Exclusive: Creditors, governments must pay in any euro bank rescue - document

Fri Jun 14, 2013 2:31pm EDT
 
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By Matthias Sobolewski

BERLIN (Reuters) - Bondholders and governments will always have to contribute to shoring up a failing euro zone bank even when the bloc's bailout fund ESM offers direct aid, according to an EU document obtained by Reuters.

Seeking to limit the burden on euro zone taxpayers, "private capital resources will be explored as a first solution, including sufficient contributions from existing shareholders and creditors of the beneficiary institution(s)," the document said.

It was prepared for euro zone finance ministers to discuss next week in Luxembourg.

While already agreed, the ESM rules will be finalized only when EU institutions, including the European Parliament, agree on two pieces of legislation on guaranteeing bank deposits and closing down bankrupt banks.

The document did not specify the size of the losses that would be imposed on a bank's bondholders, saying only that their level would have to be appropriate.

"An appropriate level of writedown or conversion of debt will have to take place, in line with European Union rules," it said.

The document said the European Stability Mechanism fund could become a shareholder of a euro zone bank only if the bank's capital was in danger of or already had sunk below the level required by the European Central Bank.

Aid could be offered only if the bank was important enough for its failure to endanger the financial stability of the euro zone as a whole.   Continued...

 
An European Union flag flutters outside of the European Parliament in Brussels October 12, 2012. REUTERS/Francois Lenoir