The author is a Reuters Breakingviews columnist. The opinions expressed are his own.  European authorities have taken a decisive step in addressing their past banking crises. Whether their new set of rules to hit failed banks’ creditors and depositors will solve future ones is another matter.  The compromise on a new resolution regime marks progress – if only because it will apply throughout the EU, give banks and markets the visibility they need, and ensure that public funds only get tapped as a last resort whenever disaster strikes. Beyond that, the EU and its banks are entering unchartered territory.  The basic rule at the centre of the Commission’s initial proposal has survived months of negotiations between member states: at least 8 percent of a bank’s assets have to be wiped out before money from bank-funded resolution funds can be used – and then, only up to a maximum of 5 percent of the bank’s balance sheet. That would cover most recent European banking crashes.  The deal also gives national authorities some needed flexibility. First they could exempt certain creditors – under the control of the European Commission. Second, they could use public money in the form of “precautionary recapitalisation”, if the problems stem from a systemic crisis and not any bank’s individual situation. That would also be subjected to Brussels’ approval.  The new bail-in regime will now apply from 2016, two years before the deadline mooted back in June. Within the monetary union, that limits the time when richer states might have to pay to avoid bank collapses in weaker countries. But it remains unclear how the euro zone will implement the rules within its fledging banking union. A final deal may be struck next week on how a new resolution authority will function.  The whole structure may have the beauty of 17th century French formal gardens, but isn’t as crisis-proof as the fundamentalist school of regulation pretends. The new rules’ impact on banks’ funding costs, although not as dire for now as predicted, is still unknown. Putting depositors – even uninsured ones – on the official hit list opens a dangerous precedent. Finally, on principle, whether debt should be asked to absorb macro uncertainty is at least arguable.  At least one of the goals of a new resolution regime should be to contribute to financial stability. On that matter, the jury is still out.
European authorities have agreed to force losses on creditors of failed banks from 2016, in order to spare taxpayers the full cost of bailouts. It gives resolution authorities useful flexibility. The new regime isn’t without risks. At least banks and markets now know the rules.