the Paradeplatz in Zurich, Switzerland, March 20, 2023. REUTERS/Denis Balibouse
By Huw Jones
(Reuters) – The European Union proposed on Tuesday making it harder for governments to repeat pouring billions of euros of state aid into a bank as Italy did with Monte dei Paschi di Siena six years ago.
The proposals from the EU’s executive seek to ensure that banks hold enough resources, in particular debt that can be written down to release cash in a crisis, to avoid taxpayer handouts in the first place.
The recent failure of Silicon Valley Bank and Signature Bank (OTC:) in the United States and forced takeover of Credit Suisse by UBS last month were a reminder that bank failures still occur, the European Commission said.
“Today’s proposal will enable authorities to organise the orderly market exit for a failing bank of any size and business model, with a broad range of tools,” the commission said.
The proposals update rules introduced after the global financial crisis of 2007-09 to stop banks being “too-big-to-fail”, where taxpayers remain on the hook.
Under current rules, the failure of a large bank in the bloc is dealt with by the Single Resolution Board, but winding down the next tier down of lenders is subject to differing national practices that can end up using taxpayer money.
The proposals seek to make it easier and more consistent to apply EU resolution rules to this next tier down of lenders.
They also make it harder for governments to inject state aid into struggling banks, known as precautionary capital, a mechanism use by Italy for Monte dei Paschi di Siena in 2017.
An explicit date for paying back the money or selling the bank will be required.
There is no attempt to revive a 2015 proposal for a pan-EU deposit guarantee scheme, still languishing amid opposition from countries like Germany. And there is also no change to the protection of 100,000 euros ($109,450) per account.
($1 = 0.9137 euros)
