Business Irish

Saturday 20 September 2014

Noonan wins bank deal ensuring EU taxpayers don't get stung first

It's too late for Ireland but European finance ministers welcome agreement

Published 28/06/2013 | 05:00

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Spanish Economy Minister Luis de Guindos Jurado talks with Finance Minister Michael Noonan during the EU finance ministers meeting in Brussels which agreed a pecking order for taking losses on failed banks

FINANCE Minister Michael Noonan got his European counterparts to agree a deal yesterday that ensures that what happened to Ireland will never happen again.

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Mr Noonan hailed the political agreement on rules to deal with failed banks as a "revolutionary change".

It was struck early yesterday and sets out a clear pecking order as to who will suffer losses when a bank must be wound up.

The guiding principle is that taxpayers will no longer be first in line to suffer the burden of a collapsing bank.

Shareholders would be tapped first, followed by junior bond holders then senior bondholders and, in a last resort, depositors with more than €100,000.

BONDHOLDERS

Even though small businesses could lose out, the deal ensures that big corporations will lose out first.

Mr Noonan said the Government wanted to burn senior bondholders in March 2011 when the State ended up pumping another €24bn into the ailing banks.

"We had long conversations with the European Central Bank to allow us to use bail-in instruments so that we could take haircuts from senior bondholders, but at the time these mechanisms weren't in place," he said.

"I welcome the fact that we're going to have a banking union in Europe, and I welcome the fact that taxpayers are now going to be protected by the bail-in mechanism rather than the bailout. And I welcome the fact that depositors are going to be guaranteed that their deposits up to €100,000 are sacrosanct."

Mr Noonan, who was chairing his final EcoFin meeting as the Irish presidency draws to a close, said there was consensus among ministers that those with up to €100,000 will always be protected.

While those with more than €100,000 could be hit for losses, SMEs will be protected over large corporate organisations.

DISCUSSIONS

Mr Noonan rescheduled the discussions for Wednesday evening ahead of a summit of EU leaders after intensive talks ended without agreement last weekend.

Certain countries, including France, wanted greater flexibility on the bail-in rules, whereas Germany wanted to have them applied more strictly.

Mr Noonan said flexibility is strictly limited and can only be used in "very exceptional cases".

"Such flexibility would only be available after a minimum level of losses equal to 8pc of total liabilities has been imposed (on creditors and investors)," he said.

After this, governments will be able to use so-called resolution funds, capped at 5pc of a bank's debt, to recapitalise a struggling bank.

Under the rules, these national funds would have to reach a target level of at least 0.8pc of covered deposits off all the banks.

The banks would make annual contributions to reach this target.

Negotiations will now begin with the European Parliament in the hope that the rules can be put in place by the end of the year, under the Lithuanian presidency. "Banking recovery and resolution is the next building block, and agreement comes at an important time for the banking union project and represents a very positive conclusion to the Irish presidency," Mr Noonan said.

Irish Independent

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