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EU Commissioner berates member states for bank crisis retreat

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Member states took a step backwards when gutting EU laws designed to manage failing lenders, Mairead McGuinness said.

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The EU’s Commissioner for financial services today (25 June) berated member states for rowing back on plans to stop taxpayer bailouts for crisis-hit banks.  

A redraft of financial services laws unveiled last week by the EU’s Council, which represents member governments, adds needless complexity, Mairead McGuinness told an event hosted by the Bruegel think tank.

“The Council amendments would not increase financial stability, would not level the playing field, would not improve depositor protection, and would not reduce the use of taxpayers’ money,” McGuinness said, of a legislative redraft produced by finance ministers on 19 June.

“They make the framework even more complex than it is today, and in some respects, they are a step backwards,” she said, calling ministers’ position “frankly very disappointing”. 

“Banking nationalism has not disappeared – it is reinventing itself,” she added – reversing Brussels’ attempts to offer a single set of rules after the chaos that followed the 2008 financial crisis.

In 2011, the collapse of lenders such as the Franco-Belgian Dexia saw ministers from various countries clubbing together to offer emergency public funding and avoid economic meltdown.

EU laws were subsequently introduced to ensure banks have to pay for their own failure, allowing them to be resolved by regulators without upending the financial system.

Banking loopholes

An update proposed by the Commission in April 2023 aimed to fix loopholes that meant smaller and medium-sized banks still got public funds when they collapse, as happened to Italy’s Banca Popolare di Vicenza and Veneto Banca in 2017.

That now needs to be agreed by the Council and lawmakers from the new European Parliament – and a text agreed by MEPs just before June elections won plaudits from McGuinness.

The Council’s version, in contrast, gives national authorities more power over the EU’s own Single Resolution Board, and removes provisions that would allow failing banks to be managed using tools based on economic merit, McGuinness said.

In a statement made on 19 June, Vincent Van Peteghem, the Belgian minister of finance who chaired talks, said the Council redraft was “taking a significant step towards a more integrated and effective crisis management framework”.

The agreement “constitutes an important success for the Belgian Presidency, on a complicated and politically sensitive file,” Van Peteghem said, citing benefits for financial stability and depositor protection.

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