German finance ministry challenges EU bank rescue proposals

A EUROPEAN Commission proposal on bank rescues is questionable from an ethical, economic and regulatory stance, German Finance Minister Christian Lindner said on Tuesday (May 16), saying shareholder and national involvement should come first.

European Union finance ministers are meeting in Brussels on Tuesday to discuss proposals from the Commission, the EU executive, on the review of the bank crisis management and deposit insurance (CMDI) framework. They are also expected to adopt regulation on markets in cryptoassets.

The European Union’s executive set out draft reforms to rules for closing down failing banks in April.

The emphasis is on faster handling to ensure a “bail-in” of failing banks using their internal resources such as bonds that can be written down, to avoid a “bail-out” by taxpayers, so that depositors are treated equally across the bloc.

“Before using a European instrument, shareholders and creditors should be involved in the stabilisation of the institution,” Lindner said, adding that this would not be the case under the Commission’s plan.

“It (the plan) is questionable from a regulatory, economic and ethical point of view.”

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Germany has functioning deposit and institutional protection systems, the finance minister said further. “It has always been clear to us that these functioning instruments must be preserved and their ability to function protected.”

While most EU countries have some form of national insurance that guarantees deposits up to 100,000 euros (S$145,510), there is no EU-wide scheme and no way for authorities to cooperate across borders if a banking crisis is too expensive for a single country to manage.

Lindner said Germany was open to the idea of further progress on a European deposit insurance scheme, but did not expect any soon. REUTERS