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European Commission’s Barnier confirms Dijsselbloem’s Cyprus template and bail-in

One day after the outrage over Eurogroup chief Jeroen Dijsselbloem’s statement  that the Cyprus rescue plan would be implemented also to other eurozone economies, the European Commission confirms these plans. With a small differentiation: that insured deposits up to 100,000 euro will not be used for future bail-ins.

EU Commission: new law could include bail-in of uninsured deposits

“It might be possible for large uninsured depositors to be “bailed-in” as part of the future resolution of a bank under a new draft EU law, the European Commission said on Tuesday, but savers with less than €100,000 at a bank would not be hit.

“At no point is it possible to bail in depositors under €100,000, either now nor in the future,” said a spokeswoman for Michel Barnier, the European Commissioner in charge of financial regulation.

“In the Commission’s proposal, which is under discussion, it is not excluded that deposits over €100,000 could be instruments eligible for bail-in,” spokeswoman Chantal Hughes told a regular briefing. “It is a possibility.” (via Irish Indepentent and Greek Proto Thema)

Are insured deposits safe?

It is very interesting to read articles 90 and 99 of the European Commission on Directive of the European Parliament and the Council establishing a framework for the recovery and resolution of credit institutions and investment firms.

Article 99 deals with the role of Deposit Guarantee Schemes (DGS) in the resolution framework in case of banks liquidation. KTG understands what even the insured deposits are not secure:

“DGS may be called to contribute to resolution in two manners.

First, deposit guarantee schemes must contribute for the purpose of ensuring continuous
access to covered deposits. Deposit Guarantee Schemes are currently established in all Member States in accordance with Directive 94/19/EC. They compensate retail depositors up to EUR100,000 in respect of unavailable deposits, before being subrogated to them in liquidation proceedings. By contrast, resolution a
voids the unavailability of covered deposits, which is preferable from the depositor’s point of
view. It is therefore desirable that the DGS contributes for an amount equivalent to the losses that it would have had to bear in normal insolvency proceedings, as reflected in paragraph 1 of Article 99.
In order to provide for sufficient funding, the ranking of deposit guarantee schemes in the hierarchy of claims is introduced, with DGS ranking pari passu with unsecured non-preferred claims. The DGS
contribution must be made in cash in order to absorb the losses pertaining to covered deposits.
Secondly, while Member States must at least use DGS for the purpose of providing cash to
ensure continuous access to covered deposits, they retain discretion as to how to fund
resolution: they may decide to create financing arrangements separate from the DGS, or use
their DGS also as financing arrangements under Article 91.
Indeed, there are synergies between deposit guarantee schemes and resolution. When a resolution framework that limits contagion is in place, it reduces the number of bank failures, and therefore the likeliness of DGS pay-outs. The proposal therefore allows Member States to use DGS for resolution
funding in order to reap economies of scale.
Where the two arrangements are separate, the DGS is liable for the protection of covered depositors to the extent and in the conditions laid down in Article 99.”

(Full directive here, articles 90 & 99 in page 16)

Spanish Bankia savers had to deal with the harsh reality of giving bank shares for bail-in deposits. Spanish pensioners pay price for Bankia shares fiasco. Probably the news went under amid the Cyprus rescue…
PS great thanks to Beatrice for drawing our attention to this.

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4 comments

  1. These people really should all go back to school and learn the basics of anatomy. Especially the difference between the top and the bottom orifice, and which one it is you use to talk through…

    “At no point is it possible to bail in depositors under €100,000, either now nor in the future,” said a spokeswoman for Michel Barnier, the European Commissioner in charge of financial regulation.

    Isn’t that precisely what they tried to do in Cyprus????

  2. First: FT has put the transcript of the interview online. It is clear Dijsselbloem never mentioned ‘template’. That was only mentioned in the questions.
    Second: what is wrong with this?

    Now that the situation is more calm and the financial markets seem to have become more steady and easier, we should start pushing back the risks. If there is a risk in a bank, our first question should be: “OK, what are you the bank going to do about that? What can you do to recapitalise yourself?” If the bank can’t do it, then we’ll talk to the shareholders and the bondholders. We’ll ask them to contribute in recapitalising the bank. And if necessary the uninsured deposit holders: “What can you do in order to save your own banks?”

    In other words, taking away the risk from the financial sector and taking it onto the public shoulders is not the right approach. If we want to have a healthy, sound financial sector, the only way is to say: “Look, there where you take on the risks, you must deal with them. And if you can’t deal with them, you shouldn’t have taken them on and the consequence may be that it’s end of story.” That is an approach that I think we should, now that we’re out of the heat of the crisis, consequently take.

    One commentator put it this way this morning on Twitter: “If the mouthpieces of the markets where these crisis originate from are screaming and shouting this way, there must be some basic truth in what Dijsselbloem said.”

    Third: in this interview he also mentioned this:

    We’ve completely wiped out the shareholders and the junior bondholders. We have to bring down the tab to be picked up by the taxpayers.

    I didn’t hear FT, REUTERS and others outside Holland cry foul then.
    Last: Whoever is complaining that this one interview has eroded the trust in banks completely must have been on Mars the last couple of years. That trust was gone already around the Lehmans collaps and the rescues after that.
    In a study about last year only 33% of the consumers still trusted financial service providers and just 40% trusted banks. The distrust was already so big in 2012 in Holland that hardly any consumer or business changed banks, because it was not only distrust in their own but in all the financial sector.
    It is time for a very thorough investigation into the role of the international press in creating and maintaining this whole crisis, where living in.

  3. What is wrong with this is that it is once again people who use the banks as customers, mainly because they have no other choice, are suddenly seen as being the bank and then through some quantum leap in pink logic become responsible for the losses made by the bank they have always been told they could and should trust. And to prove that they are the bank, they get a piece of worthless paper retrospectively. Typical EU logic. What is wrong with this picture? Well you know, there is only one country where the bank “managers”, who managed the trust in their institution into obliviance, are actually in jail, and deservedly so. Iceland.
    On the other hand, RBS for example runs up a deficit of 26 billion GBP, and the British taxpayer is volunteered to step in and save the bank. What happened to the guy in charge of this disaster. Part of the txpayers moeny to bail out his bank went his way in the shape of a 4 miilion GBP BONUS for a job well done.
    That i, in a nutshell, what is wrong with this.
    If you run your company into the ground through bad management, you suffer the consequences, not your customers. If you run your company into the ground in a criminal way, you not only pay the price, you also go to jail and the customers who lost out because of your criminal negligance get compensated.
    Apparently not so in the banking world. Criminal negligance gets rewarded with massive bonusses, and the customers picks up the price tag, as sanctioned by the EU.

  4. It is time for a very thorough investigation into the role of the international press in creating and maintaining this whole crisis, where living in.

    Would that be the same press you so applauded last week for giving you the correct information and stating things as they are???