UniCredit Says Global Rule Needed to Bail In Big Deposits

Uninsured deposits could be used in future bank failures provided global rulemakers agree on a common approach, according to Federico Ghizzoni, the chief executive officer of Italy’s biggest lender, UniCredit SpA.

Cutting large deposits in failing banks, along with other liabilities such as bonds, to offset losses is acceptable as long as small savers’ funds remain protected, Ghizzoni told reporters in Vienna late yesterday. The European Union has to introduce identical rules in all of its member states and ideally those rules would be coordinated globally, he said.

Including deposits “is acceptable if it becomes a European solution,” said Ghizzoni, 57. “What we cannot accept is differentiation country by country inside the same area. I would strongly suggest to make this decision not only within Europe but within the Basel Committee, where all countries are represented. Otherwise we would open the market for arbitrage.”

Cyprus became a testing ground for investor losses when euro-area authorities last month required restructuring of the country’s two biggest banks as a condition of a 10 billion-euro ($12.8 billion) rescue. The Cyprus program was the first to impose losses on uninsured depositors as the EU continues to hash out how to handle failing banks on a case-by-case basis. Its banking resolution law is still under discussion.

Ghizzoni said deposits should only be included when bonds aren’t sufficient, and those below the guaranteed level of 100,000 euros should be off limits. While he would prefer not to touch them at all, including deposits in a global plan was an acceptable solution, he said.

Deposits Stable

Ghizzoni said he had been “afraid” of his clients’ reaction to the measures in the Cyprus rescue and asked for monitoring of deposit flows in all 22 European countries -- stretching from Italy, Germany and Austria as far as Russia and Turkey -- where his Milan-based bank operates. It didn’t find any loss of deposits, he said.

“Really, we were afraid, we started to monitor on a daily basis the flow of deposits in different countries,” he said. “Maybe I’m disappointing you, but in reality we had no reaction so far from customers.”

UniCredit increased its deposits in Italy by 8 percent last year, Ghizzoni said. While this was good for the bank’s funding, it was also a worrying sign for the Italian economy that people aren’t increasing consumption, he said.

(Corrects headline of April 4 article to match story text.)
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