Weidmann: New Bail-in Rules Don't Go Far Enough
By Todd Buell
July 11, 2013, 6:02 a.m. ET
MUNICH--New rules that regulate the resolution of banks don't go far enough to keep the taxpayer from bailing out struggling financial institutions, European Central Bank governing council member Jens Weidmann said Thursday.
Mr. Weidnmann, who is president of the Deutsche Bundesbank, said the agreement, reached two weeks ago by European finance ministers, goes in the right direction in that it legally enshrines the principle of "bail- in," meaning that shareholders, bond holders and then uninsured deposits will be on the hook if a bank needs to be resolved.
"The concept has, however, some weak points," he said. There are "wide ranging possibilities for discretionary exceptions" from the application of a bail-in.
He said negotiations between the European Council and the European Parliament offer the possibility to correct such weak points. "It would be important from my point of view to implement the bail-in rules earlier than planned, namely already by 2015," not 2018 as currently proposed, he said.
European officials agreed two weeks ago on the Bank Resolution and Recovery Directive. The rules would require that investors suffer losses equivalent to 8% of a bank's total liabilities before national authorities could step in.
Mr. Weidmann's comments suggest that the Bundesbank takes a different line on the matter than the German government. Speaking two weeks ago, Chancellor Angela Merkel told the German parliament that she welcomed the new rules.
Germany's central bank fiercely guards its independence and thus disagreements between it and the government are quite common.
Harriet Torry and Laurence Norman contributed to this article
Write to Todd Buell at [email protected]; Twitter: @ToddBuell
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