Brussels is working on a plan to better protect taxpayers from banking crises by tightening rules for troubled lenders. This was reported by the Financial Times, according to which the European Commission is finalizing a draft of legislation (viewed by the newspaper) designed to make it easier for depositors to transfer cash from institutions in difficulty to healthy ones and to make it easier to liquidate a bank problem without drawing on taxpayers’ money.
The draft, writes the FT, “would also make it more difficult for governments to pay ‘precautionary’ cash to troubled credit institutions, a route used in Italy in 2017 to inject billions of euros of taxpayer funds into MPS”.
The measure, which according to the Ft is still being finalized and could therefore change or not see the light, “represents an attempt to remove powers from the member states, which have resolved the difficulties of smaller credit institutions in the context of regulations despite the existence of a common EU framework for bank resolution”.
More timely communications
The proposal also stipulates that the European Central Bank, which supervises the largest lenders in the Eurozone, or national financial regulators, which supervise smaller banks, are required to promptly notify when a credit institution is risk of failure or probable failure. According to the draft, the changes would ensure “a consistent application of the rules in all Member States, ensuring a greater level playing field, while protecting financial stability and depositors, preventing contagion and reducing the use of taxpayers’ money”.
