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EU finance minsiters agree on bank resolution rules


18:58, June 27, 2013

BRUSSELS, June 27 (Xinhua) -- European Union countries early Thursday agreed to establish a framework for the "recovery and resolution" of credit institutions and investment firms which are failing or likely to fail.

Michael Noonan, the Irish finance minister who chaired the ministerial meeting as holder of the EU's rotating presidency, made the announcement after a meeting of EU finance ministers.

The proposal is aimed at providing national authorities with instruments to pre-empt bank crises and to resolve any financial institution in an orderly manner in the event of failure, said a statement issued by the finance ministers.

Credit institutions would be required to draw up recovery plans, and update them annually, setting out the measures they would take to restore their financial position in the event of significant deterioration, the statement added.

Authorities would also have the power to appoint special managers to an institution if its financial situation deteriorates significantly or if there were serious violations of the law, according to the statement.

Noonan described the agreement, which is designed to preserve essential bank operations and minimize taxpayers' exposure to losses, as a "revolutionary change in the way that banks are treated."

After agreeing on the details of the resolution proposal, the finance ministers called on the EU rotating presidency to start negotiations with the European Parliament so that it can be adopted before the end of the year.

The agreement came hours before EU leaders meet later on Thursday to review progress on setting up a banking union, which was aimed at breaking the vicious circle between between weak banks and weak sovereigns.

EU countries have reached a deal to make the European Central Bank (ECB) as the single supervisor for eurozone banks next year, but other targets for establishing the banking union are yet be achieved.

Speaking to reporters after the meeting, German finance minister Wolfgang Schauble described the talks as "quite difficult and intense" and hailed the agreement as an "important step" in demonstrating that shareholders and creditors are "liable first and foremost."

The main resolution measures would include the sale of (part of a) business of the credit institution and the temporary transfer of good bank assets to a publicly controlled entity, said the statement.

The finance ministers have also agreed on the so-called "bail-in" measures, which would impose losses, with an order of seniority, on shareholders and unsecured creditors.

Insured deposits under 100,000 euros (about 130, 000 U.S. dollars) are exempt and uninsured deposits of individuals and small companies are given preferential status in the bail-in pecking order, according to the deal.

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