EU finance ministers aim for progress in bank reform

LUXEMBOURG (AFP) ― European Union finance ministers tackled bank sector reform on Friday, aiming to build on a eurozone deal to inject capital directly into failing lenders to prevent wider damage to the economy.

On Thursday, the 17 eurozone finance ministers agreed how the single currency’s rescue fund, the European Stability Mechanism, could help the banks without adding to the already large debt burden on member states.

German Finance Minister Wolfgang Schaeuble said that the accord marked an “important step ... towards banking union,” the new regulatory framework for EU banks aimed at containing the fallout from any bank collapse.

Warning that the talks on Friday could prove difficult, Irish Finance Minister Michael Noonan said the deal cleared the way for discussion of the last major issues on the way to banking union.

“We have made significant progress in narrowing the ground (but) there are still some significant divergences of opinion,” Noonan said, highlighting the treatment of bank creditors.

Up to now, the taxpayer has paid for most of state and bank bailouts but this has stoked growing unease and only added to overall debt levels.

Part of a bailout for Greece involved losses for bondholders, and this caused a crisis for banks in Cyprus.

To address problem of taxpayers’ being landed with most of the costs, the EU, the European Central Bank and the International Monetary Fund in March agreed a Cyprus rescue which ‘bailed-in’ larger depositors in its two biggest banks to pay for their restructuring.

That move shocked savers who had felt they were safe, particularly in light of the EU’s supposedly blanket guarantee of deposits up to 100,000 euros.

Noonan said the biggest issue at Friday’s talks would be how the bail-in option would be managed, with some states wanting more flexibility to deal with it at a national, as opposed to an EU level.