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The European Commission is poised to soon unveil plans for putting the burden of rescuing...

The European Commission is poised to soon unveil plans for putting the burden of rescuing collapsing banks on bondholders rather than taxpayers, the FT reports. Regulators will be able to fire the management, and write down non-guaranteed deposits and senior unsecured bondholders. A major bondholder says that while it's "not a bad framework,” the plan is "not going to be well received." (see also)
Comments (2)
  • While the plan sounds fair, will send bank borrowing costs higher because their bonds now more risky, risks exacerbating the crisis, just as private sector sharing of burden (PSI) in the July 2011 Greek bailout ignited new round of EU crisis and contagion arriving in Italy. If that happens, taxpayers could get stuck with worse bill.

     

    Either way, taxpayers get stuck with costs of resuscitating banks, so then perhaps might as well stick bondholders too so voters feel a bit better?

     

    Need think about which solution actually costs less in the end.
    28 May 2012, 06:02 AM Reply Like
  • It is impossible to calculate in advance which "solution" costs less - only in a parallel universe scenario would that be possible.

     

    The vicious circle dependence on market "opinion" must be cut and the plans are fair.

     

    Some years ago hybrid capital was all the rage. When Deutsche didn't call one of its instruments at the first possible date the whole market was spooked - yes, the capital had equity features but no, we're not supposed to use them. Pie/eating etc. Almost nobody issued hybrid since then (2009).

     

    Bail-in capital is not much different to high-tier hybrids - only it is regulators that will pull the trigger.
    28 May 2012, 06:49 AM Reply Like
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