EU states set common rules to face bank crisis
EU finance ministers have
decided to raise minimum bank deposit guarantees across all
27-strong bloc and to take co-ordinated action to save financial institutions in a bid to calm ordinary people and markets amid the financial crisis.
"We agreed that all member states would, at least for one year, provide deposit guarantee protection for savers of at least €50,000, while noting that many countries are determined to raise their minimum to €100,000," announced French finance minister Christine Lagarde after a heated debate on Tuesday (7 October).
Currently, the EU's threshold for securing private bank accounts is €20,000, but after Ireland moved to fully guarantee the deposits of clients of the country's banks, a move subsequently copied by Greece and later by Germany, other capitals are under pressure to follow suit.
"There was a general fear that member states could start competing with each other over who will offer better deposit guarantees," one diplomat commented, adding that both Dublin and Berlin had to give some explanations during the two-day gathering.
Originally, ministers were contemplating the setting of a minimum threshold of €100,000, but some smaller countries refused to accept such a jump from the current limit.
"To paraphrase what someone said: 'What looks big to you, looks enormous to me'," explained Ms Lagarde - chairing the meeting on behalf of the French presidency. She maintained that the compromise reached would "take account of this diversity among member states."
The finance chiefs also agreed on a list of principles that they want followed when trying to save "systematically relevant financial institutions."
They suggested that the government rescue scenarios should be decided on the national level but co-ordinated with other EU member states and bodies, stressing that these state interventions should be "timely" and "temporary", with the existing shareholders of the failing banks having to bear the consequences.
"We will take measures, including recapitalisation, and we're very specific in what we say," said Ms Lagarde, adding that the European Commission will set down recommendations based on the ministerial meeting to specify under what conditions governments can inject capital to the key financial bodies.
Ministers hope that the move by states to acquire stakes in the banking sector will boost confidence between financial institutions and convince them to start lending money to each other.
UK and Spain pump billions into banks
Meanwhile, governments continue to seek specific national measures to save their banking sector.
On Wednesday, British finance minister Alistair Darling announced details of a €65 billion (?50 bn) rescue package that will initially make the extra capital available to eight of the UK's largest banks and building societies, the BBC has reported.
The money is to be used to bolster the country's banking sector following a serious plunge in shares this week, while in return for the funding, the government will receive preference shares in the reinforced institutions.
As part of the package, a further €260 billion (?200bn) will be made available by the Bank of England for short-term borrowing to provide liquidity to banks and building societies.
British Prime Minister Gordon Brown is later today expected to describe the full list of extraordinary measures as a "bold and far-reaching" solution, which will go "to the heart of the problem", according to BBC.
Spain announced a similar plan on Tuesday (7 October), saying it would set up a €30 to 50 billion emergency fund to provide liquidity to the financial system by buying Spanish bank assets.
The fund, whose details are to be hammered out during a regular cabinet meeting on Friday (10 October), will be managed by the Spanish treasury to buy the assets of financial institutions, the Financial Times reported.
"Credit makes the economy work. Without credit, there is no investment. And without investment there is no economic activity today, nor growth or job creation tomorrow," said Prime Minister Jose Luis Rodriguez Zapatero.