Eurozone Single Resolution Board Chair Elke König has called on the EU to implement tighter restrictions on winding down lenders, saying existing state-aid guidelines were out of date.
König's call, in a Financial Times interview published Aug. 8, comes in the wake of the bailout of Italy's Banca Popolare di Vicenza SpA and Veneto Banca SpA, which required shareholders and junior creditors to be wiped out but spared senior bondholders. The European Commission approved the bailout under a provision that allowed Italy to close the banks under local insolvency rules, rather than the EU's Bank Recovery and Resolution Directive, or BRRD, invoking "public interest."
Germany and other European governments have said the mechanism used subverted the aim of the EU's post-crisis reforms, which were meant to ensure that senior creditors were included among investors subject to losses before recourse to taxpayer-funded support.
"We need to make sure that we are not putting wrong incentives into the system. It's now time to look into this," König reportedly said, adding that the revised stringent rules should also leave some leeway for governments to grant liquidation aid to their banks.
It would be for the EC to change the state aid rules adopted in 2013, the FT noted, adding that the EU's competition commissioner, Margrethe Vestager, has said she has "no concrete plans to change it."