EU plans cross border rules to wind up banks
THE EU is finally ready to release new rules that will outline how to wind up failing banks across Europe, having delayed publication for fear of stoking the banking crisis.
Under the new rules, EU countries could be obliged to step in and put up money to take over and share out losses from other countries’ failing banks, according to a draft EU law that marks a big step towards greater EU financial integration and is likely to upset some members, particularly Germany.
Spain’s banking troubles and the risk that a bank run in a country such as Greece could spread gave new impetus to EU proposals for a law to deal with failing banks, which as City A.M. revealed in March, the UK had been urging Brussels to publish.
The EC will propose the rules on 6 June to grant local regulators what one official described as “aggressive intervention powers” to take control of stricken banks, break them up and impose bondholder losses.
It is not clear if they will outline new rules for how exactly bail-in bonds, which force creditors to take the losses, will work. If accepted, it would be the first step towards a pan-EU system of planning for the winding up of banks in difficulty, a vital element of the banking union the European Central Bank has called for.