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  1. Wealth
January 7, 2011

FT: EU recommends bail-ins

By Spear's

Banks’ senior bondholders should share the burden of future losses in order to spare taxpayers from having to foot the bill for expensive bail-outs, the European Commission has suggested in plans to address bank failures.

Banks’ senior bondholders should share the burden of future losses in order to spare taxpayers from having to foot the bill for expensive bail-outs, the European Commission has suggested in plans to address bank failures.

The draft proposals by Michel Barnier, the internal market commissioner, are in stark contrast to bank rescues during the recent financial crisis where governments contributed hundreds of billions of euros to recapitalise failing institutions while senior bondholders avoided losses.

One of Mr Barnier’s chief prescriptions would be to make bondholders act as a last line of defence, writing down the value of their investments to “bail in” a bank before taxpayers had to fund a bail-out.

The proposals also call for banks to draw up “living wills”, making it easier to wind them down in the event of failure.

To read the full story, visit ft.com

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