Germany Blesses “Bail-In” Deposit Confiscation Plan For Failing EU Banks

As a gentle reminder - creditors includes depositors... remember Cyprus?
Germany Blesses "Bail-In" Deposit Confiscation Plan For Failing EU Banks

Image Credits: Aleph, Wiki Commons

by Zero Hedge | July 9, 2014


One year earlier than required, the German government approved plans to force creditors into propping up struggling banks across Europe. As WSJ reports, Germany “leads the way” in Europe by implementing European rules quickly and “creates instruments that allow the winding-down of big systemically relevant institutions without putting the financial stability at risk.” What this means is that taxpayers (theoretically) will not be on the hook (though in reality we are sure the mutually assured destruction defense will be played – especially if Deutsche runs into problems) but as German authorities explain, “This ensures that in times of crisis mainly owners and creditors will contribute to solving the crisis, and not taxpayers.” As a gentle reminder – creditors includes depositors… remember Cyprus?

As WSJ reports, Germany’s cabinet Wednesday approved plans to force creditors into propping up struggling banks beginning in 2015, one year earlier than required under European-wide plans that set rules for failing financial institutions.

The new bail-in rules are part of a package of German legislation on the European banking union–an ambitious project to centralize bank supervision in the euro zone and, when banks fail, to organize their rescue or winding-up at a European level.

Germany “leads the way” in Europe by implementing European rules quickly and “creates instruments that allow the winding-down of big systemically relevant institutions without putting the financial stability at risk,” the country’s finance ministry said in its draft bill seen by The Wall Street Journal.

“This ensures that in times of crisis mainly owners and creditors will contribute to solving the crisis, and not taxpayers.”

Germany will apply these rules already from next year, according to the bill. Struggling bank creditors, in addition to shareholders, will have to help financial institutions, covering up to 8% of liabilities, before the banks can tap Germany’s financial markets stabilization fund SoFFin.

Not everyone’s buying the no-taxpayer-impact concept…

┬áIn an expertise report presented Wednesday, Germany’s independent Monopoly Commission, which advises the government on competition and regulation issues, said its “skeptical whether market participants can muster sufficient capital buffer to effectively prevent the general public from being held liable.”

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