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EU Banking Union: Final Approval from MEPs

A new European authority will have the right to dissolve or restructure failing banks. This is called the Single Resolution Mechanism (SRM). These rules are aimed at preventing crises Ireland, Greece and Cyprus have been hit by, where banks were bailed out at high cost.

In the future, when a bank fails, shareholders and creditors will be first to pay. The EU banking union reforms will create a 55 billion-euro fund, supported by bank levies, so that emergency cash can be used by failing banks.

This rescue system will be brought about by the European Central Bank. The 18 Eurozone countries will take part in the SRM, nonetheless countries that are waiting to join the EU can sign up for it as well.

According to some analysts, the rescue system is not that powerful and the Eurozone still does not have credible support to face major failures such as the financial crisis from 2008. The crisis revealed the risk of “contamination” when the banks with trans-border operations hit trouble.

Michel Barnier, the EU Financial Markets Commissioner stated that the SRM will admit the effective and timely resolution of trans-border and domestic banks, within a week if necessary.

No UK Liability

Vicky Ford MEP of the UK Conservatives, one of the European Parliament's lead negotiators on the package of banking reforms, said that the UK would not take on any liabilities for the decisions of Eurozone members and would not pay into the SRM.

This proves that the EU countries want to integrate further and they can do so without asking the non-euro countries to entrust the powers or paying the taxpayers money to a currency that they decided not to join.

The ECB will begin to supervise the biggest banks of the Eurozone, with the powers to overturn national authorities.

Also, MEPs accepted stricter regulations in order to protect the deposits of all banks in case of bank failure. According to the deposit guarantee system, customers will be able to get the total amount guaranteed within seven working days. 

Info presented by Vista Brokers