EU Said to Toughen Creditor-Loss Rules for Bailed-Out Banks

The European Union will tighten its rules on bailouts for banks, setting out tougher requirements for creditors to face losses if public money is used, according to two people familiar with the matter.

The European Commission plans to issue revised state-aid guidance for bank rescues before August, according to the people, who couldn’t be named because talks on the bailout rules are private. National officials may discuss the plans as soon as this week, they said.

The updated guidelines will seek to ensure a minimum level of so-called burden sharing by shareholders and creditors at failing banks that receive state aid, the people said. They won’t require senior creditors to face losses, said another person familiar with the talks.

EU governments have provided 1.7 trillion euros ($2.2 trillion) of support to their banking systems since the 2008 collapse of Lehman Brothers Holdings Inc., according to commission data. Nations in the 27-nation bloc have dealt with failing banks in a variety of ways. While the Netherlands in February nationalized SNS Reaal NV without writing down unsecured senior debt holders, such bank creditors were in the firing line as part of the euro area’s bailout of Cyprus.

The new guidelines will clarify the basic rules for how such situations should be tackled, two of the people said. They will reflect procedures that were used last year when Spain applied for international aid for its banking system, according to one of the people. In the Spanish case, aid was only allowed once the nation had agreed on bank restructuring measures with the commission, which is responsible for checking whether subsidies distort competition.

The state-aid rules revamp coincides with EU negotiations on a law that would set out common rules for so-called bail-ins, or forced losses, on crisis-hit banks’ senior creditors.

Antoine Colombani, a spokesman for Joaquin Almunia, the EU’s competition chief, declined to comment.

The Financial Times reported on the revised state-aid guidance earlier today.

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