This week Europe has signaled that large bank depositors would be shouldering some of the cost of bank bailouts in the future, after savings accounts with balances of more than 100,000 euros became targeted in the rescue package for Cyprus.
That helped share prices in banks to plummet and pushed spiked the insuring of bank debt in case of default.
On Monday, the head of finance ministers from the euro zone, Jeroen Dijsselbloem said that the currency bloc in the future should first ask its banks to recapitalize on their own, then look to their bondholders and shareholders and finally if it is necessary to uninsured deposits.
In bailout packages previously, such as in Greece, Portugal, Spain and Ireland leaders were not willing to force losses on senior bondholders or depositors fearing it could prompt depositors to leave the banks throughout the region.
However, under new regulations in the European Union, senior bondholders bear some of the cost of bank bailouts in the future, but that new provision will not go into effect until 2015.
Banks in Spain and Italy, two countries in the center of the financial crisis in the euro zone, were amongst the banks that dropped the most with Spain’s BBVA and Unicredit down more than 2%. Banca Carige, the regional lender from Italy dropped by more than 3%.
Those that criticize the action in Cyprus said a link had been reestablished between weak sovereigns and weak banks that could scare off depositors, even though others called the act well overdue.
