ECB Bid for Fast Start to Bank Loss Rule Blocked by Nations

Photographer: Ralph Orlowski/Bloomberg

A euro sign sculpture stands outside the European Central Bank headquarters in Frankfurt. Close

A euro sign sculpture stands outside the European Central Bank headquarters in Frankfurt.

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Photographer: Ralph Orlowski/Bloomberg

A euro sign sculpture stands outside the European Central Bank headquarters in Frankfurt.

The European Central Bank and Germany met resistance from national governments in their bid to bring forward the start date of EU rules that would force losses on failing banks’ creditors.

France and Spain were among a large group of EU nations to weigh in against the proposal, which would have seen the start date of the so-called bail-in rules shunted forward to as early as 2015 from 2018, at a meeting of national ambassadors yesterday in Brussels, according to an EU official.

Nations were concerned that a faster timetable wouldn’t leave banks with enough time to prepare, said the official, who couldn’t be named in line with EU policy. The legislation, proposed last year by Michel Barnier, the EU’s financial services chief, would require banks to issue minimum amounts of unsecured debt and other liabilities that regulators could write down in a crisis.

EU leaders have set a June deadline for governments and the European Parliament to agree on the law, aimed at taking taxpayers off the hook for bank failures. In the absence of such a system, nations have injected 1.7 trillion euros ($2.2 trillion) into their banking systems since the 2008 collapse of Lehman Brothers Holdings Inc., according to European Commission data.

Photographer: Jock Fistick/Bloomberg

EU Financial Services Chief Michel Barnier last year proposed that, while most of the provisions in the law should take effect in 2015, the bail-in rules should be subject to a longer timetable, to avoid spooking investors. Close

EU Financial Services Chief Michel Barnier last year proposed that, while most of the... Read More

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Photographer: Jock Fistick/Bloomberg

EU Financial Services Chief Michel Barnier last year proposed that, while most of the provisions in the law should take effect in 2015, the bail-in rules should be subject to a longer timetable, to avoid spooking investors.

Barnier last year proposed that, while most of the provisions in the law should take effect in 2015, the bail-in rules should be subject to a longer timetable, to avoid spooking investors.

Unsecured Creditors

Under the plans, unsecured creditors at a crisis-hit bank would face losses in order of seniority, and before recourse is made to taxpayers.

ECB President Mario Draghi said last month that the bail-in rules should take effect “way earlier” than 2018, so that the EU has a clear road map for handling crises and can avoid “ad hoc” actions such as those used in the international bailout of Cyprus. He has mentioned 2015 as a possible start date.

A spokesman for the Frankfurt-based ECB declined to comment beyond referring to previous comments by Draghi and other ECB executive board members on the issue.

Chantal Hughes, a spokeswoman for Barnier, said that the commission could only support a 2015 start date for bail-in if there is a consensus among nations, and other parts of a so- called banking union plan to centralize oversight of euro area lenders is in place.

Earlier Deadline

The earlier deadline is also opposed by Gunnar Hoekmark, the lawmaker leading work on the draft rules in the European Parliament.

“Markets and investors need time to adjust,” Hoekmark said in March. Rules imposing creditor writedowns will be most effective if they are implemented after other parts of the law have already come into force, he said.

The legislation must be adopted by the parliament and approved by governments in the EU’s Council of Ministers before it can take effect.

Cyprus became a testing ground for investor losses when euro-area authorities in March required restructuring of the country’s two biggest banks as a condition of a 10 billion-euro rescue.

The Cyprus program, billed by European policy makers as a unique case, imposes losses on bondholders and uninsured depositors and was accompanied by capital controls to limit contagion. An earlier version of the bailout plan, which would have seen state insured deposits also face losses, was rejected by the country’s parliament.

Uninsured Depositors

Finance Minister Wolfgang Schaeuble’s chief foreign press spokesman, Bertrand Benoit, wasn’t reachable when phoned to seek comment on yesterday’s meeting.

Ireland, which holds the rotating presidency of the EU, told ambassadors that further talks will be held on the timetable, according to the official. The law is set to be discussed by finance ministers later this month.

Nations were also split at the meeting on how much protection uninsured depositors should be given from bail-ins, the official said.

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

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

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