In an effort to offer greater protection to investors and depositors in the European Union, the EU executive has proposed a major increase in the guaranteed payout for bank account holders if their bank collapses.
The EU wants banks to better guard depositors' money
The European Commission on Monday unveiled a proposal to better protect depositors by raising the maximum guarantee in case of bank or investment group failures.
The proposal would double the maximum payout to 100,000 euros ($126,000) for bank account holders, and would more than double the payout in cases of fraud, malpractice or operational errors, to 50,000 euros. It would also shorten the deadline for the payment to one week by the end of 2013, down from the current three months.
The EU's financial regulation commissioner, Michel Barnier, said the plan was the latest attempt to bring "transparency and responsibility to Europe's financial system."
"We are not talking about offsetting the risk of the investment itself but we want to protect them against fraud, negligence and sometimes just mere incompetence on the part of those [to whom] they have entrusted their money," Barnier said.
Incentives against risk-taking
Barnier said the plan would bring 'transparency and responsibility'
In order for the proposal to be adopted, both the European Parliament and all 27 member states must approve it - an often long and drawn-out procedure. EU officials say if adopted, the plan would cover 95 percent of all EU bank account holders.
In order to ensure the resources for the increased payouts, a separate plan by the commission would require banks to pay up to 1.5 percent of their eligible deposits to national "deposit guarantee schemes," which essentially provide insurance against bank failures.
The amount paid to deposit guarantee schemes would depend on a bank or investor's risk-taking, meaning more conservative financial institutions would be rewarded for their financial prudence.
"We want to preempt systemic risk," Barnier said. "No sector in the financial market should be exempt from supervision and intelligent regulation."
Author: Andrew Bowen (AP/Reuters/dpa)
Editor: Martin Kuebler