ECB Switches View on Bank Bonds

Central bank said to drop opposition to forcing losses on bank bondholders.

The European Central Bank would no longer oppose the forcing of losses on senior bondholders of euro-area banks, said two officials with knowledge of the ECB’s thinking.

A key condition to imposing losses is if the bank in question is being wound down, one of the officials said. The ECB supported imposing losses on senior bondholders of ailing Spanish banks at a meeting of euro-area finance ministers in Brussels on July 9, though the proposal didn’t get much traction, the other official said. Both of them spoke on condition of anonymity as the talks are confidential.

ECB ‘Turnaround’

“Politicians may find themselves under increasing pressure to change this stance,” Michael Symonds, a credit analyst at Daiwa Capital Markets Europe in London, said in a note to clients. “The ECB’s standpoint is notable as it reflects a turnaround from their staunch opposition to senior unsecured haircuts during the bailout of the Irish banks.”

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