European Union finance ministers approved a plan Thursday for dealing with future bank bailouts, forcing bondholders and shareholders to take the hit for bank rescues ahead of taxpayers.
The new framework requires bondholders, shareholders and large depositors with over 100,000 euros to be first to suffer losses when banks fail. Depositors with less than 100,000 euros will be protected. Taxpayer funds would be used only as a last resort.
According to this new plan, bondholders will be the first to be required to “contribute” when a bank bailout is necessary.
Shareholders of the bank will be the next in line to get hit when a bank bailout happens.
After that, they will go after those that have more than 100,000 euros in their bank accounts.
EU officials say that such a plan is needed because bailing out banks with taxpayer money was creating too many problems…
I guess the precedent was set in Cyprus...