Prop up top banks, boost guarantees, fire managers, EU says (Roundup)
By Ben Nimmo Oct 7, 2008, 15:08 GMT
French Minister for Economy Christine Lagarde (R), European Monetary Affairs Commissioner Spanish Joaquin Almunia (C) and European commissioner for competion, Neelie Kroes (L) attend a news conference at the end of the Ecofin finance ministers council meeting in Luxembourg, 07 October 2008. EPA/CHRISTOPHE KARABA
Luxembourg - European Union states will prop up top banks which fall into crisis, more than double the level of guarantee they offer to individual savers and fire managers who lead their banks into trouble, the bloc's finance ministers agreed Tuesday.
'We will not tolerate a European Lehman Brothers,' French Finance Minister Christine Lagarde, who chaired the meeting in Luxembourg, said in reference to the US investment bank which filed for bankruptcy on September 15.
At the meeting, the finance ministers of the EU's 27 member states 'agreed to support systemic financial institutions' and committed to 'take all necessary measures to enhance the soundness and stability of our banking system and to protect the deposits of individual savers,' a joint statement said.
'Systemic financial institutions' are defined as those banks which play so large a role in the European financial system that their collapse would create major problems for other lenders.
But the decision on whether any particular crisis-stricken bank is system relevant 'will be taken case by case,' German deputy finance minister Joerg Asmussen said.
The pledge was accompanied by a warning to top bank managers not to expect lucrative pay-offs in the event of government help.
If a state bail-out is needed, 'existing shareholders should bear the due consequences of the intervention, the government should be in a position to bring about a change of management (and) the management should not retain undue benefits,' the statement said.
That call follows widespread public anger at the perceived role played by top bankers, some of whom are seen as having jeopardized clients' investments in pursuit of a quick profit.
Any future bail-outs should 'take care of the interests of the tax-payer and should make sure that those who are responsible for the problems we have met feel the consequences,' Lagarde said.
In a further bid to reassure citizens, the ministers agreed that they would more than double the minimum state guarantee for private bank accounts from the current 20,000 euros (27,200 dollars).
All member states will 'for an initial period of at least one year provide deposit guarantee protection for individuals for an amount of at least 50,000 euros,' the statement said.
Moreover, ministers also acknowledged that 'many member states determine to raise their minimum to 100,000 euros,' it added.
The political pledge comes as the EU's executive body, the European Commission, is working to update an EU law which sets the current legal minimum state guarantee at 20,000 euros.
The range of 50,000 to 100,000 euros reflects a heated debate between the EU's large, rich founders and some of its small, poor newcomers, officials said.
'For some small countries with much smaller economies and (financial) institutions, it's hard to have a threshold of 100,000 (euros). To paraphrase their argument, 'What seems big for you is giant for me',' Lagarde said.
The ministers also agreed on the basic principles which they should use in the event of future bank bail-outs.
That agreement comes after 10 days of bitter political debate between those member states which have jumped in to prop up banks, and those which have complained that such moves force them to boost their own spending or risk a catastrophic capital outflow.
'If all countries try to solve the (problem) one on one, one country's solution is the other country's problem,' Swedish Finance Minister Anders Borg said as the meeting opened.
After long debate, the ministers agreed that interventions should be 'timely', of short duration and 'watchful' of taxpayers' interests and should protect the 'legitimate interests of competitors.'
They should also avoid 'negative spillover effects,' such as might be caused if one national guarantee scheme sucked in deposits from another member state, the joint statement said.
In order to defuse further crises, the finance ministers went as far as swapping their mobile-phone numbers, officials confirmed.
EU heads of state and government are now set to discuss their reaction to the financial crisis at a summit on October 15. Finance officials will remain in 'daily contact' until then, ministers said.