EU Strikes Deal on Who Will Pay for Bank Bailouts

Finance ministers from the European Union reached a deal in the early hours of Thursday to set up rules about who would have to foot the bill for any future bank bailouts to avoid costs to tax payers. According to the new rules, shareholders, bondholders and depositors with more than 100,000 euros ($132,000) could end up sharing the burden of saving a bank. Analysts say the negotiations on how to deal with bank failures are crucial to restoring confidence in the euro zone, which has been hit hard by a debt crisis, and the deal helps pave the way towards establishing a banking union in the single-currency bloc.

 "If the banks get into trouble we will now, throughout Europe, have one set of rules on who pays the bill," said Dutch Finance Minister Jeroen Dijsselbloem. "So that's a major shift from the public means, from the taxpayer if you will, back to the financial sector which will now become for a very, very large extent, responsible for dealing with its own problems," Dijsselbloem added. Europe's tax payers have had to pay for a number of bank rescues since the global financial crisis, sparking outrage across a region that has been hit by recession and high unemployment. The EU spent the equivalent of a third of its economic output on saving its banks between 2008 and 2011 using taxpayer cash. 

But the latest deal suggests the EU is stepping towards harsher measures that shift the onus of bank bailouts from the taxpayer to depositors. A sign of that was seen earlier this year when a bailout of Cyprus forced large losses on depositors. Under the agreement, bond holders and shareholders would be forced to absorb losses of up to 8 percent of liabilities as part of a "minimum bail-in". Thereafter, national funds can be used to help banks. But that help is capped at 5 percent of the bank's liabilities. Once a bail-in has been imposed, help can be sought from the common EU rescue fund, the European Stability Mechanism (ESM).