EU prepares to update bank crisis rules

The EU Commission has announced a new regulatory proposal to strengthen banks’ deposit insurance and crisis management framework within the scope of banking reform.

Consequently, the use of resources in the deposit guarantee programs of small and medium-sized banks in the EU in crisis situations will be facilitated. Thus, while the bank depositors in question will be protected, the spread of the crisis to other banks and its negative effects on society and the economy will be avoided.

Taxpayers will be better protected by promoting measures financed by the banking sector, such as deposit guarantee programs and resolution funds.

Banks in the process of resolution will be able to use the resources of their deposit guarantee programs if they exhaust their internal capacity to cover losses.

The guarantee level of 100 thousand euros per depositor and bank, which is included in the regulation of the deposit guarantee program, will be valid for all depositors in the EU.

Rules for the protection of account holders across the EU will also be further harmonized.

Investor protection will also be provided to public institutions such as hospitals, schools and municipalities, and money in certain funds.

The maintenance of high balances in accounts greater than 100,000 euros due to certain temporary events such as inheritances or insurance compensation will also be harmonized.

WHAT HAPPENED?

In European countries, past failures of small and medium-sized banks have often used taxpayer money rather than internal bank resource funds or industry-funded emergency programs.

The proposal makes it easier for regulators to take advantage of industry-funded deposit-guarantee programs for a failing bank.

The regulation, which has been worked on for about 3 years, was announced during a turbulent period in the banking sector.

The approval of the European Parliament (EP) and member states is required for the proposal to enter into force.

The failure of Silicon Valley Bank and Signature Bank in the US last month also put European banks under pressure. The effect of this was seen at Credit Suisse, the second largest bank in Switzerland, at 167 years old. The bank’s shares fell sharply and selling pressure spread throughout the market. UBS bought Credit Suisse for 3 billion francs with the support of the state and the central bank.