The European Union is weighing giving regulators the power to exempt some uninsured depositors at failing banks from forced writedowns, as damage to investor confidence from the bailout of Cyprus prompts nations to seek crisis-fighting plans that won't spook savers.

Diplomats from the EU’s 27 nations are also exploring similar carve-out options for holders of unsecured short-term debt and banks' derivatives counterparties, according to draft plans prepared by Irish officials as part of its EU presidency.

Exemptions could only be made “in those exceptional cases where the exclusion is strictly necessary to ensure the continuity of critical functions or to avoid significant adverse effects on financial stability,” according to the document.

The depositor carve-outs could only apply if the savings were held by individuals or small and medium-sized companies. The writedown powers are part of broader proposals presented last year by Michel Barnier, the EU's financial services chief, to take taxpayers off the hook for bailing out banks.
– Bloomberg