When Cyprus' government announced it would levy and then later, just simply appropriate monies in bank deposits and investor holdings, many people in Europe were aghast. How could the state just simply take what people had worked so hard for when the mistakes in banking were due to none of their fault?
But at the time, most Europeans felt sheltered or secure in the notion that this kind of pillage was only going to happen to Cyprus.
Now however, the European Union agreed to do much of the same to any EU country whose banking system is experiencing failure or is near it. And that spells trouble for wealthy investors or savers in the EU union.
The EU principals are saying that this measure is due to taxpayer funded bailouts that have sparked protest.
What the EU has proposed in short is that banks should be saved by the people who have either invested in it, or have savings in it. Those people who have more than 100,000 Euros (132,000 dollars) in their accounts will bear the cost of salvaging the banks. They propose that such harsh measures will prompt a more regulated and honest banking system.
They are saying that the move will also shield taxpayers. But also to curb the ever increasing appetite for EU funds to save banks. Since 2008, almost one third of the economic output of the EU has gone to save banks.
The rules, which will take effect in 2018, will force banks to distribute their losses up to 8% of the bank's liabilities.
Late next year, the whole banking picture in Europe will change: the EU central bank will take over the supervision of the the Euro zone banks. At that point, the banks will come under the scrutiny of the EU. Those banks who are weak will probably be closed or wound down.
The only obstacle to the implementation of the central bank's new plan is Germany, who is not so keen to agree to surrender of power in banking matters, completely to the central banking authorities.
Source : bloomberg/ 6.27.13
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