Germany still wants bondholders hit when banks rescued – finance ministry

19:32 21/10/2013 - Πηγή: BankWars

Germany continues to believe that losses should be imposed on junior bondholders in banks that need recapitalisation by taxpayers to remain viable, its finance ministry said on Monday.

In a July 30 letter to the European Commission, European Central Bank President

Mario Draghi said imposing losses on junior creditors in the context of such “precautionary recapitalisations” could hurt subordinated bank bonds.

Asked about Draghi’s letter, a German finance ministry spokeswoman declined to comment directly but said Berlin’s position remained “unchanged” and that it believed bondholders should be implicated in state bailouts as a rule rather than an exception.

“We have enforced the principle that a participation of bondholders should be the rule and that losses are not socialised and the taxpayer should be protected,” the spokeswoman said.

New EU rules on state aid to struggling banks came into force in Aug. 1 after a major overhaul agreed the previous month with the aim of shifting the burden of restructuring a lender from taxpayers onto shareholders and holders of junior debt.

“By structurally impairing the subordinated debt market, it could lead to a flight of investors out of the European banking market, which would further hamper banks’ funding,” Draghi said in the letter, which was addressed to EU Competition Commissioner Joaquin Almunia and seen by Reuters.

He said mandatory burden-sharing with shareholders and junior bondholders was warranted when a bank was on the brink of collapse or its capital had fallen below the minimum regulatory threshold.

Πηγή: reuters