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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (90966)	6/3/2012 11:29:14 AM
From: Haim R. Branisteanu	Read Replies (1) \| Respond to of 218620

DJ EU Seeks To End Era Of Taxpayer Bank Bailouts 03-Jun-2012 --EU seeks to shift cost of dealing with bank failures from taxpayers to investors --Draft proposal requires banks to hold own funds and eligible debt for bail-ins --Bank resolution proposals to be presented June 6 By Clare Connaghan BRUSSELS (Dow Jones)--The European Commission is set to propose legislation on resolving bank crises that would give national authorities stepped-up powers to intervene when a bank is on the verge of collapse, including by forcing out management and imposing losses on unsecured bondholders. The Commission is expected to present the plans June 6. At the heart of the proposal is an effort to give authorities the power to intervene before a bank actually collapses and to shift the cost of dealing with a bank failure away from taxpayers onto investors. The proposal is the latest in a raft of new regulation since the 2008 financial crisis aimed at preventing similar events happening again. But the plans will do little to stifle Europe's immediate banking troubles and are a long way from the more ambitious talk of late of some kind of regional banking union with common deposit guarantees and a powerful EU supervisor. The proposals have also sparked a range of concerns, above all whether plans to force creditors to share more of the burden will raise already elevated bank funding costs and accentuate the region's financial crisis. In a 156-page draft of the proposed rules seen by Dow Jones Newswires, the EU's executive sets out how regulators should deal with a bank crisis without resorting to large-scale taxpayer bailouts. A key element of the proposal is the so-called bail-in idea - that a bank holds a pool of funds and liabilities that can be drawn on if a firm runs into trouble. The draft text requires banks to hold own funds and eligible debt worth at least 10% of total liabilities. However, there is still a debate over whether national regulators should have the power to set the minimums. Debate is also continuing on exactly which liabilities will be exempted from bail-ins: secured debt, liabilities with maturity of less than a month and guaranteed deposits are among the exemptions in the draft text. Derivatives may also be exempted under special circumstances where bailing them in posed a threat to financial stability, the text says. As expected, the Commission proposes that losses are allocated to bank shareholders first, then once that has been completed there will be a hierarchy of how other creditors will be treated with subordinated ones coming first. Only in the event they are exhausted will senior unsecured creditors be involved. While the Commission acknowledges in the draft text there could be costs in forcing creditors to share the burden of bank crises, it believes the benefits "over the long term in terms of a reduced likelihood of a systemic crisis are substantially higher." Still, policy makers' caution about market reaction to the plans has been obvious. The EU has repeatedly delayed launching the bail-in proposal for fear of increasing volatility during the sovereign debt crisis. Once the Commission has presented its proposal, the legislation must still pass through the usual prolonged approval process which requires approval by the European Parliament and member states before becoming law. The process can often take months. The draft text states that these rules need to be implemented by Dec. 31 2014. But there's a longer transition for the bail-in tool, stretching through Jan 1, 2018. The proposals would force banks to draw up "resolution plans" - often referred to as living wills - which would set out how a bank could be quickly wound up if it runs into trouble. The EU also proposes setting up national resolution funds which would force banks to set aside a certain amount of cash to be used in the event of their failing. Controversially, the Commission recommends that a member state would have to lend some of its resolution funds to another country if there was a crisis elsewhere in the EU. The proposed legislation also gives greater powers to national regulators to boot out banks' management if they think a firm is close to collapse, including by appointing a special manager to run the institution. "This would allow authorities greater flexibility in their responses to the failure of large, complex financial institution," the draft rules state. "It would be accompanied by removal of management responsible for the problems of the institution, and the implementation of a business restoration plan." The bankruptcy of Lehman Brothers highlighted the interconnectedness of the global financial system while the crises at cross-border European firms like Dexia S.A. and Fortis exposed how complicated it can be to ensure cooperation between national regulators - and divvy up the costs - when a bank rescue needs to be mounted. To address this cross-border issue, the Commission's draft is proposing to establish resolution colleges to co-ordinate actions between national authorities working together with the European Banking Authority who can act as a mediator if necessary. -By Clare Connaghan, (END) Dow Jones Newswires

To: Haim R. Branisteanu who wrote (90966)	6/3/2012 6:49:28 PM
From: TobagoJack	1 Recommendation Read Replies (2) \| Respond to of 218620

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