Germany’s cabinet Wednesday approved plans to force creditors into propping up struggling banks beginning in 2015, one year earlier than required under European-wide plans that set rules for failing financial institutions.
The new bail-in rules are part of a package of German legislation on the European banking union–an ambitious project to centralize bank supervision in the euro zone and, when banks fail, to organize their rescue or winding-up at a European level.
Germany “leads the way” in Europe by implementing European rules quickly and “creates instruments that allow the winding-down of big systemically relevant institutions without putting the financial stability at risk,” the country’s finance ministry said in its draft bill seen by The Wall Street Journal.
“This ensures that in times of crisis mainly owners and creditors will contribute to solving the crisis, and not taxpayers.”
European finance ministers agreed earlier this year on Europe-wide legislation on bank recovery and resolution, which sets a cascading hierarchy of investors who would be hit when a bank fails. These rules will come into force in 2016.
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