EU Commission pushes for new rules for bank failures

Following turmoil in the banking sector in the US and Switzerland, last month the European Commission proposed an update to the EU’s bank crisis management and deposit insurance frameworks.

The latter establishes a resolution system for big banks that get into trouble and normal insolvency proceedings for smaller lenders. A bank resolution is used when authorities determine that a failing bank cannot go through normal insolvency proceedings without harming public interest and causing financial instability. 

The commission wants to make it easier for small and mid-sized banks to go into resolution. The European institution is also asking that more of the bank’s own funds and industry-funded deposit guarantee schemes be used in case of a resolution process. 

Meanwhile, last month the European Banking Authority announced that the amount of deposits protected by EU deposit guarantee schemes (DGS) increased by 2.5% from 2021 to 2022.

The Deposit Guarantee Schemes Directive was enacted in 2014, guaranteeing deposits up to €100,000 per depositor. 

The directive also set July 2024 as a deadline for member states to reach the minimum target level, which in most cases is 0.8% of covered deposits. Half of the countries in the European Economic Area have already reached the target.