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EU takes crucial step on bank deposit guarantee system

BRUSSELS--The EU took a step Tuesday toward a new bank regulatory framework after the European Parliament reached a political accord with EU leaders on how to fund a deposit guarantee system.

Bank deposits under 100,000 euros (US$137,000), which governments have pledged to protect since 2010, will now be covered by funds set aside by the banks themselves, a Parliament statement said.

As a result, the taxpayer will no longer be called on to help a problem bank, whose future will be settled through an overall EU “Banking Union” framework being negotiated to supervise, restructure and if necessary close failing lenders before they damage the wider economy.

EU Financial Markets Commissioner Michel Barnier, who first mooted the idea three years ago, welcomed the move as increasing protection for savers and as another “important step to financial stability.”

A deposit guarantee system is the third pillar of the Banking Union after an already agreed Single Supervisor Mechanism and a Single Resolution Mechanism, currently being discussed.

The Parliament said the agreement reached with the Lithuanian European Union presidency requires each member state to set up a guarantee fund worth 0.8 percent of all its covered deposits within 10 years.

Depositors will be able to get their money within seven working days, it said, an improvement on the previous suggestion of 20 days.

“This is a good day for the taxpayer and for depositors,” said Peter Simon, the Social Democrat MEP who led the negotiations for the Parliament.

“We have further severed the link between taxpayers and banks, and depositors will be able to receive their money more quickly,” Simon said.

The central aim of the Banking Union is to ensure that it is the banks themselves who fund bailouts, rather than the taxpayer who has so far put up hundreds of billions of euros to rescue problem lenders.

Banks will contribute differently to the deposit fund according to their risk profile, with those exercising riskier activities contributing more, Parliament said.

The 17 eurozone finance ministers were meeting late Tuesday to thrash out final details on the SRM before meeting their 11 non-euro counterparts on Wednesday.

EU leaders meeting Thursday and Friday are then supposed to approve the result.

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