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An initial agreement with the island's European creditors and the International Monetary Fund sparked market fears since it exposed small savers with deposits under the 100,000 euro guarantee to losses. The deal was rapidly overhauled, but holders of large deposits in some banks were forced to take harsh losses. In the U.S., the Federal Deposit Insurance Corp.'s rules specify that deposits larger than $250,000 might have to take losses in case of bank failures, but Europe still lacks a common rule. The new rules being discussed Friday will also foresee the establishment of national bank restructuring funds, which will eventually be merged into a European resolution authority, one of three planned parts of Europe's banking union. Another part will be centralized oversight of big banks anchored at the European Central Bank due to be operational next year. But the discussion on the third section, a jointly guaranteed deposit insurance, is only in its early stages. "The banking union is built brick by brick," stressed French Finance Minister Pierre Moscovici. At their meeting, the finance ministers also rubber-stamped a seven-year extension of maturities on the bailout loans for Portugal and Ireland, granting the countries more financial leeway. On Thursday, the finance ministers of the 17 EU countries that use the euro agreed on broad guidelines on how to use the bloc's permanent bailout fund to inject fresh capital into ailing banks as a means of last resort to keep banks from failing. Enabling the 500 billion euro ($670 billion) rescue fund to shore up struggling banks directly is another long-promised building brick of the banking union.
Several finance ministers, however, have cautioned that despite a political agreement on the broad strokes for the new ESM mechanism, many details have yet to be hammered out before it can become operational. "Given the fact that these steps are not exactly taken at lightning speed, the banking union should be up and running just in time to prevent the next crisis but clearly too late to make a difference in the current crisis," said analyst Carsten Brzeski of ING bank.
[Associated
Press;
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