ECB’s Draghi Details Banking Bail In Program

November 22, 2013 Share Print 1

European Central Bank President Mario Draghi on Friday called for the early introduction of ‘bail-in’ rules to make creditors share the costs of winding up or rescuing euro zone banks.

He urged banks to use the time before bank test results are published late next year to increase their capital base but said that joint European backstops also needed to be in place.

The message underscores the ECB’s desire that a pan-euro-zone safety net be in place for the health checks but puts it on a collision course with Germany, which wants every country to individually foot the bill for repairing their banks.

Turning to plans to found an authority to wind down failing banks, Draghi said that it would be better to have mechanisms for bondholders to play a role in bank bailouts available right from the start of the single resolution mechanism.

“I therefore support implementing the bail-in tool well before 2018. The sooner, the better,” he added.

European authorities will next year stage a series of exercises to test the ability of its lenders to withstand a future crisis without resorting to taxpayer-funded bailouts.

The tests are billed as the most rigorous assessments the banks have ever had, designed to remove doubts about their health after botched EU stress tests in 2010 and 2011 which failed to reveal major problems at some lenders.

via <a href=”http://www.reuters.com/article/2013/11/22/us-ecb-draghi-idUSBRE9AL0CU20131122?feedType=RSS&feedName=businessNews”>Reuters</a>

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Alfonso Esparza

Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.