EU Directive makes haircut on uncovered deposits a standard in bank bail-ins

General view of the participants in the seminar on Public Investment Banks, organised by the Bureau of European Policy Advisers (BEPA), 22/01/2013. (EC Audiovisual Library).

General view of the participants in the seminar on Public Investment Banks, organised by the Bureau of European Policy Advisers (BEPA), 22/01/2013. (EC Audiovisual Library).

What happened in Cyprus was neither improvised nor exceptional. Peoples’ bank deposits above the secured benchmark of €100.000 were confiscated according to a very important proposal for a Directive which was forwarded from the Commission to the European Council and the European Parliament last June under the name of “Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directives 77/91/EEC and 82/891/EC, Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC and 2011/35/EC and Regulation (EU) No 1093/2010”.


It’s not clear if the Proposal has been officially adopted but both the Council, the Parliament and all the EU 27 governments had plenty of time to discuss it. In this legal text there is a paragraph which clearly describes the procedure “for the recovery and resolution of credit institutions and investment firms” in case of insolvency as it follows:

“4.4.10. The resolution authorities should have the power to bail-in all the liabilities of the institution. There are, however some liabilities that would be excluded ex-ante (such as secured liabilities, covered deposits and liabilities with a residual maturity of less than one month). Exceptionally and where there is a justified necessity to ensure the critical operations of the institution and its core business lines or financial stability (Article 38) the resolution authority could exclude derivatives’ liabilities. Harmonised application of the possible exclusion at Union level would be ensured by Commission delegated acts”.

In short what happened to the Popular Bank of Cyprus and the Bank of Cyprus was already a standard procedure at least in the minds of the dignitaries in Brussels, Berlin, Paris, London and practically all the capitals of the European Union. Mind you this legislation is not confined only in the Eurozone but refers to all the 27 countries. Actually is a rather straight transcription of similar legislation in force in the United States.

The economic and moral justification of this proposal for a Directive cannot be easily repelled. The Commission notes that the European Union taxpayers have already spent €4.5 trillion to support the banking system. This cannot continue because governments/taxpayers have no more means to go on rescuing banks. On top of that there is a very crucial moral issue in every bank bailout.

The moral issue

All those financial firms are asking for bailouts only if their risky bets turn sour. However it never crossed their minds to share the profits with others in the good times. In short when their placements in every possible market turn out to be profitable, it’s the shareholders and the managers who pocket it. In case that those bets become toxic assets, the taxpayers are called in to recapitalise the banks. This cannot continue.

Until this point the Brussels authorities, and probably the Berlin, Paris and even London decision makers seem to be on the right side. It’s absolutely necessary and fair to prepare a system for the recovery and resolution of credit institutions and investment firms without asking from now on poor taxpayers to pay for other peoples’ sins.

Hiding the truth

The problems however begun with the President of Eurogroup, Jeroen Dijsselbloem, who dared say that the Cyprus solutions will be a standard from now on, in all bank rescues in the European Union that is using the unsecured deposits to bail-in or dissolve the bank. He avoided though explaining that this is not his personal opinion but it is foreseen in a Commission Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL. The reception by the markets and the public opinion would have been quite different, if he had said the whole truth.

Unfortunately it was not only Dijsselbloem who didn’t say the truth. Others like the German minister of Finance Wolfgang Schauble, even tried to cover it up. Many politicians insisted that the Cyprus bail-in using uncovered deposits was an exception. It’s like taking the markets and the public opinion as children who shouldn’t be told the whole truth at once but in…instalments…

The proposal for the Directive can be found here:












the European Sting Milestones

Featured Stings

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Eurozone business activity again on upwards path

Guterres in Davos: ‘Dysfunctional’ response to common problems, shows need for effective multilateralism

Britain’s May won the first round on the Brexit agreement with the EU

A long German political winter is on the way

From Grexit to Brexit: UK industry now says the in/out referendum is good for your health

Theresa May attempts to ease the EU stance as Britons request another EU referendum

Taking fast road to ‘e-mobility’ central to a sustainable future: COP24

‘Continuing absence’ of political solution to Israel-Palestine conflict ‘undermines and compounds’ UN efforts to end wholesale crisis

Polish PM chooses to focus on economy, amid questions on rule of law in Poland

90% of European Jews say antisemitism is getting worse

When did globalization begin? The answer might surprise you

Is deflation a real danger for Eurozone?

The European giant tourism sector in constant growth

Attempt to defy international law over Golan Heights sovereignty ‘doomed to failure’ Security Council hears

Eurozone: Even good statistics mean deeper recession

Funding boost for sustainable development data agreed at UN conference

The UN supports Europe’s military action in Libya and the Mediterranean; Russia and China agree

‘We will not give up on looking for peace for South Sudan’: UN deputy chief

From diamonds to recycling: how blockchain can drive responsible and ethical businesses

EU legislation protecting home buyers approved in Parliament

Venezuelan exodus to Ecuador reaches record levels: UN refugee agency steps up aid

Why people with disabilities are your company’s untapped resource

How to build a paradise for women. A lesson from Iceland

Brussels wins game and match in Ukraine no matter the electoral results

Is ECB helping Germany to buy cheaply the rest of Europe?

‘Grave consequences’ await if new deadly escalation of violence in Gaza continues – top UN official

Here’s how we solve the global crisis of tribalism and democratic decay

Millions of people eat octopus- here’s why we shouldn’t

European Youth Event 2016 – bridge between youth and policy makers

Advancing multilateralism goes ‘hand-in-hand’ with work of the UN

The Oslo model: how to prepare your city for the electric-vehicle surge

Containers at the port of Tokyo. (Copyright: European Union, 2016. Source: EC - Audiovisual Service. Photo: Haruyoshi Yamaguchi)

EU cuts fast-track free trade deals with Japan and Singapore and leads the trade scene

European Parliament strengthens EU consumer protection rules

Parallel downfalls of Merkel and Deutsche Bank threaten Germany and Europe

‘Abhorrent’ ambulance attack in Libyan capital imperils life-saving work, warns UN

EU deserves the title of the Syrian affair merchandiser

Health & Sustainable Development Goals: it’s about doing what we can

Cutting CO2 emissions from trucks: MEPs reach deal with Council

How well you age depends on what you think of old age

How tiny countries top social and economic league tables (and win at football, too)

Built by a woman: supporting the dreams of mum entrepreneurs

Will Europe be able to deal with the migration crisis alone if Turkey quits the pact?

Tuesday’s Daily Brief: Guterres calls for restraint in Venezuela, Jazz Day, the importance of breastfeeding, and updates from Libya, Iran and Mozambique

COP21 Breaking News_05 December: UN Secretary-General Announces “Climate Action 2016” Partnership

Food for millions in Yemen at risk of rotting in key Red Sea port, warns UN

Why salaries could finally be on the way up

EU’s social crisis and unemployment to deteriorate

What could a no-deal Brexit mean for developing countries?

EU’s guidelines on net neutrality see the light although grey areas do remain

Hostages to a rampant banking system

Italy solves the enigma of growth with fiscal consolidation: The Banking Union

Batteries included: how better storage can transform renewable energy

How a teen refugee survived a shipwreck and saved a baby’s life

A Sting Exclusive: “The Chinese economy is steady and moving in the right direction”, Ambassador Yang of the Chinese Mission to EU underscores from Brussels

UN standing with Zimbabwe, Malawi, Mozambique as Southern Africa death toll from deadly cyclone mounts

3 vital steps to a new gender equality playbook

South Eurozone needs some…inflation and liquidity

MEPs want to ensure sufficient funding for Connecting Europe’s future

Palm Oil: With Malaysia cracking down on production, what’s the alternative?

These are the 3 key skill sets workers will need to learn by 2030

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s