Europe Economy

EU Needs New Laws to Tackle Failed Banks: Liikanen

European Union (EU) flags fly outside the the European Commission headquarters in Brussels.

Europe needs new legislation to help failed banks unwind as quickly as possible, according to Bank of Finland Governor Erkki Liikanen who is leading the EU advisory group on banking reform.

"The difference between normal companies and banks is that banks don't have time. Banks must be resolved very fast, " Liikanen told CNBC.

"For that reason we need new legislation in Europe, which means they can be resold, unwound, very fast."

Liikanen said that new legislation, combined with strong equity and capital buffers, is needed to ensure public money is not spent in future on propping up the banking sector.

"When a bank goes into a crisis, the first defense is with the shareholders, their equity. The second should be the debt holders, " he said.

EU Needs New Laws to Deal With Failed Banks: Liikanen

"Taxpayers should be left off the hook. It should be a very rare exception that we need taxpayers. Bail-ins should be the rule, and bailouts the exception."

Liikanen added that Europe is facing the "crisis of our generation" which may takes years to resolve.

"The situation is fragile and you must be very attentive, very alert all the time. This crisis has already taken us five years until now, there may be years to come. This has been the crisis of our generation, " he said.

— By's Katy Barnato