Exclusive: Euro zone to share costs of bank closures gradually - proposal

Sat Dec 14, 2013 3:58pm EST
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

BRUSSELS (Reuters) - The cost of closing down a euro zone bank will initially be borne almost fully by its home country, but the obligations of euro zone partners will gradually rise to be shared equitably after 10 years, under the terms of an EU proposal seen by Reuters on Saturday.

The proposal, prepared by Lithuania which holds the rotating presidency of the European Union, will be discussed at an extraordinary meeting of senior EU officials on Monday, December 16.

After a financial storm that toppled banks and dragged down states from Ireland to Spain, countries are considering a fresh blueprint outlining what to do when a bank fails, a critical second pillar of a wider reform dubbed "banking union".

Sealing a deal ahead of a meeting of an EU summit in Brussels December 19-20 will allow Germany's Chancellor Angela Merkel and her peers to trumpet an important overhaul of banking, although their readiness to share the costs of failed lenders, a central tenet of banking union, may fall short of what had been hoped.

Under the proposal, the costs of closing down a bank in the first year of operation would be fully covered by a fund set up by the home country where the bank resides.

Such funds would be set up in every euro zone country and each would be filled from fees paid in by banks in the respective countries, amounting each year to 0.1 percent of all covered deposits they hold.

Such funds would reach their full size of 1 percent of all covered deposits after 10 years, but in the first year each would have only 0.1 percent of all covered deposits in a euro zone country, then 0.2 percent in the second, and so on.

If the accumulated money from bank fees in a home country in the first year is insufficient to finance the closure of a bank, other funds in euro zone countries would be expected to contribute up to 10 percent of their accumulated money to help.

In the second year, the home fund would only be obliged to use up 90 percent of its accumulated funds to finance the cost of closing down a bank before it could call on its euro zone partners, who would be required to chip in with up to 20 percent of what they hold to help.   Continued...

 
A two Euro coin is checked after being minted in the Austrian Mint (Muenze Oesterreich) headquarters in Vienna June 20, 2013. The Austrian mint was first mentioned in papers in 1371 and is located in Vienna. REUTERS/Leonhard Foeger