Politicians from around the world seem to have absorbed the subliminal message that the general public is none too happy to bail out “fat-cat” bankers from the public purse, in the aftermath of the Global Financial Crisis. In the public’s mind, the crisis was caused by the greed of the financial sector in the first place. This, in part, has led to structural reforms in the banking sector around the world to reduce the risk-taking appetite of the banks and ensure that they have the financial assets in place to deal with any likely future crisis themselves, or that authorities have the power to wind-up failing banks to avoid the dreaded “contagion”.
Many analysts and politicians believe that the long-term survival and growth, as an international reserve currency, of the Euro will require increasing banking union across the 17 member block (which will expand to 18 when Croatia adopts the single currency in the New Year). A step towards this has been taken in Brussels with an outline accord to establish a fund in each Eurozone country to cover future bailouts to banks that must be funded by the banks themselves.
In principle, all individual bank accounts within the EU are protected on deposits up to €100000. The new fund should provide added protection to individuals by making calls on deposits the lowest in the pecking order, even if their holdings are above the threshold. Banks that indulge in “riskier” investment strategies would be required to deposit greater levels of deposits in the national funds. The funds must be set up by 2016, if the proposal passes all of the remaining legislative hurdles, of course.
EU Commissioner Mr Barnier issued a statement which noted: "With these new rules in place, massive public bail-outs of banks and their consequences for taxpayers will finally be a practice of the past." One would hope that the banking sector was already taking note of lessons to be learned from triggering the deepest recession since the Great Depression, but a better lock on the stable door is always reassuring – even if the horses have already been munching the neighbour’s pasture for quite some time!