EU calls for clearer regulations for bank rescues

A European Union official said there needs to be clearer rules on how to deal with collapsing banks and their rescue in order to prevent “perceived inequality”.

According to the head of the EU's Single Resolution Board, the concerns had been triggered by cases such as the €3.6bn rescue of Germany’s Nord LB.

The agency, which is headed by Elke König, was created five years ago in the wake of the Eurozone financial crisis to tackle a patchwork of national rules for bank bailouts.

Yet the Financial Times reported that the latest stream of cases had stoked worries that the resolution framework might not be fit for purpose.

König acknowledged there was a “perceived inequality of treatment”. She called for more clarity regarding national regulators and when they could use deposit-guarantee-schemes to save their banks.

Such rules would set out a hierarchy of when using deposit schemes was the lowest-cost action and preferable to allowing banks to be wound down under the SRB’s regime.

Regulators were also demanding that banks issue debt that can be converted into equity on an institution’s balance sheet if it is under pressure so there is a lower burden on taxpayers in any rescue.