BOI's Visco says EU bank bail-in rules must be rethought

Bank of Italy Governor Ignazio Visco attends the session 'Recharging Europe' in the Swiss mountain resort of Davos January 23, 2015. REUTERS/Ruben Sprich

ROME (Reuters) - European rules for winding down banks should be reconsidered and should only be applied to newly issued financial instruments, Bank of Italy governor Ignazio Visco said on Thursday.

In written comments prepared for a speech in Florence, Visco said applying the new rules to existing securities “can indeed be a source of serious liquidity risk and financial instability”.

The rules impose losses on shareholders, bondholders and possibly also on large depositors in case of bank resolution. They are aimed at reducing taxpayers’ costs for banking rescues.

Thousands of retail investors lost their savings when Italy rescued four small banks last year, turning the issue into a political hot potato.

“We should not rule out the possibility of temporary public support in the event of systemic bank crises, when the use of a bail-in is not sufficient,” Visco said.

Visco also said that a newly-created Italian bank rescue fund can contribute to resolving the problem of bad loans at Italy’s banks but added that it would take time.

Reporting by Isla Binnie; Editing by Crispian Balmer