EU to decide who pays when banks fail

Fri Jun 21, 2013 9:55am EDT
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By Robin Emmott and John O'Donnell

LUXEMBOURG (Reuters) - The European Union sought on Friday to forge rules to force losses on large savers of failed banks, a taboo that was broken in this year's bailout for Cyprus.

Finance ministers in Luxembourg are trying to resolve one of the most difficult questions posed by Europe's banking crisis - how to shut failed banks without sowing panic or burdening taxpayers.

The talks follow Cyprus's March financial rescue in which it had to close down one of its banks, impose losses on savers and introduce capital controls to stop a bank run.

Although some politicians have tried to portray Cyprus as a one-off, it could mark a dramatic change in how Europe deals with troubled banks, to spare taxpayers who have been on the hook for previous bailouts.

Some countries have grave reservations about taking such an approach and want the freedom to soften any such EU-wide rules.

"The fact that the euro zone countries are trying to push a solution is very dangerous for the rest of us," Sweden's Finance Minister Anders Borg told reporters.

The European Union spent the equivalent of a third of its economic output on saving its banks between 2008 and 2011, using taxpayer cash but struggling to contain the crisis and - in the case of Ireland - almost bankrupting the country.

But countries are divided over how strict the new rules should be, with some worried that imposing losses on depositors could prompt a bank run while others argue the rules of the game must be made clear from the start.   Continued...