July 28, 2017 / 4:08 PM / 7 hours ago
EU explores account freezes to prevent runs at failing banks
BRUSSELS
(Reuters) - European Union states are considering measures which would
allow them to temporarily stop people withdrawing money from their
accounts to prevent bank runs, an EU document reviewed by Reuters
revealed.
The move is aimed at helping rescue
lenders that are deemed failing or likely to fail, but critics say it
could hit confidence and might even hasten withdrawals at the first
rumors of a bank being in trouble.
The
proposal, which has been in the works since the beginning of this year,
comes less than two months after a run on deposits at Banco Popular
contributed to the collapse of the Spanish lender.
It
also come amid a bitter wrangle among European countries over how to
deal with troubled banks, roughly a decade after a financial crash that
required the European Central Bank to print billions of euros to prevent
a prolonged economic slump.
Giving supervisors
the power to temporarily block bank accounts at ailing lenders is "a
feasible option," a paper prepared by the Estonian presidency of the EU
said, acknowledging that member states were divided on the issue.
EU
countries which already allow a moratorium on bank payouts in
insolvency procedures at national level, like Germany, support the
measure, officials said.
"The desire is to
prevent a bank run, so that when a bank is in a critical situation it is
not pushed over the edge," a person familiar with German government's
thinking said.
To cover for savers' immediate
financial needs, the Estonian paper, dated July 10, recommended the
introduction of a mechanism that could allow depositors to withdraw "at
least a limited amount of funds."
Banks, though, say it would discourage saving.
"We
strongly believe that this would incentivize depositors to run from a
bank at an early stage," Charlie Bannister of the Association for
Financial Markets in Europe (AFME), a banking lobby group, said.
The
Estonian proposal was discussed by EU envoys on July 13 but no decision
was made, an EU official said. Discussions were due to continue in
September. Approval of EU lawmakers would be required for any final
decision.
Insured Deposits
The
plan, if agreed, would contrast with legislative proposals made by the
European Commission in November that aimed to strengthen supervisors'
powers to suspend withdrawals, but excluded from the moratorium insured
depositors, which under EU rules are those below 100,000 euros
($117,000).
Under the plan discussed by EU
states, pay-outs could be suspended for five working days and the block
could be extended to a maximum of 20 days in exceptional circumstances,
the Estonian document said.
Existing EU rules allow a two-day suspension of some payouts by failing banks, but the moratorium does not include deposits.
The
Commission, which declined to comment on the discussion, had previously
excluded insured deposits from the scope of the moratorium tool fearing
it "may have a negative impact on market confidence," according to a
press release published in November.
Many
states supported a suspension of payouts only during the so-called
resolution of a failing bank - the process which imposes losses on
lenders' investors and possibly also uninsured depositors, while
preserving the continuity of the banking activities, the document said.
Most countries opposed bolder plans for an early moratorium.
Additional reporting by John O'Donnell in Frankfurt; Editing by Richard Balmforth and Alexander Smith
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