This is how bank bankruptcies should be

Plans from Brussels put the onus on bank depositors, rather than the taxpayer, to bear the costs of bank failures.

\”Cyprus was a special case … but the upcoming directive assumes that investor and depositor liability will be carried out in case of a bank restructuring or a wind-down,\” Mr Rehn, the European Economic and Monetary Affairs Commissioner.

\”But there is a very clear hierarchy, at first the shareholders, then possibly the unprotected investments and deposits. However, the limit of €100,000 (£85,000) is sacred, deposits smaller than that are always safe.\”

Mr Rehn was referring to a directive being drafted by the European Commission on bank safety which would set out investor liability in the law of member states.

And, at least as far as I know, it\’s how UK law currently is.

5 thoughts on “This is how bank bankruptcies should be”

  1. Surreptitious Evil

    Except, what he is actually saying is that the hierarchy is very clearly:

    Actual investors (in various tranches),
    Unprotected depositors (there may be some mixing at the boundary with this tier and the one above),
    Protected depositors,
    The ECB.

    Bastards …

  2. And what is most surprising about this whole affair is the amount of hyperventilating in large parts of the nominally right-wing blogosphere (on either side of the Atlantic) consequent on the notion that bank losses will no longer be socialised.

  3. That, SBML, is the question. There appears to be no requirement in European directives for small depositors to remain whole if insurance claims exceed the funding that can be raised from uninsured creditors. Sovereigns are only required to bail out the ECB, not their own citizens. But even if they were supposed to make up shortfalls in deposit insurance funding, Eurozone deposit insurance would only be as good as the solvency of the sovereign. There is no shared deposit insurance and zero commitment to introducing it before the next millenium. The European deposit guarantee scheme is a sham and a con.

  4. But but, isn’t this the evil faceless bureaucrats in Brussels dictating how we should do things? Therefore it must be wrong?

    And it is, to non-economist me anyway, blindingly obvious that deposit insurance should be at the expense of the ECB and not governments.

    The solution to the European currency/banking crises ultimately lies in having a truly pan-European banking industry. You will always have weaker and stronger areas, so if you have weaker-area-only banks they will be in perpetual trouble. A hypothetical Merseyside Bank would have gone bust repeatedly over the last 30 years, why should anyone be surprised at similar things happening in Cyprus or Greece?

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