Europe Steps Towards Banking Union

[Ericwt]

Europe did it again. After a long night meeting, the Finance Ministers of the 27 European Union countries reached an agreement on new banking rules that will smooth the path to a future Banking Union.
The new measures may look “shy” and lacking the “aggressiveness” the current situation would imply, but they have the merit to be an important shift in the relation between governments and banks in the continent.
After the EU Parliament will have approved the new rules, all member states will have to create ex-ante resolution funds that must be able to cover at least 0.8% of total national covered deposits. These funds will be activated for all future interventions in banks under resolution (and in exceptional cases they will be able to recapitalize banks) limiting the impact on state balances. The use of public money with the purpose to help, refinance or liquidate a bank will not be totally discretional as it has been in recent years. Public authorities do keep a large control over interventions, but just after the 8% of total liabilities of the financial institution are expunged at the expense of shareholders, bondholders and uninsured depositors (in this order).
In the first hours after the deal, I have seen some exaggerated emphasis over the “bailin versus bailout” point: the 8 percent rule will not exempt taxpayers from the burden of a failing bank and, after all, a resolution fund is financed with public money. The importance of this last european compromise doesn’t reside in “numbers”, but in the deeper structural changes it could produce in the banking system.

http://www.worldandmarkettrends.com/2013/06/europe-steps-towards-banking-union.html#.Uc2bZ6yVZaF