Eurozone bank bailout scheme takes effect

4 Jan 16

Reforms intended to end the need for taxpayers to bail out crisis-hit eurozone banks came into effect on 1 January.

The Single Resolution Mechanism implements the EU-wide Bank Recovery and Resolution Directive and is part of the wider banking union measures across the currency zone, intended to provide greater protection from financial shocks.

A Single Supervisory Mechanism has already been introduced, and the SRM now sets out the steps to be taken when participating banks get into difficulty.

It provides a Single Resolution Fund, which contains contributions from banks themselves, and a Single Resolution Board to prepare for and carry out the resolution of a bank that is failing or likely to fail. The board includes representatives from relevant national authorities as well as the European Commission.

The reform is expected to result in more uniform financing conditions for individuals and businesses as well as enhanced financial stability as crisis management for large, cross-border banks will be centralised.

Jonathan Hill, the European commissioner for financial stability, financial services and capital markets union, said the SRM bolstered protections for eurozone taxpayers as they would not be on the hook for future banking failures.

“The Banking Union already has the tools it needs to supervise the banks within the euro area,” Hill explained.

“As of 1 January, the Single Resolution Mechanism will now also be in place. This means that we now have a system for resolving banks and of paying for resolution so that taxpayers will be protected from having to bail out banks if they go bust. No longer will the mistakes of banks have to be borne on the shoulders of the many.”

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