MEPs agree on toolset against bank failures to protect taxpayers and deposits

MEPs from the economic and monetary affairs committee have adopted new rules for the orderly market exit for banks of all sizes to minimise the economic burden on society and moral hazard.

The plenary is expected to vote on the texts during the second plenary session in April, with the followed up by the new Parliament after the 6-9 June European elections.

Under the new rules, a modification in the ranking of creditors would make the deposit guarantee schemes (DGS) funded by banks to compensate depositors as well as the single resolution fund (SRF), more accessible for the funding of resolution.

That in turn should limit use of public support and pave the way to more effective solutions in case of a bank resolution.

A two-tiered approach will see deposits of retail clients as well as micro, small and medium-sized enterprises benefit from a higher priority ranking over eligible deposits of large enterprises and central and regional governments. The tiered approach is designed to provide enhanced protection for a wide range of depositors, reflecting their unique characteristics.

On top of the coverage of €100,000 per depositor and bank, MEPs want deposits resulting from certain events such as a real estate transaction to be protected in the EU – as a minimum to an amount of €500,000 and as a maximum to an amount of €2.5 million for a harmonised duration of 6 months.

Moreover, member states should ensure a direct repayment of covered deposits by DGSs to clients. In case a DGS is not able to make the repayable amount available within seven working days, depositors should have access to an appropriate amount of their covered deposits to cover the cost of living within five working days of making a request for that amount.

“The package voted in today is bringing the Banking Union a step closer. It will make sure the failings of the banks and the costs associated with it are not borne by the taxpayers but by the industry itself. The rules will also protect the depositors better, by introducing new rules on the pay out in case of bank failure. The reports voted in today have also made sure that smaller banks are not included in the scope, if it is not necessary,” Czech MEP Luděk Miedermayer (EPP) said.

Portuguese MEP Pedro Marques (S&D) said the balanced compromise with other groups, meant the new rules merited support from the EP plenary.

Danish MEP Kira Marie Peter-Hansen (Greens) said the ambitious revision of the Deposit Guarantee Scheme Directive (DGSD) paved the way towards the creation of an European Deposit Insurance Scheme (EDIS), the still missing piece of the Banking Union. “Our report also ensures a level playing field, while enhancing the protection of depositors."