European Central Bank President Mario Draghi said the European Commission has addressed the ECB’s concerns about new rules that would require junior bondholder losses at banks that receive state aid.
“We are satisfied with the clarifications provided by the commission, whereby the state-aid rules should be applied with a view to safeguarding financial stability and also the level playing field,” Draghi told reporters in Brussels today.
The Frankfurt-based central bank had asked the European Commission to clarify the new rules so that regulators could order technically solvent banks to strengthen their balance sheets without scaring off investors. Draghi raised the concerns in a July 30 letter to EU Competition Commissioner Joaquin Almunia, reported by Bloomberg News in October.
European finance ministers meeting today and tomorrow will debate what backstops should be put in place should the ECB decide that individual banks need more capital after a series of assessments next year. The ECB is conducting the reviews as it prepares to take over the currency bloc’s financial supervision.
Speaking in London this week, Almunia said shareholders and junior creditors will have to contribute to filling capital shortfalls that are discovered in next year’s reviews. At the same time, he said, “if financial stability were at risk, the new rules provide for an exception clause” that would allow public backstops to step in before any creditor losses were assigned.
Draghi today said “the discussion is closed.”
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