Tighter EU curbs urged on winding down banks

by Jonathan Adams

Europe’s top official in charge of winding down failed banks has urged the EU to tighten restrictions on when governments can pump money into stricken lenders, in response to recent cases in Italy where senior bondholders were spared losses.

Elke König, the head of the eurozone’s Single Resolution Board, told the Financial Times in an interview that state aid guidelines adopted by the European Commission in 2013 were in effect out of date, as the EU has since taken steps to make sure failed banks can be wound down without sparking a broader crisis.

The guidelines, which were invoked by Italy when it provided some €17bn (£15bn) of state aid to smooth the liquidation of Veneto Banca and Banca Popolare di Vicenza, require shareholders and junior creditors to be wiped out before taxpayer money can be used, but spare senior bondholders.

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