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EU Agrees On Bank Failure Rules To Avoid Bailouts

Europe has already had to deal with serious banking issues this year. Cyprus had to seek a rescue loan after it could no longer shoulder the cost of bailing out its banks.

An initial agreement with the island's European creditors and the International Monetary Fund sparked market fears since it exposed small savers with deposits under the 100,000 euro guarantee to losses.

The deal was rapidly overhauled, but holders of large deposits in some banks were forced to take harsh losses.

In the U.S., the Federal Deposit Insurance Corp.'s rules specify that deposits larger than $250,000 might have to take losses in case of bank failures.

The EU's new rules also foresee the establishment of national bank restructuring funds, which would eventually be merged into a European resolution authority, one of the banking union's three pillars.

Another part of the banking union will be centralized oversight of big banks anchored at the European Central Bank that is due to be operational next year. But the discussion on the third section, a jointly guaranteed deposit insurance, is only in its early stages.

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Follow Juergen Baetz on Twitter at http://www.twitter.com/jbaetz

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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