* EU consultation on imposing bondholder losses
* Some countries fear bank funding costs will soar
* EU's Bowles urges Barnier to push ahead with some elements
By Huw Jones
LONDON, March 19 European Union plans to impose
losses on the bondholders of ailing banks have been further
delayed amid concerns they could increase banks' borrowing
costs, EU officials said on Monday.
The EU's executive has drafted a law with measures designed
to shield taxpayers from having to prop up lenders in another
financial crisis by sharing the burden of a wind-up or rescue
The bloc's member states have pumped in some 3 trillion
euros into the banking sector since the crisis began in 2008,
helping to trigger a wave of public spending cuts to bring
government finances back under control.
On Monday EU financial services chief Michel Barnier, who is
responsible for producing the draft law, was unable to give an
exact date for its long-delayed announcement.
Barnier is proceeding cautiously because his plan to allow
the imposition of losses on bondholders has prompted concerns
that investors will demand far higher premiums for buying bank
bonds if they know there is a higher risk of default.
The so-called bank crisis resolution measures had been due
last September but now face further delay as some EU states are
worried about this central element of forcing bondholders to
take a hit.
Barnier will hold a "mini consultation" on this aspect in a
bid to reassure worried countries, two senior EU sources said.
It will involve national treasuries, the European Central
Bank and the European Parliament.
"Concerns have been expressed about what would this mean in
funding costs for banks," one of the sources said.
"There are some countries that are very nervous as they
think it will cause shocks to their banks," the second source
said. Investors, knowing their bonds may take a hit, would ask
for higher interest as compensation.
The ECB has channelled a trillion euros in low-interest
three-year loans to banks in the EU to help them deal with
large, immediate funding issues but policymakers want them to
stand on their own feet eventually by tapping investors.
Barnier said on Monday he hoped to publish his draft law as
soon as possible, signalling that he did not want it to
undermine a bailout of Greece. Bondholders of Greek debt had to
accept steep losses on their investment.
Sharon Bowles, UK Liberal Democrat chairman of the European
Parliament's economic and monetary affairs committee, urged
Barnier to push ahead with publishing the bulk of his draft
measure now and leave the bondholder-losses element for later.
"They should get as much as they can out there," Bowles told
reporters on the sidelines of a Chatham House event in London.
"There is an awful lot we could be getting on with in terms of
She has already proposed amendments to a separate draft EU
law on bank capital for the European Banking Authority to
coordinate the few national bank resolution mechanisms that have
been set up in EU states like Britain.
The Barnier measure also includes provisions for setting up
a bank resolution authority in each member state and forcing
banks to write a "living will" or a document showing how they
could be wound up quickly without destabilising markets.
These two elements could be proposed immediately, Bowles