The financial crisis which first exploded in 2008 triggered a contagious, vicious circle between the banking sector and the sovereign debt market whose negative effects weigh heavy on EU tax payers.  The response from the European Commission today was a proposal on Banking Crisis Management and Resolution.

By welcoming the long-awaited publication of this proposal, MEP Wolf Klinz (FDP, Germany) ALDE spokesperson on this dossier said: "It is an important step to complete all previously agreed and ongoing regulatory changes in the banking sector along with the general principle that no taxpayers' money should be used in case of any bank failure".

"With its proposal the Commission initiates the discussion how far creditors should participate in the losses of every bank within the all-new 'bail-in' measure, but the distinction between investors holding bonds and savers holding deposits has to be clearly made in the legislative process", pointed out Mr Klinz.

"The proposal refers in many places to Deposit Guarantee Schemes (DGS)", therefore he continued "we presume that we will be able to reach a quick agreement with the Council on the DGS Directive, which was not possible earlier this year. A parallel adoption of both dossiers seems to be the natural and desirable way for the European Parliament in the next months".

"It's a pity that the Commission didn't go one step further and suggest possible changes to the banking structure in the EU. It is vital that the European Parliament take its own position on that issue and assesses how important it is to have a harmonized EU-wide approach to the measures discussed around the 'Volcker Rule' and the 'Vickers Report'.  The current crisis shows clearly that at least the Eurozone should further integrate its banking sector including direct banking supervision and rescue measures".

Note to editors:
'Volcker Rule' aims to limit risky behavior within banks. Banks that take retail deposits would not be allowed to engage in proprietary trading that is not directly related to the market making and trading they do for customers. These banks would also be prohibited from owning or sponsoring hedge funds or private equity funds. (FT lexicon)
'Vickers Report' is the outcome of an independent Commission on Banking set up to review the financial sector after the crisis:
http://bankingcommission.s3.amazonaws.com/wp-content/uploads/2010/07/ICB-Final-Report.pdf