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Draghi Challenges EU Bank-Aid Rules Over Forced Losses

European Central Bank President Mario Draghi challenged rules that would bar banks from accessing public aid unless they forced losses on junior bondholders, a central building block of European Union protocols for handling struggling banks.

In a letter to EU Competition Commissioner Joaquin Almunia, Draghi said EU rules need to be clarified so regulators can order technically solvent banks to strengthen their balance sheets without scaring off investors. Draghi said public capital needs to be available -- without wiping out subordinated debt holders or forcing them to convert to equity -- if a bank’s holdings are above regulatory minimums and also below what supervisors deem necessary in a particular case.