EU Lawmakers Reach Agreement on Bank Failure Rules

European lawmakers have reportedly reached an agreement on how to manage failing banks.

As the Financial Times reports, the deal was reached late Tuesday (June 24) between European Union (EU) nations and the European Parliament, and updates the EU’s crisis management and deposit insurance framework.

The deal marks “a significant step forward in our efforts to strengthen financial stability, protect depositors, and avoid burdening taxpayers’ money when banks fail,” said Maria Luís Albuquerque, EU commissioner for financial services.

According to the report, the agreement is aimed at making resolution procedures more predictable and applicable to small and medium-sized banks, which have often been wound down using national insolvency regulations rather than the EU’s tools.

“This important reform has the potential to enhance the current framework by providing more options for dealing with smaller and mid-sized banks in crisis,” said the Single Resolution Board, which oversees failing banks in the EU.

At the center of the agreement, the FT said, is the expanded usage of industry-backed protections that help cover the cost of protecting smaller banks. Now, these funds can be used to help when a bank does not have enough capital to absorb losses, thus preventing the need for state bailouts.

Still, the use of these funds would be subjected to rigid guidelines following pushback from countries like France and Germany, home to some of the bloc’s largest banks, which were against using safety nets funded by the industry.

The news comes two weeks after the European Commission (EC) — the EU’s regulatory body — said it would hold off on instituting new banking rules until 2027. The delay involves a regulation known as the Fundamental Review of the Trading Book (FRTB).

As the EC said in a news release, this rule “aims to introduce more sophisticated risk measurement techniques, allowing for a closer alignment between capital charges and the actual risks banks are facing in their capital markets activities.”

The announcement follows a report from last month that the commission would wait to implement the rules until it had more clarity from the U.S. on plans to relax financial regulations.

The FRTB is part of the Basel III regulatory package created following the global financial crisis, but yet to be put into practice by the U.S. or in Great Britain. Last year, the EC said it would wait until 2026 to adopt the rule, to offer other countries time to get caught up.

“Recent international developments have indicated further delays in the Basel III implementation by some major global jurisdictions,” the EC said. “Therefore, concerns regarding the international level playing field and the impact on EU banks remain high.”