EU bank resolution: certainty required Why do they do it? While most organisations make decisions during working hours, the EU likes to make critical decisions on banking in the small hours of the morning. Thursday's compromise over bank bail-ins is the latest example. First - more coffee please! - the good points. The bloc, via its finance ministers, is at least getting somewhere when it comes to sketching out what happens when a bank fails. The agreement makes it clear that deposits that are protected should, in fact, be protected and that losses should be imposed on creditors in order of seniority. That should prevent a repeat of the worst elements of the Cyprus fiasco. It also forces national governments to create resolution funds on top of deposit guarantee schemes. A good start. But, as with all compromises, this is not ideal and leaves plenty of uncertainty for both shareholders and creditors. Losses equivalent to 8 per cent of total liabilities would have to be covered by shareholders and the lowest rungs of creditors. After that, it is left to governments to decide whether to bail in more creditors, or use the resolution fund to cover further losses to the tune of 5 per cent of total liabilities. Governments also have discretion to exclude certain liabilities from bail-in if they see fit. All this flexibility threatens to leave creditors in limbo. Will they be bailed in? What losses do they face? How long will they have to wait for clarity? The rational response to such uncertainty is to demand a higher risk premium for lending to the bank in the first place. That, in turn, would increase the funding costs for banks. The requirement to put money into the national resolution fund would also dent profits. What the banking system really needs is certainty about what can be expected if there is a repeat of the financial crisis. The EU's late-night compromise fails to provide that.