The European Parliament will demand that big savers take losses if their banks run into trouble, a senior lawmaker told Reuters, adding momentum to a policy unveiled as part of a Cypriot bailout.
Although some policymakers have sought to portray Cyprus and the losses suffered by depositors at two of its banks as a one-off, many experts believe it marks a dramatic change in tack in how Europe deals with troubled banks, to spare taxpayers who have been on the hook for previous bailouts.
Jeroen Dijsselbloem, head of the Eurogroup of euro zone finance ministers, said on Monday that in future, the currency bloc should first ask banks to recapitalize themselves, then look to shareholders and bondholders and then "if necessary" to uninsured deposit holders.
Now the likelihood is rising that tough treatment of big depositors will be written into a new EU law, making losses for large savers a permanent feature of future banking crises.
"You need to be able to do the bail-in as well with deposits," said Gunnar Hokmark, an influential member of the European Parliament, who is leading negotiations with EU countries to finalize a law for winding up problem banks.
The European Parliament has an equal say alongside EU countries when deciding who must bear the brunt of future bank failures such as those now being seen on Cyprus.
"Deposits below 100,000 euros are protected ... deposits above 100,000 euros are not protected and shall be treated as part of the capital that can be bailed in," Hokmark told Reuters, adding that he was confident a majority of his peers in the parliament backed this line.
The law, which will also introduce means to impose losses on bondholders, is due to take effect at the start of 2015. Germany wants provisions for bailing in bondholders and others in the same year, though that may be delayed.
The European Commission wrote the first draft of the law but left it to member countries and the parliament to decide whether and when savers should face losses, when a failing bank is being salvaged or shuttered. Earlier on Tuesday, it said only that such a step was possible.
Hokmark urged savers to check their banks' health before taking the risk of depositing money.
"If you put your money in Royal Bank of Scotland.. or Deutsche Bank, depending on how that bank is working you are taking a risk," he said. "You need to be aware that you are taking a risk.
"I want us to legislate in a way that makes investors aware of the risk," said Hokmark, adding that savers should be asking whether their bank is solvent. "The bail-in instrument is creating thousands and thousands of supervisory authorities."
Cypriot President Nicos Anastasiades agreed in a last-ditch deal to close down the second-largest bank, Cyprus Popular, and inflict heavy losses on big depositors, many of them Russian, after Cyprus's financial sector ran into trouble when investments in Greece went sour.
"The markets may be shocked but some principles have to be laid down," said one EU official, speaking on condition of anonymity, adding that it would be "unfair" for the new EU law to take a different approach to that used in Cyprus.