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Investors to pay for bank failure

Thursday, June 27, 2013 - 02:02

June 27 - The European Union agrees that shareholders, bondholders and wealthy depositors should share the burden of saving a bad bank, rather than taxpayers. Kirsty Basset reports.

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Who pays when a bank fails? In recent years, European taxpayers have borne the brunt of a series of unpopular bank rescues, in the wake of the region's financial crisis. But after seven hours of late night talks, the EU agreed that the burden of future bank failures should be shouldered firstly by investors and wealthy savers. Dutch Finance Minister Jeroen Dijsselbloem. (SOUNDBITE) (English) DUTCH FINANCE MINISTER AND EUROGROUP PRESIDENT JEROEN DIJSSELBLOEM SAYING: "I'm very happy with it because it gives us all, throughout Europe, a very clear set of rules about how to deal with banks in trouble. And I think that will help us to strengthen our banks, keep them healthy and in case trouble does come up we know how to deal with it. And investors know what the risks are for them so it's a very clear set of rules." The new rules break a taboo in Europe that savers should never lose their deposits. A model which caused shockwaves when implemented in Cyprus' bailout in March - now set to be replicated elsewhere if necessary, as depositors with more than 100,000 euros will share the burden of a potential bank rescue. France had been wary until they secured promises that banks could also seek support from the euro zone's rescue fund. German Finance Minister Wolfgang Shaeuble admitted reaching agreement was tough. (SOUNDBITE) (German) GERMAN FINANCE MINISTER, WOLFGANG SCHAEUBLE SAYING: "It was long, it was difficult and intensive, but this was to be expected. It is clear that in principle when banks get into difficulties in the future, the tax payer should not be the first in line to pay, that this principle is easy to use but gets complicated in concrete terms." But not everyone's convinced the plan will work. Joe Rundle at ETX Capital. (SOUNDBITE) (ENGLISH) HEAD OF TRADING AT ETX CAPITAL, JOE RUNDLE SAYING: "I think the big fear is when it comes to a bank in trouble, is are the countries going to stick to the rules or are there going to be exceptional circumstances which require a different set of rules for that bank." Yet to be decided is who should have the final say in shutting down or restructuring a bad bank - the European Commission is expected to unveil a proposal early next week.

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Investors to pay for bank failure

Thursday, June 27, 2013 - 02:02