EU plans to prevent taxpayer cash being used to save failing banks

BRUSSELS: The European Union on Tuesday proposed making it harder for states to pour billions of euros of aid into an ailing bank, as Italy did with Monte dei Paschi di Siena six years ago.

Proposals from the EU’s executive seek to ensure that banks hold enough resources, in particular debt that can be written down to release cash in a crisis, to avoid taxpayer handouts.

The recent collapses in the United States of Silicon Valley Bank and Signature Bank and the forced takeover of Credit Suisse by UBS last month were a reminder that failures still occur.

The European Commission said its proposals “will enable authorities to organise the orderly market exit for a failing bank of any size and business model”.

The proposals update rules introduced after the global financial crisis of 2007-09 to stop banks being “too-big-to-fail”, where taxpayers remain on the hook.

Under current rules, the failure of a large bank in the bloc is dealt with by the Single Resolution Board, but winding down the next tier down of lenders is subject to differing national practices that can end up using taxpayer money.

The proposals seek to make it easier and more consistent to apply EU resolution rules instead of national practices to this lower tier of lenders, on a case-by-case basis, European Commission Vice President Valdis Dombrovskis told reporters.

NO EASY DEBATE

European Parliament member Markus Ferber of Germany, which wants a carve out from some proposed rules, said not every ailing small bank needs to go into resolution.