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

Sun Dec 15, 2013 7:20am EST
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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 in Brussels on Monday, December 16.

Separately, several European finance ministers and senior EU officials will meet again in Berlin on Monday to try to make further headway on a compromise for rules to wind down stricken banks, senior euro zone sources told Reuters on Sunday.

The meeting will, in essence, include the same group of finance ministers and senior officials who met in Berlin on December 6, the sources said.

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 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.   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