EU's bank rescue chief
sees no exceptions to bail-in rules
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[August 11, 2016]
By Francesco Guarascio and Francesco Canepa
BRUSSELS\FRANKFURT (Reuters) - Creditors
will be hit if a European bank fails and no exceptions to this 'bail-in'
rule are being considered, the chief of the European Union's bank rescue
Aimed at ending taxpayer-funded bail-outs, the bail-in regime, which
could wipe out a bank's debts and some deposits if a bank fails, caused
a popular backlash even before it came into effect on Jan. 1, when some
creditors of four Italian banks lost their savings when the lenders had
to be rescued late last year.
Elke Koenig, chair of the EU's Single Resolution Board (SRB) which
enforces the rules, said she did not see any need for their suspension
Last month, Rome unsuccessfully tried to secure an exception, which can
be granted if financial stability is in jeopardy, for troubled lender
Monte dei Paschi <BMPS.MI>.
"I don't see us in a situation like this at the moment," Koenig told
Reuters. "That question has to be answered when I have a file on my desk
and I don't have one now."
European rules state a bail-in of private investors can be avoided in
cases of serious economic turmoil or if its application endangered
"The regulation allows it under very peculiar conditions," Koenig said.
"It's really the exceptional case."
She insisted any well-known shortfall had to be dealt with within the
existing law, known as the Bank Recovery and Resolution Directive (BRRD).
"If then you can come to the conclusion that applying the BRRD would
have social consequences that you think are not appropriate, then you
can deal with that," she added.
The European Commission, which oversees the application of EU rules, has
hinted at the possibility of compensation for savers mis-sold bonds that
can be bailed-in.
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Koenig hopes that Monte Paschi's privately-funded five billion euro rescue plan
succeeds but concedes it won't be easy.
"It's a very challenging program," she said. "I wish them all the luck to get it
done without public support."
Italy's finance minister Pier Carlo Padoan said last week a state-funded
backstop for Monte dei Paschi's plan was not needed, but Bank of Italy governor
Ignazio Visco said the possibility of public support for Italian lenders should
not be ruled out.
Koenig dismissed any suggestion that the bail-in regime could be called into
"Of course there are some who say it doesn't work," she said. "My only answer
would be: what's the alternative? Taxpayers? I thought we rightly ruled that
She also warned against extrapolating a benchmark from the price set to sell
Monte dei Paschi's bad loans as part of its rescue plan, which is between 27 and
33 percent of their original value, far lower than other banks' valuation of
their own stock of non-performing credit.
"I would always be very careful to apply a price for one portfolio to the entire
market because banks may have totally different portfolios," she said.
(Additional reporting by Frank Siebelt; Editing by Alexander Smith)
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