Parliament today discussed the transposition of an EU directive ensuring the orderly winding up of financial institutions.

Finance Minister Edward Scicluna explained that ever since the 2008 economic and financial crises, the EU has been working on numerous initiatives to reinforce the internal market and the integrity of financial institutions in Europe.

He said the directive will put a mechanism in place which will help prevent bailouts of financial institutions to the detriment of taxpayers.

The directive aims to introduce a rulebook for the resolution of banks and large investment firms in all EU member states. The new rules will harmonise and improve the tools for dealing with bank crises across the EU.

Banks will be required to prepare recovery plans to overcome financial distress. Authorities are also granted a set of powers to intervene in the operations of banks to prevent them from failing. If they do face failure, authorities are equipped with comprehensive powers and tools to restructure them, allocating losses to shareholders and creditors following a clearly defined hierarchy. They have the powers to implement plans to resolve failed banks in a way that preserves their most critical functions and avoids taxpayers having to bail them out.

They will also ensure shareholders and creditors of the banks pay their share of the costs through a "bail-in" mechanism.

The directive will also introduce an orderly winding up process for financial institutions that are no longer in a position to continue operating.

Shadow spokesperson for Finance Mario de Marco said the new mechanism will allow depositors to put their minds at rest, as it will allow financial institutions to restructure without their clients taking a financial hit.

Dr de Marco said that Malta’s profile as a financial hub has been raised ever since it joined the EU in 2004, and consensus has always been reached in Parliament when it comes to matter involving the financial sector. 

Winding up the debate, Professor Scicluna hit out at an article published last month in the Wall Street Journal, saying it had caused damaged to Bank of Valletta (BOV). 

The article reported that the Libyan government has instituted legal proceedings against the bank over its refusal to hand over funds owned by Mutassim Gaddafi, son of the former Libyan dictator Muammar Gaddafi.

The Finance Minister said that BOV had done nothing wrong in freezing Mr Gaddafi's assets. 

He also hit out at the Opposition for speaking in favour of political consensus yet attacking a number of economically important projects, such as the new power station and the American University of Malta.