The European Union has agreed new regulations that will permit deposits of more than €100,000 to be bailed-in in future bank failures, though governments can request that certain categories of creditors be excluded.

The new rules, which will come into effect in just over two years, were agreed in the early hours of yesterday morning in Strasbourg.

They oblige banks to follow a set hierarchy of creditor “bail-in” up to the value of 8 per cent of a bank’s total assets, before any government money can be used to save a bank.

Under the agreed hierarchy, shareholders and other forms of equity will be first hit, followed by subordinated debt, senior bondholders, and unsecured depositors – ie deposits of more than €100,000. However, certain classes of deposits, such as SME deposits and individual depositors will be last in line. Deposits under €100,000 will be protected.

According to the agreement, a member state could lodge a request with the European Commission to exempt certain creditors from bail-in “on an exceptional and case-by-case basis”, though the commission has the right to object.

EU experts in Brussels yesterday said states would have flexibility “within categories”, depending on the specific funding structures of their banks. Officials denied the flexibility would create uncertainty for markets, pointing out the current status-quo provided for no certainty, as evidenced by the case of the Cyprus bailout.

The new legislation, known as the Bank Resolution and Recovery Directive, also permits countries to tap the EU’s resolution fund up to a maximum of a further 5 per cent of the bank’s assets if needed.

Under separate but connected plans for a single EU-wide resolution authority, which was discussed by finance ministers earlier this week, each EU member state will contribute to a resolution fund. The fund will be built up through bank contributions over 10 years, equivalent to 1 per cent of the covered deposits of the banks in that state. These national resolution funds will sit in a single, Brussels-based, resolution fund, which will gradually be “mutualised” over the 10-year period.

The single resolution authority, known as the single resolution mechanism (SRM), will effectively implement the directive rules that were agreed yesterday morning between the European Parliament and EU member states, as well as manage the single resolution fund.

Agreement is hoped to be reached on the SRM at a meeting of finance ministers next Wednesday ahead of a two-day summit of EU leaders. Both the SRM and the related directive are expected to be effective from January 1st, 2016, two years earlier than had been initially expected.

Also included in the agreed directive is a provision for “preventative recapitalisation”, a contentious clause opposed by some MEPs, which will allow countries to intervene before a bank collapses if a country perceives problems in advance. Officials stressed that this will only be permitted in “extreme cases and if no private alternative is viable”.