ECB Says German Law Disqualifies Bank Bonds as Collateral

Germany’s plans to put senior creditors in line for losses when banks fail would disqualify some of their debt from being used as collateral at the European Central Bank, adding to pressure on lawmakers to consider tweaks of the draft law.

Germany plans to subordinate senior unsecured bonds to currently equal-ranking liabilities, such as unsecured deposits and derivatives, to make it easier to share the costs of bank failures with creditors. That goal would be achieved with the draft law discussed by the parliament in Berlin, the ECB said in a legal opinion on the bill published Tuesday, but only at the price of senior bonds’ eligibility for its monetary-policy operations.