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EU nations agree to new rules on bank bailouts

STRASBOURG, France -- EU nations agreed new rules for bank bailouts or “bail-ins” late Wednesday, to save taxpayers from paying for the rescue of ailing financial institutions, an official said.

“Big step tonight,” EU Commissioner Michel Barnier wrote on Twitter. “Taxpayers (are) no longer in front line” to pay for banks' mistakes, he added.

“Banks will have to put money aside for rainy days. We are learning lessons of crisis,” he said after the agreement was reached by representatives of the European Parliament, the European Council — the EU's executive arm — and the 28 member states.

The aim is to make European banks stronger so that they “can lend to the real economy,” he added.

“This is a fundamental step towards the completion of the Banking Union,” Barnier said in a separate statement.

The new system will take effect from 2016.

The “bail-in” will primarily require important hits to be taken by shareholders and bond-holders of a financial institution in trouble.

Small depositors will be explicitly excluded from incurring any costs but depositors with more than 100,000 euros (US$137,000) could be affected, though lastly under a pre-defined hierarchy, the European parliament said in a statement.

For each member state a fund will be established which will come to the aid of banks in order to help them recover or to wind them down.

These funds will be built up through bank contributions and by 2025 should reach the level of one percent of the covered deposits of the banks in that country.

All banks will have to contribute but those contributions will be bigger for the banks that take the bigger risks, said Barnier.

However the deal does not exclude the possibility of public money being used “in exceptional circumstances,” the parliamentary statement said.

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