The European Union (EU) is preparing to update crisis rules for banks. The EU Commission has announced a new proposal to strengthen the framework of crisis management and deposit insurance for banks as part of banking reforms. With this proposal, it will be easier for small and medium-sized banks in the EU to use resources in deposit guarantee programs during crisis situations. This will protect bank customers and prevent the negative effects of the crisis from spreading to other banks, society, and the economy.
The proposal includes regulations for banks to use deposit insurance instead of taxpayers’ money for crisis management. By emphasizing measures that are financed by the banking sector, such as deposit guarantee programs and resolution funds, taxpayers can be better protected.
Under this proposal, banks in resolution processes will be able to use resources in deposit guarantee programs if they exhaust their own internal loss-absorbing capacity. In addition, a coverage level of 100,000 euros per depositor and per bank will apply to all customers in the EU. Standards for account holders’ protection will also be made more consistent across the EU.
Public institutions such as hospitals, schools, and municipalities will also be provided with deposit protection for certain funds. Protection for account balances exceeding 100,000 euros due to certain temporary events such as inheritance or insurance compensation will also be made more consistent.
This regulation may prevent the use of taxpayers’ money in the past for small and medium-sized bank failures in European countries, instead of using the bank’s internal resources or funds from emergency programs financed by the sector.
This regulation, which has been worked on for approximately three years, was announced during a turbulent period for the banking sector. Approval from the European Parliament (EP) and member states is required for the proposal to take effect.