EU Delays Bank Bond Writedown Plan Until Debt Crisis Abates

Photographer: Jock Fistick/Bloomberg

Michel Barnier, European Union internal market commissioner, pauses during the news conference following the meeting of European Union finance ministers, at the EU headquarters in Brussels, on March 16, 2010. Close

Michel Barnier, European Union internal market commissioner, pauses during the news... Read More

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Photographer: Jock Fistick/Bloomberg

Michel Barnier, European Union internal market commissioner, pauses during the news conference following the meeting of European Union finance ministers, at the EU headquarters in Brussels, on March 16, 2010.

Michel Barnier, the European Union’s financial services chief, said he’ll wait until the region is “past the worst” of its fiscal crisis before unleashing proposals to write down creditors at failing banks.

“We have to get past the worst of this crisis to present this proposal at the right moment,” the European Commissioner said in a Bloomberg Television interview yesterday at the World Economic Forum in Davos, Switzerland. That may be in “some weeks, or rather some months.”

Global regulators have called for rules imposing losses on bank creditors in a bid to prevent lenders being too-big-to- fail. The Financial Stability Board said so-called bail-in systems should be put in place for all international banks.

Lenders including Citigroup Inc. and Goldman Sachs Group Inc. (GS) have warned that writedowns for senior bondholders may make it more expensive for banks to attract funding.

“I want to avoid any misunderstanding,” said Barnier about his plans designed to prevent taxpayers footing the bill for bailing out failing banks “in the medium to long term.”

Barnier said that he’s still making up his mind on plans by Deutsche Boerse AG (DB1) and NYSE Euronext (NRX) to create the world’s largest exchange. He said he’s been unable to give his full attention to the dossier because of an official trip last week to Asia.

The commission, the 27-nation EU’s executive arm, will decide next week whether to back a proposal from the EU’s antitrust chief, Joaquin Almunia, to block the deal.

‘Personal Time’

“It’s a very important decision,” Barnier said. “I need a bit of personal time to work on this dossier and to make a judgement.”

Barnier said that he’s considering tougher EU rules for bank bonuses after criticizing some payouts as “inexplicable.”

One possible idea is a pay ratio designed to limit the difference between the highest and lowest salaries at lenders, he said.

Barnier, a former French minister, said that he will also seek views “in the coming weeks” on possible rules for so- called shadow banks, and called for leaders at Davos to back a global financial transactions tax.

‘Volcker Rule’

Separately, Barnier will next month raise “concerns” with U.S. Treasury Secretary Timothy F. Geithner on how a proposed ban on commercial banks trading on their own account may discriminate against European sovereign debt.

Under the proposals for the so-called Volcker rule, trading in U.S. government bonds would be exempt from the ban and this carve-out wouldn’t be extended to other nations’ sovereign debt, said Barnier’s spokeswomanChantal Hughes.

The commissioner will discuss the matter with Geithner during a trip to the U.S. on Feb. 23-24, Hughes said in an e- mail.

The commission has set up an EU high-level group to examine possible measures to change banks’ structure and reign in their risk taking. The committee’s remit will include examining whether a version of the Volcker rule should be imposed on EU leaders, Barnier said.

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

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

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