Account holders in the European Union who are faced with a run on their bank would get their money back within a week under a draft EU law published on Monday to protect consumers in the wake of the global crisis.
The European Commission's proposals are intended to restore investor confidence, shattered by the worst financial crisis since the 1930s, during which household savings were whittled away and governments were forced to shore up banks.
We don't want to await a new Madoff case in Europe to better protect investors, EU Internal Market Commissioner Michel Barnier told a news conference.
We are not talking about offsetting the risk of the investment itself but we want to protect them against fraud, negligence and sometimes just mere incompetence on the part of those (to whom) they have entrusted their money.
Some of the changes proposed by Barnier seek to plug the sorts of gaps highlighted by Wall Street fraudster Bernard Madoff, who swindled investors out of billions of dollars through a worldwide scam that he ran for decades.
Account protections would be extended beyond individuals to safeguard small company accounts for the first time, a step EU small business lobby UEAPME said would help restore the sector's confidence in the banking system.
The proposals are part of wider EU efforts to introduce brick by brick, week by week all the reforms pledged by the Group of 20 countries, which includes the European Union, to learn from the financial crisis.
Highlighting the complexity of introducing such reforms across the 27-country bloc, one planned EU measure to centralize the supervision of banks, insurers and markets is deadlocked because of British opposition to giving the EU supervisory authorities powers over national regulators.
Barnier said talks on that measure were in the final straits but the new bodies must be credible and effective.
The new authorities will not replace the existing national structures, he said.
WARNING FOR BIG COMPANIES
Barnier proposed toughening EU rules that protect bank account holders and retail investors.
He also opened a public consultation on improving how insurance policy holders are safeguarded.
EU states and the European Parliament have the final say on the proposals, which seek to entice investors to save for their retirement and avoid taxpayers having to bail out banks again in any future crisis.
If approved, national deposit guarantee schemes would have to reimburse bank account holders up to 100,000 euros ($126,000) per account per bank from the end of 2010.
This doubling of minimum compensation levels would cover 95 percent of all EU bank account holders.
From the end of 2013, customers would get their deposits back within seven days, compared to three months at present.
Barnier said the plans would not jeopardize voluntary guarantee schemes already in place at savings banks in some EU states like Germany and Austria.
The European Insurance Federation (CEA) said Barnier's idea that the industry could contribute to national schemes to fund potential insurer insolvencies could be disproportionate.
As demonstrated during the recent financial turmoil, the risk of insurer insolvency in the EU is low, CEA said.
Barnier also warned big companies that use derivatives to shield themselves from adverse currency moves and other risks that they would not escape separate new rules he will propose in September.
Carmakers and other big industrial firms fear that hedging will become too expensive under the new rules.
What I would say to the corporate sector... is that transparency applies to everybody, including you. We want to pre-empt systemic risk... We need to find a balanced system so you can continue with your activities, he said.