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08 September 2015

Reuters: ECB calls for common EU approach on debt write-offs

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The European Central Bank called for a common approach in the European Union to writing off bank debt, to make it easier to shore up failing international lenders without having to call on taxpayers.

An EU directive on banking resolution is due to come fully into force in January but a number of member countries including Germany have introduced their own rules.

The EU law sets out how creditors such as senior bondholders of a bank should take a hit to shore up the bank and thus shield taxpayers.

Issuing a legal opinion on a German draft law, the ECB said diverging national rules on the status of senior unsecured bank debt create uncertainty. "A common framework at Union level on the degree of subordination of senior unsecured bank debt ... may help to avoid fragmentation of the market within the Union ... for these instruments and to avoid complicating the tasks of the ECB both with regard to monetary policy and to supervision," the bank said in the opinion.

The ECB is critical of other parts of the German draft law which delegate certain regulatory powers, including those relating to recovery plans, to the finance ministry, echoing recent comments by one of its top supervisors.

The ECB said it will not be bound by any national rule which hampers its work as the supervisor for the euro zone's largest banks through the Single Supervisory Mechanism (SSM).

"Member States should refrain from setting obstacles both to uniform supervisory practice and to the exercise of supervisory discretion by the ECB," the ECB said in the opinion.

"In view of the principle of supremacy of Union law and the ECB's status as an independent institution, the ECB will not be bound by any governmental regulations or similar measures which may affect its independence or the smooth functioning of the SSM."

German government sources said national authorities were responsible for implementing European regulations on the matter and it was not Berlin's intention to hinder the ECB's work as a supervisor.

Full article

© Reuters

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