EU finance ministers have reached a deal on how future bank rescues will be handled. The operative term is now "bail-in" rather than bailout: creditors and shareholders get hit first, and then depositors with holdings of more than the insured limit of 100,000 euros. That's right -- the recent rescue deal for Cyprus, which was absolutely positively not going to be a template for other countries, is turning out to be exactly that.
It can't be long before other countries adopt similar policies. Canada, for example, included provisions for a bail-in arrangement in its budget earlier this year, though details supposedly remain to be negotiated.
As I've written before, I don't have a big problem with this. The logic of setting limits on depositor protection insurance is surely that amounts above the insured limit are at risk in the event of a bank running into trouble. However, it was very clear at the time of the Cyprus deal that a lot of people were, or at least affected to be, unaware that holding deposits in a bank made them creditors. As and when the EU deal moves toward implementation -- which could take a very long time, as national governments now have to negotiate with the European Parliament -- expect a rising level of public indignation.
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