EP Approves Stronger Rules For Managing Failing Banks Across Bloc
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EU lawmakers have approved new rules aimed at strengthening how failing banks are managed, extending protections to a wider range of institutions and depositors across the bloc.
The proposed framework seeks to ensure that bank failures can be handled in an orderly way, minimising disruption to the economy while safeguarding public funds. Central to the reform is an expansion of the EU’s resolution regime, the system used by regulators to restructure or wind down troubled banks without triggering broader financial instability.
Under the new rules, the resolution framework will be extended to include small and medium-sized banks where their failure is deemed to be in the public interest. Until now, the focus has largely been on larger, systemically important institutions.
The changes are also designed to reinforce depositor protection. While the standard EU guarantee of €100,000 per depositor, per bank will remain in place, additional safeguards will be introduced for specific types of deposits. These include funds linked to real estate transactions, such as property sales, which could be protected at significantly higher levels,ranging from €500,000 up to €2.5 million, depending on the circumstances.
Retail customers, as well as micro, small and medium-sized enterprises and smaller public authorities such as local councils, are set to benefit most from these enhanced protections, provided that they are not classified as professional investors.
EU policymakers say the reforms aim to reduce reliance on taxpayer-funded bailouts by ensuring that losses are absorbed in a more structured and predictable manner, while maintaining confidence in the banking system.
The move comes amid broader efforts to complete the EU’s banking union and strengthen resilience following past financial crises, where bank failures had significant spillover effects on public finances and the wider economy.
In Malta, the Depositor Compensation Scheme (DCS) has been activated only once since its inception. Following the suspension of Nemea Bank’s licence in 2017, the scheme was triggered to provide payouts to eligible depositors. According to the MFSA, a stress testing exercise conducted in accordance with the EBA regulations, simulated repayment scenarios, cross-border cooperation and insolvency proceedings, thus confirming the Scheme’s resilience and operational effectiveness.
