They will consider four potential options that range from shielding depositors and senior bondholders to imposing losses on some of them. The options are listed in a preliminary document, "ESM direct recapitalisation - role of bail-in", prepared for the ministers for their discussion of guidelines on when the ESM can invest in a systemically important bank to save it from failure.
The first option is to use EU rules regulating when and how a government can help a bank - the so-called state aid rules - to determine who will lose out. In August, state aid rules will be updated to shield bank depositors and senior bondholders. Under EU state aid rules only shareholders and junior bondholders would suffer losses in case of a bank restructuring.
Under the second option, the European Commission would decide who must contribute financially to a bank's restructuring, although in agreement with the relevant government and taking into account an assessment by the ECB.
The third option would grant the power to decide which liabilities would be written down or converted into equity to the government of the bank's home country and the ESM, which would jointly reach a deal on the basis of an ECB assessment.
The fourth option appears to go the furthest in seeking contributions to a bank rescue and grants the power to determine which of the bank's liabilities would be affected to eurozone finance ministers, who form the board of the ESM.
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