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LONDON, April 18 (Reuters) - The European Union set out draft reforms to rules for closing down failing banks on Tuesday. The original rules were introduced after the 2007-09 global financial crisis when taxpayers had to bail out lenders.

The emphasis is on faster handling to ensure a "bail-in" of failing banks using their internal resources such as bonds that can be written down, to avoid a "bail-out" by taxpayers, so that depositors are treated the same across the EU.

Failing big banks in the EU are closed down by the Single Resolution Board, while small and medium sized lenders come under national watchdogs and have usually been dealt with either by courts, or differing national practices.

This has often involved public money and the EU reform seeks to make it easier to apply its resolution rules to all sizes of banks to minimise taxpayer involvement.

Italy injected 5.4 billion euros ($5.9 billion) of state aid into Monte dei Paschi di Siena in 2017 under the precautionary capital mechanism, helping to circumvent resolution rules.

The reforms propose stricter conditions, emphasising its temporary nature, exclusion for banks that are likely to fail or have failed, and a ban for plugging potential losses.

There must also be a clearly defined date for the sale of the bank, or repayment of the aid.

The proposals make it easier for regulators to use cash from industry-funded deposit guarantee schemes in a bank that has gone bust. Regulators will be able to use this cash to shift deposits to another lender to avoid the need to make payouts to account holders, currently capped at 100,000 euros per account.

The proposals make no fresh push for a pan-EU deposit guarantee scheme, long seen as a critical missing piece in the EU's banking union.

Several EU countries, including Germany, have national industry-funded institutional protection schemes that can be used to deal with failing banks, in return for lower capital and liquidity requirements. Germany wants a carve-out for these schemes. The EU commission says there is no carve-out, but that a balanced deal has been struck to introduce new safeguards.

EU states and the European Parliament have the final say on the draft reforms, with changes likely during the approval process.

($1 = 0.9129 euros)

Reporting by Huw Jones; Editing by Alexander Smith

Our Standards: The Thomson Reuters Trust Principles.

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Factbox: EU updates bank crisis rules to strengthen taxpayer shield - Reuters