ECB's Draghi calls for early move on creditors of failing banks

Fri Nov 22, 2013 5:53am EST
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FRANKFURT (Reuters) - 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.

ECB policymakers have said the coming round is the last chance to instil confidence in the currency bloc's banking sector.

On Friday, Draghi said banks had already made progress in strengthening their balance sheets by increasing capital and provisions, and urged them to continue.   Continued...

Mario Draghi, President of the European Central Bank (ECB) delivers his speech to the European Banking Congress, at the old opera house in Frankfurt, November 22, 2013. REUTERS/Kai Pfaffenbach