It was to be one of the most important lessons from the financial crisis: In the future, make sure taxpayers don't have to foot the bill again, and that the banks' owners and creditors take the hit instead.
That's what German Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble had promised, and it also the principle expressed in the European Union Bank Recovery and Resolution Directive.
To ensure that creditor liability actually applies in an emergency, banks will soon be expected to keep a certain amount of capital available, capital that can be accessed easily in the event of a bank collapse.
Banks should be required to keep at least 8 percent of their total assets in reserve for this so-called bail-in capital, and in some cases significantly more than that. This, at least, is the view held by Elke König, executive director of the Single Resolution Board, the E.U. banking regulator. But whether Ms. König gets her way is far from certain.
She has powerful opponents. The large banks in the euro zone vehemently oppose the idea, as do two major European Union countries, France and Italy.
Handelsblatt has seen a document both countries have submitted to the E.U. arguing that banks should have to adhere only to the less onerous conditions asked for by the Financial Stability Board, an international body that monitors the global financial system.
The document argues that is completely sufficient for banks that are considered too big to fail to adhere to the recommendations of the global Financial Stability Board when it comes to creditor liability.
According to the FSB, the bail-in capital should only amount to 6.75 percent of total assets, and only with banks that are considered too big to fail. Now Italy and France want the same rule to apply in the euro zone, as well. "Any additional requirements" should only apply "in exceptional cases," reads the French-Italian document.
In pursuing this proposal, the two countries are trying to take advantage of a legal gray area. The E.U. Bank Recovery and Resolution Directive, adopted in 2013, only stipulates in principle that the owners and creditors of banks must contribute at least 8 percent of total assets to the costs of a bank failure.
But an implementation regulation is first needed to specify exactly how this would work. European Commissioner for Financial Stability Jonathan Hill submitted a draft implementation regulation more than a week ago.
The wording of the legislative act is extremely vague. In particular, Mr. Hill refrains from setting a lower limit for bail-in capital – against the declared will of the London-headquartered European Banking Authority. With his draft regulation, Mr. Hill made significant allowances for banks.
The socialist finance ministers of France and Italy are doing their major banks a favor. Sven Giegold, German MEP. Green party
This makes things even more difficult for Ms. König, because she cannot invoke a concrete number in an E.U. legal directive. It also makes it easier for affected banks to go to court over the Single Resolution Board's guidelines.
The French and Italian finance ministers are now trying to reword Mr. Hill's legislative act for the benefit of the financial industry. They want bail-in capital of 6.75 percent of total assets to become the rule for major banks, and they are also demanding an upper limit of 8 percent of total assets. In contrast, Ms. König has announced that the minimum requirement for own funds and eligible liabilities (MREL) must be "significantly above 8 percent" for various banks.
France and Italy also want to prevent banks from being required to specify in advance which bondholders would be asked to pay up at what point, in the event of a bankruptcy. But this hierarchy of creditors is necessary to avoid a panic in the event of an emergency, and to ensure that creditors are paid off in an orderly way, say experts.
German members of the European Parliament view the dispute with growing concern. "The socialist finance ministers of France and Italy are doing their major banks a favor," said the Green Party's Sven Giegold. He called the two ministers' working document a "shot in the foot of Elke König."
Jakob von Weizsäcker, a member of the European Parliament for the center left Social Democrats, was similarly critical, saying: "For the banking union, it's a question of credibility that the eight-percent creditor liability is not only written into law, but is also feasible in an emergency."
Ruth Berschens heads the Handelsblatt Brussels bureau. To contact: [email protected]