With its new rules, the EU wants to avoid the events of the 2007–2009 financial crisis, where taxpayers became payers.
Tuesday Vice President of the EU Valdis Dombrovskis and the commissioner Mairead McGuinness presented proposals on how to handle the affairs of banks that are about to collapse, reports news agency Reuters. The European Commission also informed about it.
During the global financial crisis of 2007-2009, taxpayers’ money was used to improve the situation of banks. The EU’s new rules aim to prevent this from happening again, reports the Reuters news agency.
In the future, large, medium-sized and even small banks that are at risk of collapse are covered by the EU’s resolution rules.
The new ones thanks to the proposals, by the time the bank goes bankrupt, it would be easier than before to use the cash from the deposit protection systems, Reuters states. With the help of this money, a bank that is about to collapse could be used to transfer its deposits to another bank. That way, the payments wouldn’t end up being handled by the people who keep their accounts in the bank.
An EU-wide deposit protection system has long been desired in the EU’s banking union. However, according to Reuters, the new proposals do not contribute to its realization.
In the reform, stricter conditions are proposed, for example, for the repayment of the support received by the bank. The date for repayment must be clearly defined.
Among EU countries, for example, Germany has protection systems that are financed by the national industry. Protection systems can be used to help failing banks. In exchange for this, industry players want lower capital and liquidity requirements. Germany would not like to be part of the systems in question, but the EU Commission has not given it permission to deviate from them. However, according to the commission, a fair agreement has been reached to introduce protective measures, Reuters says.
According to Reuters, EU countries and the European Parliament must approve the draft reforms. Changes to drafts are expected from them.
American a medium-sized bank, Silicon Valley Bank (SVB), collapsed due to rising interest rates in March. In addition to SVB, a few smaller banks collapsed. In Europe, the Swiss bank Credit Suisse collapsed, HS reported at the beginning of April.
Donald Trump’s during the presidency, medium-sized banks in the United States were exempted from the strictest supervision. According to many experts, SVB’s problems are at least partly due to this. Because supervision was looser than before, the bank’s money was not even enough in a crisis situation.
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