The European Union's Parliament today completed the biggest overhaul of the bloc's financial system since the introduction of the euro currency, passing laws to minimise the risk and cost posed by failing banks.
Lawmakers signed off on the creation of a European authority with the power to unwind or restructure failing banks, as well as a system that will see banks' creditors not governments take losses first when lenders fail. The approval came after months of tough negotiations between national governments and the parliament.
The new rules "put an end to the era of massive bailouts and ensure taxpayers will no longer foot the bill when banks face difficulties," said Michel Barnier, the EU Commissioner in charge of financial market reform.
Parliament also passed legislation that protects all deposits of up to USD 138,000 in case of bank failures across the 28-nation bloc.
The votes bring to a close an ambitious reform program launched in the wake of the 2008-2009 global financial crisis. Because of the crisis, European governments pumped some USD 830 billion into saving ailing banks, according to EU figures.
The EU in particular the 18 countries that use the euro has focused on creating a so-called banking union, a set of new institutions and rules meant to prevent another crisis by making the financial system more resilient and improving oversight.
The euro currency, used by some 330 million people, was introduced in 2002 but its financial system remained a patchwork governed by different national rules, a situation that proved unworkable during the financial crisis.
"Tuesday's votes are a huge step," said Bert Van Roosebeke of the Centre for European Policy, a Germany-based think tank. "But now the decisions will have to be implemented, the work isn't over."
Starting in November, the European Central Bank will directly supervise the eurozone's biggest lenders with binding powers over national authorities. A separate authority will have the power and funds to dissolve or restructure any failing banks.
The parliament's approval of that authority in a 570-88 vote with 13 abstentions marks the final step in building the banking union.
The authority, called single resolution mechanism, will have a USD 76 billion fund at its disposal, financed by bank levies, enabling it to handle cross-border bank failures from 2016 onward.
Some, however, question whether the fund's firepower will be sufficient to handle serious banking crises.
