By Huw Jones
LONDON (Reuters) - European Union plans, due next week, will seek to speed up handling of failing banks to ensure they are not bailed out by taxpayers but "bailed in" using their own resources, EU documents seen by Reuters showed.
The draft plans would have a requirement for EU authorities, including the European Central Bank, to give an early warning if there was a risk of a bank failure, the documents said.
The EU's proposals come at a time of heightened sensitivity in the banking industry following UBS' merger with Credit Suisse, and the collapse of several U.S. banks, including Silicon Valley Bank.
The EU is aiming to update rules to deal with failing banks that were introduced after the financial crisis more than a decade ago, when taxpayers picked up the bill for bank failures.
Since then the use of the EU's bank "resolution" rules has been limited, and they need updating so they can be used to deal with any type of bank, the document said.
"To date, many failing banks of a smaller or medium size have been dealt with under national regimes often involving the use of taxpayer money (bail-outs) instead of the industry-funded safety nets, such as the Single Resolution Fund (SRF) in the Banking Union, that so far has been unused in resolution," it said.
Banks contribute to the SRF, administered by the EU's Single Resolution Board, which takes the lead on closing down failing banks.
The proposals would make the rules "fit for its purpose for all banks in the EU irrespective of their size, business model and liability structure, even smaller and medium-sized banks, if required by prevailing circumstances."
EU states and the European Parliament will have the final say on the proposals which are due on April 18. They are draft proposals and could be subject to change before publication.
The ECB, which regulates the euro zone's biggest lenders, and national regulators in the 27 EU states which regulate smaller banks, would have an obligation to notify the SRB "sufficiently early" if there is material risk of a bank failing or likely to fail, the documents said.
Regulators would have powers to withdraw the licence of a bank in such a situation, it added.
The EU's European Banking Authority would be given a new role to help check that banks can be wound down smoothly in a crisis, and coordinate EU-wide exercises to test and compare how resolution rules are being applied across member states.
The proposals set common requirements to improve and harmonise the level of depositor protection, but do not regulate the differing models countries use, such as institutional protection schemes or industry-funded safety net (IPS).
Germany has warned the EU not to tamper with IPS rules.
The European Commission, which drafted the proposals, has said the package is balanced and reflects extensive public consultation.
(Reporting by Huw Jones. Editing by Jane Merriman)