LONDON, July 23 (IFR) - It was last week we were speculating over reports that the ECB had changed its tune with regards to the treatment of senior creditors. ECB President Draghi in an interview over the weekend in the French press said that the ECB believes in the involvement of senior creditors of banks in the event of liquidation. The motivation for Draghi is that "it is a matter of limiting the involvement of taxpayers" and confirms recent reports that the ECB had made an 180-degree turn.
There is no added colour but Draghi was speaking on the issue of Spain so it could be that this wider burden sharing will be isolated to Spain. Remember that when Ireland bailed out its banks senior bond holders were protected while for Spain the ECB is suggesting that senior bond holders should take a hit in the event of a liquidation. We can only speculate as to why the ECB has chosen to adopt a different line but at the top of the list is likely to be the need for an additional avenue for burden sharing in order to deal with the crisis.
We know from the MoU for Spain as well as the original WSJ story that the ECB's proposals have not been taken up by the FinMins. Ireland has highlighted the difficulty in burdening the sovereign with financial sector risk and the ECB is aware that the same script could be played out for Spain. The bar is certainly lower to the ECB's stance being accepted further down the road by FinMins now that the pressure has intensified to do something more quickly with Spain
There is no added colour but Draghi was speaking on the issue of Spain so it could be that this wider burden sharing will be isolated to Spain. Remember that when Ireland bailed out its banks senior bond holders were protected while for Spain the ECB is suggesting that senior bond holders should take a hit in the event of a liquidation. We can only speculate as to why the ECB has chosen to adopt a different line but at the top of the list is likely to be the need for an additional avenue for burden sharing in order to deal with the crisis.
We know from the MoU for Spain as well as the original WSJ story that the ECB's proposals have not been taken up by the FinMins. Ireland has highlighted the difficulty in burdening the sovereign with financial sector risk and the ECB is aware that the same script could be played out for Spain. The bar is certainly lower to the ECB's stance being accepted further down the road by FinMins now that the pressure has intensified to do something more quickly with Spain
