Osborne warns that EU depositor rules could skew incentives

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Chancellor George Osborne is one of the voices debating at a meeting of EU EcoFin ministers today. Talking on proposed bank bail-in rules, the chancellor has warned that special protections for uninsured depositors would mean that senior bondholders would simply switch to deposits. They would be able to game the hierarchy, skewing incentives and allow them to get around the new rules. He noted that nowhere else in the world has this been done successfully.

Osborne also said that building a deposit insurance fund could take decades, if it could even reach the require scale, as a huge sum would be required in the UK. As such his stated preference is for a bank levy in order to make the industry pay.