European Union finance ministers battled over newly proposed rules for imposing losses on investors at troubled banks, as talks on the legislation dragged into the evening in Luxembourg.
The latest text, distributed to ministers at about 8 p.m. and obtained by Bloomberg News, would require EU national authorities to follow a strict formula for imposing losses on private-sector creditors of 8 percent of a bank’s liabilities, after which they could choose how to assign further writedowns.
“In practice, under this proposal capital and subordinated debt would always be fully wiped out when losses were high enough,” according to the proposal from Ireland, which holds the EU’s administrative presidency. Losses on senior creditors such as bondholders, uninsured corporate depositors and inter-bank lending would depend on the composition of bank balance sheets.
European leaders are struggling to reassure investors that they will break the cycle of contagion between banks and sovereign debt by creating a banking union. Five of the euro zone’s 17 nations have sought rescues during more than three years of financial crisis, prompting leaders to call for unified bank supervision within the currency zone.
The ECB, now slated to take up bank supervision powers next year, insists that nations need procedures to handle failing banks -- including financial backstops -- before the transition takes place.
One track of the talks involves how to allow the U.K. to pursue separate financing procedures for setting aside funds for when banks fail. The U.K. already collects crisis-cleanup fees from its banks and has budget arrangements in place to handle banking-sector woes.
A proposal that would allow the U.K. to use its own backstop financing procedures was on the table when ministers reconvened this evening. The Irish-backed compromise sets out a list of conditions for deviating from the regulation’s requirements for nations to set up a standing fund to finance bank resolution costs.
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