EU Finance Ministers Agree Measures to Lower Uncertainty in Bank Wind-Downs

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European Union finance ministers agreed on Friday on rules setting the order in which bank creditors would be hit in case of wind-downs, in a bid to accelerate the build-up of banks' capital buffers to reduce the chances of public-funded bailouts, Reuters reported. Under new rules adopted after the 2010-2012 euro zone debt crisis, banks are required to issue loss-absorbing debt that would be used in a liquidation to reduce taxpayers' costs, but that issuance has so far fallen short. One reason for the slow take-up is the fragmentation of EU countries' rules on the hierarchy of creditors that would be hit first in case of liquidation. To tackle this problem, EU ministers reached an agreement on the "ranking of unsecured debt instruments in insolvency proceedings," an EU statement said on Friday. The deal, reached at a regular meeting of EU finance ministers in Luxembourg, defines a common EU list of subordinated creditors that would face losses when a bank needed to be rescued. A new common category of so-called "non-preferred senior debt" is to be established. Investors who buy these bonds would be wiped out only after all shareholders and junior bondholders are hit in a bankruptcy, but before other senior creditors and depositors. Read more.