Bail-full future

28 June 2013 By George Hay, Neil Unmack Follow @gfhay

New rules forcing losses on investors would have saved taxpayers money in the bailouts of wholesale-funded banks like RBS, Bankia and maybe even Anglo Irish. But the new system assumes lenders have ample stocks of bail-inable debt. Public money may still be needed if they don’t.

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The Council of the European Union agreed on a draft directive for the recovery and resolution of banks on June 27. The directive will make it easier for regulators to wind down banks in an orderly manner, while minimising losses for taxpayers, the Council said in a statement. It will be adopted at the start of next year, after negotiations with the European Parliament.
The new framework will allow regulators to recapitalise banks by writing down or converting into equity the claims of failing banks, a so-called bail-in.
Resolution authorities in each country will be able to use national resolution funds to recapitalise banks, but only after losses equal to 8 percent of a bank’s liabilities, or 20 percent of risk-weighted assets, have been imposed on shareholders and creditors.
Certain types of debt will be excluded from bail-in, such as secured liabilities including covered bonds, customer deposits worth less than 100,000 euros. Deposits from individuals, small companies and the European Investment Bank will have preference over unsecured debt and deposits from large companies.

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