EU Said to Delay Bank Bond Writedown Plans Amid Turbulence

The European Union is delaying proposals for senior bondholders of failing banks to take losses because the measures may spook investors at a time of market turbulence and they need more work, according to two people familiar with the situation.

Michel Barnier, the EU’s financial services commissioner, will unveil draft legislation on the measures in October at the earliest, said one of the people, who declined to be identified because negotiations on the proposals are continuing. The bondholder plans are part of broader proposals for orderly closure of failing lenders that the European Commission, the 27- nation EU’s executive arm, had intended to present this month.

World leaders in the Group of 20 nations are seeking to agree on measures to wind down failing lenders without the need for public bailouts. Current market circumstances mean the commission has to be careful about when it presents the proposal, the people said.

“The pricing of bank debt spiked” in January when the commission published a preliminary version of its plans, the British Bankers’ Association said in a paper published on its website today. It is “uncertain” whether a move to a so-called bail-in regime in which senior bondholders would financially contribute to bank wind downs “has been fully priced in at this stage,” the BBA said.

Banks including Citigroup Inc. and Goldman Sachs Group Inc. have said that including writedowns for senior bondholders as part of the measures may make it more expensive for banks to attract funding.

The BBA’s paper was a response to a request for views from the Financial Stability Board, which brings together G-20 regulators.

‘Mounting Concerns’

The EU move “is part of a broader trend to soften or delay the imposition of regulatory measures in the face of mounting concerns about the ability of the financial sector to support growth,” Richard Reid, the International Centre for Financial Regulation’s director of research, said in an e-mail.

As well as senior bondholder writedowns, the commission plans also include requiring banks to draw up so called living wills showing how they could be shutdown in a crisis, and empowering regulators to make legal and structural changes to lenders.

“We need to make sure that we put in place orderly wind- down procedures for failing banks which require shareholders and bondholders to take the hit rather than hard-pressed taxpayers,” Syed Kamall, a U.K. lawmaker who represents London in the European Parliament, said in an e-mail.

A spokeswoman for the commission declined to comment.

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net; Ben Moshinsky in London at bmoshinsky@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.

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