In a recent interview, Competition Commissioner Magrethe Vestager said it was “absolutely justified” for Italy to compensate investors who lost money in recent bank failures. “These are people who are being exploited, they’re being mis-sold, and here of course you have a situation where compensation is absolutely legitimate” Vestager said, referring to the bail-in of investors in Italy who had put savings aside for a rainy day in what they thought were regular savings accounts, but had in fact been mis-sold risky financial products by banks who subsequently failed.
Vestager has been criticised for her handling of the issue, as some in Brussels view compensation of shareholders of failed banks as a violation of European "bail-in" rules.
Commissioner Vestager follows the legal analysis of Professor Pierre-Henri Conac (University of Luxembourg), Member of the BETTER FINANCE Scientific Committee, who did not see any problem from a State Aid perspective and requested in a report on "Subordinated Debt and Self-placement. Mis-selling of Financial Products" to the ECON Committee of EU Parliament in June 2018 that: "bail-in and the protection of retail investors who were victims of mis-selling are not incompatible. Retail investors should be compensated for MiFID violations they suffered. The money should come from the financial institution responsible, and if it has been subjected to a resolution, from the resolution fund or the deposit guarantee schemes".
Whereas BETTER FINANCE agrees with the principle of ensuring that EU taxpayers don't end up footing the bill for bank failures, too many bail-ins across Europe have unjustly targeted non insider individual savers and investors, instead of the main responsible party (i.e. the top management). In many cases they were sold toxic products by banks who falsely guaranteed the safety of their savings. Over the years, retail clients and individual investors across the EU have lost their savings as a consequence of bail-ins to rescue failing banks such as Natixis, Bankia, Fortis, Dexia, Monte dei Paschi, Banco Popular and the leading Slovenian banks.
BETTER FINANCE asks the European Authorities again to urgently review the implementation of "bail-in" rules to ensure that the real insiders are all bailed-in first, ahead of non-insider creditors. Banking resolutions that don’t respect the rights of individual investors and depositors carry significant social costs.
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