ECB Says Private-Sector Involvement in Rescues Is Stability Risk

The European Central Bank said the involvement of the private sector in euro-area bailouts through enforced investor losses is a risk to financial stability and would have “direct negative effects” on the banking sector.

While private-sector involvement “is certain to place significant stress on the solvency of banks and other private financial institutions in the country concerned, it will also have an impact on the balance sheets of banks in other euro-area countries,” the Frankfurt-based central bank said in its monthly bulletin today.