European Union regulators need the power to force losses on bank investors no later than 2015, European Central Bank President Mario Draghi said, endorsing a push from Germany and like-minded nations to speed the process.
“We would like to see these rules enter into force not in 2019, 2018, but way way earlier, like 2015,” Draghi said at a press conference in Frankfurt today. He said it’s “very urgent” that the EU adopt a framework for restructuring or shutting down banks so governments will no longer need to take “ad hoc” actions, as they did in imposing losses on depositors in Cyprus.
EU leaders have set a June deadline for governments and the European Parliament to agree on legislation setting out how authorities should handle bank failures, including through so- called creditor bail-ins. In the absence of such a system, nations have injected 1.7 trillion euros ($2.2 trillion) into their banking systems since the 2008 collapse of Lehman Brothers Holdings Inc., according to European Commission data.
Germany, Finland, the Netherlands and Denmark say the rules should be phased in by 2015 along with other parts of the law, rather than in 2018, as the European Commission has proposed, according to a briefing paper prepared last month. The four say investors are anticipating the new regime and delays could interfere with that process.
Nations are weighing a proposal as part of this effort that would allow regulators to require banks to hold a minimum amount of a new class of convertible debt specifically designed to absorb losses if needed. This should be considered separately from the rules to facilitate writedowns, the paper from Germany, Finland, the Netherlands and Denmark said.
Draghi said today that regulators should be able to tap senior bank bondholders and other bank investors before resorting to large depositors. As a condition of receiving 10 billion euros in aid, Cyprus is imposing big losses on uninsured depositors in its two biggest banks, which did not have enough of creditors to tap.
“The existence of buffers of bail-in-able assets is essential,” Draghi said.
EU lawmakers and national governments agreed on March 19 to a provisional deal to turn the ECB into a supervisor for banks in the euro zone and other willing nations. The EU is working on proposals to standardize procedures for insuring deposits and shutting down banks, and proposals for a common bank resolution framework are due later this year.
The European Parliament lawmaker managing the bloc’s bank- resolution bill has pushed back against the effort to speed rules on creditor writedowns when lenders fail.
“Markets and investors need time to adjust,”Gunnar Hoekmark, a Swedish legislator in charge of the Brussels-based assembly’s work on a draft law handling bank failures in the 27- nation bloc, said March 28 in a post on Twitter. Rules imposing creditor writedowns will be most effective if they are implemented after other parts of the law have already come into force, he said.
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