European Union finance ministers on Saturday put off a decision on new bank resolution and recovery rules till next Wednesday after negotiations lasting around 20 hours failed to produce an agreement.
Their meeting in luxembourg was intended to reach a deal on EU-wide bail-ins for failed banks — forcing losses on shareholders, bondholders and large savers rather than on taxpayers.
Since the outbreak of the financial crisis in 2008, taxpayers have been shouldering a major part of the bailout costs when banks failed.
Bail-in was applied for the first time in the three-year euro zone debt crisis when Cyprus had to close down laiki Bank, the country's second largest bank, in return for a 10 billion-euro financial rescue package, which was offered in March to avoid bankruptcy and to keep it within the single currency group.
Ireland's finance minister Michael Noonan, who chaired the meeting in luxembourg, said it broke up on differences between a group of countries calling for harmonised rules across the 27-nation EU and those demanding flexibility for member-nations to decide how to impose losses on their own terms.
The European Commission had proposed that the first to suffer should be shareholders of a failed bank, followed by bondholders and finally depositors holding more than 100,000 euros in their accounts.
The finance ministers made significant progress and differences over several key issues have been narrowed considerably, Noonan said as he left the conference venue.
"There are still core issues to be resolved. So we need a full meeting next week," he said.
EU nations, which are not in the euro, are demanding greater flexibility because they do not have access to the permanent bailout fund European Stability Mechanism (ESM), Noonan said.
But, several euro group nations showed understanding for the difficulties of the non-euro countries and are prepared to give them the flexibility they are seeking, he said.
"I am optimistic that we can make it," German finance minister Wolfgang Scheuble said at the end of the marathon negotiations.
Finance ministers of the 17-nation euro group on Thursday reached an agreement to bailout directly failing banks to prevent a crisis in the banking sector becoming a full-blown debt crisis.They set aside 60 billion euros from the ESM's 500 billion-euro fund to inject capital directly into failing banks.
Until now, the ESM and its predecessor the European Financial Stability Facility (EFSF) were allowed to bailout only national governments and if banks needed financial support, as in the case of Ireland, Spain and Cyprus, concerned governments had to make a formal request.