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The three AAA-rated euro area states last week called for regulators across the EU to gain so-called bail-in powers as soon as 2015, rather than in 2018 as currently proposed, said the officials, who declined to be identified because the talks are private. The European Central Bank has warned that 2018 is “far too far away” for the new rules, which seek to insulate taxpayers and the euro area’s firewall fund from rescue costs. Accelerating the loss-sharing rules would give the eurozone more tools to avoid taxpayer rescues like those provided to Greece, Ireland, Portugal and Spain, and sought by Cyprus. It also could ease concerns about financial liability within the eurozone once the ECB takes over financial supervision within the 17-nation currency bloc.
Under the EU plans, drawn up by the European Commission, regulators would be given the power to impose losses on holders of senior unsecured debt, as well as derivatives counterparties, once a lender’s capital and subordinated debt are wiped out. Regulators could also force debt to convert into common shares, so shoring up a struggling bank’s equity.
“The rationale for us to propose 2018 for the bail-in clause was to give time to the markets to anticipate the new regime”, said Stefaan De Rynck, a spokesman for EU Financial Services Commissioner Michel Barnier. “We are open to examine the consequences of anticipating the bail-in clause, if that would be the option that the council would want to choose.” The nations are seeking a date as soon as 2015 because it would provide time to adjust to the measures while not putting individual countries at a competitive disadvantage if they apply bail-in rules ahead of 2018.