IS THE EU RENEGING ON ITS COMMITMENT TO BANK BAIL-INS? | WHAT REALLY HAPPENED


IS THE EU RENEGING ON ITS COMMITMENT TO BANK BAIL-INS?

The European Commission on Friday struck a provisional agreement with the Italian government to reimburse some investors who bought shares in failed banks in an unprecedented move that would significantly soften EU rules on bank rescues. The agreement was welcomed by the Italian government and Bank of Italy which both argue that the European Union’s bail-in rules are damaging and virtually impossible to apply.

Those rules represent the central plank of the EU’s post-crisis banking reform. They came into law in the wake of Europe’s sovereign debt crisis and were designed to make sure that collapsing banks in Europe would in future be “resolved” with the funds of stockholders, bondholders and other investors, including account holders with deposits of more than €100,000 euros — instead of classic bailouts that raid directly or indirectly taxpayer funds. Public funds should only be used after unsecured creditors who can absorb the losses have been bailed in.

One of the first test cases of the new bail-in regulation was Tercas, a small Italian bank that hit the wall in 2014 and whose rescue with money from the country’s deposit guarantee fund was blocked by the European Commission on competition grounds. But that decision was overturned by EU judges last month, prompting calls for compensation not only for Tercas’ bailed in savers but also the depositors of four small Italian regional banks that were resolved with creditors’ funds in 2015 as well as those of Monte dei Pacshi, which was rescued in a similar fashion just a year later.

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