Bloomberg News

Schaeuble Favors ‘Liability Hierarchy’ in European Bank Bailouts

April 13, 2013

German Finance Minister Wolfgang Schaeuble said he wants to see a “liability hierarchy” where owners and creditors of banks are first in line to bail them out before governments bolster equity and the European Stability Mechanism provides international aid.

“It is not so that all banks can in future cover their capital requirements at the ESM,” Schaeuble told reporters in Dublin after a two-day meeting of European Union finance ministers and central bank governors. “Before the state gets involved in the liability hierarchy, owners and creditors of banks” will be asked to contribute, and the ESM will help if “the government itself can’t because its access to financial markets is restricted,” he said.

Independently of the fact that Cyprus was a “unique case, we will no longer accept the moral hazard problem,” Schaeuble said. “In the future, it will have to be possible to wind down troubled banks just like any other company, without risking the stability of the financial sector as a whole.”

To the extent necessary, a troubled bank’s home state has to ensure the provisioning of capital, Schaeuble said.

To contact the reporter on this story: Rainer Buergin in Dublin at rbuergin1@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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