Bank Creditor Loss Rule Sparks EU Clash Ahead of Vote

European Union negotiators face a clash over rules forcing investors to shoulder some of the losses at failed banks just days before a vote on the legislation.

Some governments in the 28-nation bloc are seeking to alter elements of a deal struck last year on rules for handling stricken lenders, Sven Giegold, a German member of the assembly’s Green group, said in an interview. Requests from the U.K., Italy, France and Portugal concern exemptions to force creditor losses, and risk undermining the draft legislation, he said.

“It’s against the spirit of loyal cooperation to raise this at the last minute,” said Giegold, a member of the assembly’s economic and monetary affairs committee. The draft law is about preventing “billions of taxpayers money” from having to be used to rescue banks, he said.

EU governments have provided 1.7 trillion euros ($2.3 trillion) of support to their banking systems since the 2008 collapse of Lehman Brothers Holdings Inc., according to European Commission data. Nations have dealt with failing banks in a variety of ways during the crisis. While the Netherlands nationalized SNS Reaal NV without writing down unsecured senior debt holders, such bank creditors were targeted as part of the euro area’s bailout of Cyprus.

‘Small Adjustment’

“A small adjustment has been requested –- this is not unusual when a text is being tidied up,” Chantal Hughes, a spokeswoman for Michel Barnier, the EU’s financial services chief, said in an e-mail. “If all can agree to it, the change can take place. If not, the current text stays.”

“There is no risk of the deal unraveling,” Hughes said. “The final plenary vote remains on track for next week.”

The vote concerns draft legislation presented by Barnier in 2012. The proposals seek to take taxpayers off the hook for bailouts by requiring countries to build up crisis funds, financed through bank levies, and by setting common creditor-loss rules.

While lawmakers struck a deal on the proposals in December, the legislation must be voted on by the EU Parliament, and then formally approved by national governments.

The assembly is set to debate the law in Strasbourg, France, on April 15 before proceeding to a vote.

“I think the Parliament will go ahead and vote next week,” Giegold said.


The last-minute wrangling in part concerns a request from the U.K. for clarification that creditor writedowns won’t be activated in cases when a central bank provides emergency support backed by a state guarantee, Giegold said.

While that request has been accepted by the assembly, lawmakers are opposed to calls from some other governments that crisis-hit banks should be able to issue new debt, backed by a state guarantee, without triggering writedowns.

The creditor loss rules in the draft law are tougher than current minimum EU standards.

Should parliament refuse to incorporate wording changes requested by governments, and proceed with its vote, nations would then need to decide whether to simply accept the text, or prolong discussions on the law beyond EU elections that take place in May.

Chantal Hughes, a spokeswoman for Barnier, declined to immediately comment. Gunnar Hoekmark, the EU Parliament’s lead negotiator on the draft rules, couldn’t be immediately reached for comment.

The Financial Times earlier reported on details of the negotiations.

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