The European Commission yesterday launched proposals to strengthen banks and make sure that supervisory authorities have the tools to prevent and manage future banking failures.

The proposals, which have to be approved by member states and the European Parliament, will change the rules of the game in case of bailouts, so taxpayers are spared from having to save banks from insolvency, and instead put the onus on owners and shareholders.

European Commission president José Manuel Barroso described the rules as the first step towards the creation of an EU banking union, “which will make the banking sector more responsible”.

The Commission’s proposals are three-pronged and based on prevention, early intervention and resolution.

The Commission is proposing that all banks will have to draw up recovery plans setting out measures that would kick in if their financial situation deteriorates.

These will be accompanied by a resolution plan, prepared by the supervisory authorities, with options for dealing with banks in critical condition.

In case of serious trouble, a new set of tools will apply, forcing the failing bank to implement measures set out in its recovery plan, draw up an action programme and a timetable for its implementation, convene a meeting of shareholders to adopt urgent decisions and devise a plan for the restructuring of debt with its creditors.

Where all these measures fail to produce the expected results and the authorities determine that no alternative action would help prevent failure of a bank, the authorities would be allowed to take direct control of the institution and initiate decisive action.

Banking failures have triggered a financial crisis in recent years and the Commission is adamant that this should not be repeated.

The new rules come amid speculation that Spanish banks could soon require a multi-billion euro bailout. Without the EU’s intervention, it is feared another debt crisis will be triggered in the eurozone.

Between 2008 and 2011, the European Commission approved €4.5 trillion of state aid measures to financial institutions, increasing the debt of several member states.

Malta was one of a handful of member states that did not require intervention in its banking sector.

Despite the robustness and conservatism of Malta’s banking sector, the Commission has recently warned the island to increase its buffers with regard to its “big” banking sector, noting there are increasing signs that banks have become highly exposed to the real estate market, which has underperformed in recent years.