The European Parliament approved on Thursday, March 26, a set of rules that expand the protection of depositors and taxpayers in cases of bank failure, in an attempt to reduce the risks to economic stability in the European Union.
According to , the legislation will cover a greater number of banks, allowing more effective intervention by authorities in insolvency situations.
Priority for small depositors and SMEs
According to MEPs, the new legislation establishes that small depositors and micro, small and medium-sized companies will have priority in the reimbursement hierarchy in the event of the bankruptcy of a financial institution.
On the other hand, local public entities, such as municipalities or regional administrations, are positioned in the third level of protection, as long as they are not professional investors, according to the same source.
The general guarantee limit of €100,000 per depositor per bank remains, but certain deposits related to real estate transactions may benefit from additional coverage, ranging between €500,000 and €2.5 million, depending on the circumstances. This measure aims to ensure more robust protection in larger financial operations, adds Notícias ao Minuto.
Inclusion of smaller banks
The bank resolution framework also includes smaller institutions whenever their bankruptcy is considered to be in the public interest. One of the new features introduced is the gap-filling mechanism, which allows funds from the deposit guarantee scheme to be used to meet the minimum loss absorption requirement of 8% of liabilities and own funds.
This tool facilitates the orderly transfer of activities and guarantees depositors’ access to their funds, according to the same source.
Entry into force and application
The new rules will come into force on the 20th day after publication in the Official Journal of the European Union, and their application, with some exceptions, will take place within 24 months. The European Parliament emphasizes that these measures aim to reduce the impact of possible bank failures on taxpayers and national economies, creating a more stable environment for the financial sector.
According to the European assembly, these changes reflect a concerted effort to harmonize depositor protection across the EU and to provide national authorities with more effective tools for managing financial crises. The priority protection of small depositors and companies aims to reinforce confidence in the banking system, while the orderly intervention mechanisms seek to limit adverse impacts on taxpayers, according to Notícias ao Minuto.
The strengthening of bank insolvency rules comes in a context in which financial security is increasingly central to the European agenda, especially after crisis experiences in smaller institutions. With these measures, the European Union intends not only to protect depositors’ funds but also to ensure economic stability throughout the territory, concludes the same source.
The European Parliament hopes that these changes will contribute to a more resilient financial system and clearer and more homogeneous protection for all citizens and companies in the European Union, according to Notícias ao Minuto.
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