EU Push for Depositor Preference to Advance With Parliament VoteJim Brunsden
The European Union is set to take a further step toward granting uninsured depositors greater protection than debt holders when regulators impose losses at a failing bank.
The European Parliament’s Economic and Monetary Affairs Committee will back the measure as part of a May 20 vote on a bank crisis law, according to a draft of amendments obtained by Bloomberg News. The move follows signals this week from German Finance Minister Wolfgang Schaeuble that he could accept the step as part of a compromise on the legislation.
Lawmakers will also state that governments should have a clear right to inject capital into banks, or even nationalize them, as a last resort to protect financial stability, the documents show.
The creditor writedown rules are part of a broader EU blueprint to take taxpayers off the front line for bailing out banks. Leaders of the EU’s 27 nations agreed last year that the proposals should be rapidly adopted and pave the way for further euro-area steps to pool decision-making for crisis-hit banks.
The legislation must be agreed on by nations and by the EU Parliament before it takes effect. Monday’s committee vote will determine the assembly’s negotiating position.
Under the plans, regulators would be given statutory powers to impose losses on unsecured creditors, while holders of secured debt, such as covered bonds, would be protected.
Finance ministers this week indicated a growing willingness to give preference to depositors when assigning losses, with Dutch Finance Minister Jeroen Dijsselbloem joining Schaeuble in saying that he could back the step as part of an overall deal.
The move was also supported on May 14 by EU Internal Market and Services Commissioner Michel Barnier, the European Central Bank and nations including France and Portugal.
U.K. Chancellor of the Exchequer George Osborne cautioned that the move risks being abused by companies converting bond holdings into deposits, and said it requires further reflection.