EU Moves to Protect Financial System from Failing Banks

Bail ins and bail outs are back . Did they ever go away?

Rigged Game

Too Little, Too Late?

The European Commission gave its blessing to a plan proposed by Italian authorities to liquidate small troubled banks in Italy with total assets of less than €3 billion. Under the plan, as a failing bank is “resolved,” its assets and liabilities will be transferred to another lender under national insolvency proceedings.  When liabilities (including deposits) exceed the value of good assets (mostly loans), the gap would be dealt with by giving haircuts to unsecured creditors — including insured depositors who would then be made whole by the respective national deposit guarantee fund — and by mobilizing taxpayers.

The new resolution plan will be available not only to Italy. Each Eurozone member state will have the option to “set up schemes to support the orderly exit of small failing banks, adapted to the conditions in each market.”

Italy, like many other EU countries (including France, Spain and Germany), has 

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