Yahoo Finance EU lawmakers to complete financial system overhaul
EU lawmakers vote to complete set of biggest financial reforms since euro introduction
BRUSSELS (AP) -- The European Parliament on Tuesday was set to complete the biggest overhaul of the bloc's financial system since the introduction of the euro currency, passing laws to minimize the risk and cost posed by failing banks.
Lawmakers were slated to sign off on the creation of a European authority with the power to unwind or restructure failing banks, as well as a system that will see banks' creditors — not governments — take losses first when lenders fail.
The reforms aim to keep the cost of rescuing banks from overwhelming a country's public finances, said Elisa Ferreira, the leading lawmaker on the issue.
Parliament was also expected to pass legislation that protects all deposits of up to 100,000 euros ($138,000) in case of bank failures across the 28-nation bloc.
The votes bring to a close an ambitious reform agenda launched in the wake of the 2008-2009 global financial crisis. Since then, European governments pumped some 600 billion euros (currently $830 billion) into saving ailing banks, according to EU figures.
The EU — in particular the 18 countries that use the euro — has focused on creating a so-called banking union, a set of new institutions and rules meant to prevent another crisis by shaping a financial system as resilient and centrally policed as, for example, its U.S. equivalent.
The euro currency, used by some 330 million people, was introduced in 2002 but its financial system remained a patchwork governed by different national rules, a situation that proved unworkable during the financial crisis.
"Much progress has been made," said Bert Van Roosebeke of the Centre for European Policy, a Germany-based think tank. "Tuesday's votes are a huge step, but now the decisions will have to be implemented, the work isn't over," he said.
Starting in November, the European Central Bank will directly supervise the eurozone's biggest lenders with binding powers over national authorities. A separate authority will have the power — and funds — to dissolve or restructure any failing banks.
The parliament's approval of that authority, called single resolution mechanism, is the final building block of the banking union. The authority will have a 55 billion-euro ($76 billion) fund at its disposal, financed by bank levies, enabling it to handle cross-border bank failures.
Some, however, question whether the fund's firepower will be sufficient to handle serious banking crises.
"It isn't exactly unlikely that it won't be sufficient," said Van Roosebeke, adding European policy makers have yet to spell out a credible system of backstops in case of a systemic banking crisis.
To that end, Parliament was also set to adopt a set of rules that spell out who will take losses first in case a bank fails. Under the rules, a bank's creditors — those with large deposits there or holding its bonds — will have to take losses before the government helps out.
In the case of a major bank like Britain's Barclays, creditors would be hit to the tune of 140 billion euros before government help would be needed, or about 100 billion euros for France's Societe Generale, according to EU Parliament spokesman John Schranz.
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