Bankers became figures of hate as the extent of the Global Financial Crisis became clear. In the public’s perception, their naked greed and unscrupulous practices were what triggered the crisis and their remuneration packages were seen by many as obscene. As the crisis gathered strength many nations were faced with unpalatable decisions to bail the banks out with funds from public coffers for fear that an even greater and deeper catastrophe would ensue if bigger banks were allowed to go to the wall.
The EU has tabled proposals to limit banker’s bonuses, but the practicality of the move in an international (global) market economy has yet to be seen. Financiers grumble that interference in the reward system for stars of the banking world could trigger an exodus to jurisdictions further afield or to locations within Europe which remain outside of the control of the EU, such as Switzerland or even Liechtenstein.
One move that the European Commission has put together which is designed to remove the risk of the financial burden of a future failing bank being placed on tax payers shoulders has just passed its final hurdle and been approved by the European Parliament. The decision will see the creation of a new European authority, the Single Resolution Mechanism (SRM) which will have the ability to restructure banks that find themselves in difficulty or wind them up entirely. The decision means that the financial risk involved in investing in a bank will be borne by its creditors and shareholders from now on – this is known as a “bail in”.
An EU baking union will be funded with €55 billion from Eurozone banks that could be used to rectify future banking problems by the injection of needed funds. Eurozone banks will be obliged to contribute to the funds and it will also be open to nations wishing to adopt the Euro at some stage. The UK will remain outside of the SRM system. The new rules will provide protection of deposits of up to €100000 in the event of a failure of a bank under SRM authority.