Euro zone governments agreed today to provide national credit lines of up to €55 billion to cover the costs of failing banks until there are sufficient contributions from banks in a special fund.
The national credit lines will be open from the start of next year.
They will be a backstop to the Single Resolution Fund (SRF) to which banks are to pay annual fees, and which at the end of an eight- year transition period is to have reached €55 billion.
The SRF is part of the euro zone's banking union, under which all big euro zone banks are supervised by the European Central Bank and all bank deposits are to be guaranteed up to €100,000.
"Member states participating in the banking union agree to put in place a system of bridge financing arrangements in order to ensure sufficient funding to the SRF during the transitional period," European Union finance ministers said.
"As of 2016, each participating member state will enter into a harmonised loan facility agreement with the Single Resolution Board (SRB), providing a national individual credit line to the SRB to back its national compartment in the SRF in case of possible funding shortfalls following resolution cases of banks of the Member State concerned," they said.
The ministers said that initially the maximum aggregate amount of the credit lines would be €55 billion - the amount that the SRF is to have once it its fully filled by bank contributions eight years from now.
The amount would be split between the participating governments in line with the amounts expected from the respective national banking sectors.
"The aggregate amount and the repartition key will be reviewed by the end of 2017 or earlier, if a non-euro area member state joins the banking union," the ministers said.
They said the national credit lines were to be drawn as a last resort, after all other financing sources are exhausted, which includes the bail-in of shareholders, junior and senior bonds holders and even depositors under the EU's Bank Recovery and Resolution Directive.
The SRF can also borrow money on its own, against the security of future bank contributions and that option has to be exhausted too before national credit lines are used.
"Such system of national credit lines will ensure the protection of taxpayers and will be fiscally neutral over the medium term, as the banking sector of the member state concerned will be liable for repayment of the amounts drawn under the credit line," the ministers said.
Eventually, the national credit lines are to be replaced by a common backstop, most likely the euro zone bailout fund, at the latest at the end of the eight-year transition period, the ministers said.