Photo: AP/Riccardo De Luca
The European Central Bank is changing its approach to bank bailouts a report citing ECB President Mario Draghi in the WSJ published today.In contrast to its position with respect to the Irish bailout, the bank will now support the idea of even banks’ most senior debt holders taking losses.
This highly technical headline hides the fact that the ECB appears to be moving away from a stance that favours bailouts to one that actually imposes losses on investors exposed to the European crisis.
The ECB’s new revelation comes ahead of a wide Spanish bank bailout, which would provide €100 billion ($122 billion) to recapitalize failing Spanish banks.
European leaders have rejected the ECB’s new approach so far. According to the WSJ report, a draft resolution on the coming Spanish bank bailout will impose losses only on junior bondholders and shareholders.
Nonetheless, the ECB has been the primary driver of European stability so far in the crisis, rival to Germany in its power to influence the crisis. Thus any change from this corner should be viewed as a step towards a new policy that could be adopted by other EU notables down the line.
Watch this video for an analysis of the ECB’s move:
Produced by Daniel Goodman