EU’s Bank Rescue Chief Sees No Exceptions to Bail-in Rules, According to Reuters

By Francesco Guarascio and Francesco Canepa

BRUSSELS/FRANKFURT – In the event of a European bank failure, creditors will bear the financial burden, and there are currently no plans to exempt them from the established ‘bail-in’ regulation, according to the head of the European Union’s bank rescue body.

The bail-in framework is designed to eliminate the need for taxpayer-funded rescues by allowing the authorities to erase a bank’s debts and even some deposits in cases of failure. This approach has faced significant public backlash even before its implementation on January 1, particularly following the rescue of four Italian banks, which saw some creditors lose their savings.

Elke Koenig, chair of the EU’s Single Resolution Board (SRB), which is responsible for maintaining these regulations, stated that she sees no reason to suspend the rules at this time.

Last month, Italy attempted to obtain an exemption for the struggling lender Monte dei Paschi, arguing the bank’s situation posed a threat to financial stability. However, Koenig emphasized that there is no current crisis that warrants such exceptions.

"I don’t see us in a situation like this at the moment," Koenig explained. "That question is relevant only when I have a file on my desk, and I don’t have one now."

European regulations do allow for the possibility of avoiding a bail-in for private investors under severe economic conditions or if it jeopardizes financial stability. Koenig noted that these allowances are limited to extremely unique circumstances.

She stressed that any significant shortfall must be addressed within the framework of existing laws, particularly the Bank Recovery and Resolution Directive.

"If it could be concluded that applying the BRRD would lead to inappropriate social consequences, then you can address that," she added.

The European Commission has suggested potential compensation for savers who were misled into purchasing bonds that could be subjected to a bail-in.

Regarding Monte dei Paschi, Koenig expressed hope for the success of its privately-funded €5 billion rescue plan, albeit acknowledging the challenges it faces. "It’s a very challenging program," she remarked, wishing the bank success without reliance on public funds.

Italy’s finance minister, Pier Carlo Padoan, recently stated that government support for Monte Paschi’s plan is unnecessary. However, the governor of the Bank of Italy, Ignazio Visco, indicated that the option of public support for Italian banks should not be dismissed.

Koenig rejected any notions that the bail-in system might be reconsidered. "Of course, some individuals argue that it doesn’t function," she said. "My only response would be: what are the alternatives? Taxpayer funding? We have rightly dismissed that."

She cautioned against using the price set for selling Monte dei Paschi’s bad loans—ranging from 27 to 33 percent of their original value—as a benchmark for the entire market, emphasizing that different banks hold vastly different portfolios.

"I would always be very careful to apply a price from one portfolio to the entire market," Koenig advised.