Europe unveils plans to close down failing banks

FAILING banks could be closed down by regulators under plans unveiled yesterday by the European Commission.

The blueprint would allow a new European Union-wide watchdog to intervene aggressively if it saw a bank in danger, allowing it to sack management, ban shareholder dividends or order emergency sales of assets or operations.

It would pave the way for authorities to force the closure of a bank in trouble if its financial cushion began to look dangerously threadbare, similar to ideas touted by Germany as an insolvency procedure for countries.

European commissioner Michel Barnier said: "The shareholders and creditors will be on the front line, not the taxpayer. No bank should be too big to fail."

Designed to prevent a repeat of crises such as the near-collapse of the Irish banking system, the reform would break a taboo on establishing a procedure to wind down weak lenders.

Fearing that shutting troubled banks or other financial firms might lead to a repeat of the turmoil that followed Lehman Brothers' failure, European countries have pumped billions into the financial system as credit markets froze.

This sparked a debate about how to prevent a repeat of the situation where European countries had to commit the equivalent of almost one-third of their economic output to prevent the banking system toppling.