ECOFIN Council takes action on financial turmoil and agrees 50,000 € deposit guarantee protection for individuals

The ECOFIN Council adopted on October 7th, their conclusions on the immediate responses to take to the financial crisis, along with four statements on the following subjects: financial stability and financial supervision, a coordinated EU response to the economic slowdown, executive pay, and the fight against tax fraud.

The ECOFIN Council considers that the priority is now to restore confidence and proper functioning of the financial sector. Ministers have agreed to support systemic financial institutions and commit to take all necessary measures to enhance the soundness and stability of EU banking system and to protect the deposits of individual savers.

In their analysis of the situations Ministers meeting within ECOFIN welcomed the Commission’s continued commitment to act quickly and apply flexibility in state aid decisions, within the framework of the single market and state aid regime. The Council welcomes the Commission’s commitment to shortly issue guidance setting out the broad framework within which the state aid compatibility of recapitalisation and guarantee schemes, and cases of application of such schemes, could be rapidly assessed.
The application of the Stability and Growth Pact should also reflect the current exceptional circumstances, in accordance with the provisions of the Pact.

Several Member States have recently increased the level of coverage of national deposit guarantee schemes, and the Council agreed that all Member States would, for an initial period of at least one year, provide deposit guarantee protection for individuals for an amount of at least 50,000 €, acknowledging that many Member States determine to raise their minimum to 100,000 €. The Council welcomed the intention of the Commission to bring forward urgently an appropriate proposal to promote convergence of deposit guarantee schemes.

EU authorities and Member States will remain in daily contact through the European Foundation Centre (EFC) in order to share information and ensure a comprehensive and coordinated response to the current situation and the continued effort to work on common principles, ahead of the European Council.

The Council welcomes in its declaration the actions taken by the European Central Bank (ECB) and the national central banks since the beginning of the turmoil. The liquidity of the financial system has to be be ensured by all authorities in order to preserve confidence and stability. They also reaffirm their call on financial institutions in Europe to achieve full transparency and will closely monitor the progress achieved in this regard.

It this context, Ministers agree in the need to coordinate closely Member States actions, and to take into consideration potential cross-border effects of national decisions. Moreover, public intervention has to be decided at national level in a coordinated framework.

To protect the depositors’ interests and the stability of the system, Council stressed the appropriateness of an approach including, among other means, recapitalisation of vulnerable systemically relevant financial institutions, and said to be prepared to act accordingly in this context.

The EU common principles agreed within ECOFIN Council are:

  • Interventions should be timely and the support should in principle be temporary.
  • EC institutions must be watchful regarding the interests of taxpayers.
  • Existing shareholders should bear the due consequences of the intervention.
  • The government should be in a position to bring about a change of management.
  • Management should not retain undue benefits, and governments may have inter alia the power to intervene in remuneration.
  • Legitimate interest of competitors must be protected, in particular through the state aids rules.
  • Negative spillover effects should be avoided.

The Council, should therefore ensure rapid cooperation within the EU, with reference to the Memorandum of Understanding, and in particular as regards cross-border financial institutions.

They also underlined in their statement, the necessity of avoiding any distortion of treatment between US and European banks due to differences in accounting rules, taking note of the flexibility in the application of mark to market valuation under International Financial Reporting Standards (IFRS) as outlined in recent guidance from the International Accounting Standards Board (IASB). ECOFIN strongly recommends that supervisors and auditors in the EU apply this new guidance immediately.

The Council also considers that the issue of asset reclassification must be resolved quickly. To this end, they urge the IASB and the FASB to work together on this issue and welcome the readiness of the Commission to bring forward appropriate measures as soon as possible, expecting that this issue will be solved by the end of the October, with the objective to implement as of the third quarter, in accordance with the relevant procedures.

This short term strategy is fully consistent with the framework established by the ECOFIN since October 2007, which aims at fostering transparency and responsibility within the financial sector, in coordination with our partners, notably within the FSF.