Commission insists senior investors safe in Spanish bank overhaul
By Sarah Collins | Monday 16 July 2012
The European Commission has insisted that senior creditors - the highest-ranked bondholders in any bank - will be safe under a €100 billion Spanish bailout plan that aims to force losses on lower-ranked investors. The bailout plan will see Spain’s banks recapitalised or broken apart as a condition of the aid. Speaking on 16 July, a spokesman for Economic Affairs Commissioner Olli Rehn said that the draft bailout agreement, or memorandum of understanding, between Spain and the EU (see
Europolitics4463) “does not foresee the participation of senior creditors but the participation of shareholders and junior bondholders”.
The comments come after a report that the European Central Bank had shifted position and pushed for losses to be imposed on senior creditors in banks receiving EU aid during Eurogroup talks on the bailout, on 9 July. The ECB had previously resisted attempts by the Irish government to haircut senior bondholders in that country’s bailed-out banks. The European Commission, in its June proposals on bank recovery and resolution, has made provision for senior creditors to be “bailed in” when a bank goes bust, to save taxpayers from having to come to the rescue, but the rules will not be in place until 2018.
The European Banking Authority, the watchdog for the EU’s 8,000-plus banks, said in a paper, published on 11 June (‘Report on risks and vulnerabilities of the European banking system’), that senior unsecured creditors - those whose investments are not backed by collateral - are facing a rising risk that they will have to take losses as banks ringfence their assets to use when issuing covered bonds or as collateral for cheap ECB loans.