EUROPE’S banking union was voted through by MEPs yesterday after two years of work on the plan to break the link between banks and their government’s finances.
The rules include a system of bail-in rules that aim to make investors pay for banks’ losses rather than the taxpayer.
And banks will have to create plans to manage their wind-down should they fail, instead of finding a solution once it is already too late.
The European Central Bank will regulate the largest banks in the Eurozone in an effort to make sure they are all treated in the same way.
Britain is not taking part in the scheme to make banks pay into a pot that can be used to cover the costs of winding down failed banks, as UK lenders already pay a banking levy to the government.
“By setting out common rules the aim is to facilitate cross-border resolutions,” said David Ereira from law firm Linklaters. “But how well this works in practice will be down to how the European and national supervisors and resolution authorities across the EU work together.”