EU Bank Writedowns to Exclude Pre-2013 Debt; French Bond Yields Drop Most on Record; Italian Bond Yields Drop Below 7%

"EU officials have hatched a plan to make banks and bondholders take losses for risks, not now of course, but after 2013. In the meantime, taxpayers will shoulder 100% of the losses for bank lending stupidity. On this confidence inspiring news, European bonds rallied sharply.

Bloomberg reports EU Bank Writedown to Exclude Pre-’13 Debt

The European Union may exempt bank debt issued before 2013 from proposals forcing investors to take losses at failing lenders, said a person familiar with the plan.

Excluding the debt is designed to prevent lenders’ funding costs from rising, said the person, who declined to be identified because the discussions are private. The exemption could be extended if banks struggle to raise funds, the person said. The law would need approval from national governments and the European Parliament before taking effect.

Michel Barnier, the EU’s financial services chief, has promised to propose draft rules to end the need for taxpayer bailouts of failing banks.

Under draft proposals obtained by Bloomberg News, holders of long-term unsecured senior debt in a collapsing bank would be first in line to take losses once a lender’s capital and other subordinated debt is exhausted. Long-term bonds would be those with a maturity of more than one year.

A spokeswoman for the European Commission declined to comment on the draft law.

Short-term debt, with a less than one-year maturity, and derivatives should only be written down by regulators as a last resort if losses from longer-term debt aren’t “sufficient to restore the capital of the institution and enable it to operate as a going concern,” according to the draft.

“Exempting short-term debt and derivatives may be justifiable, but this would increase the use of systemically risky derivatives and excessive levels of short-term debt that contributed to the ongoing crisis,” said Sony Kapoor, managing director of policy advisory firm Re-Define. Taxing them “may help alleviate some of these distortions.”

Three Key Provisions

1. Taxpayers would be screwed for all losses up to 2013
2. The year can be extended
3. Writing down Derivatives is a last-resort..."

at http://globaleconomicanalysis.blogspot.com/2011/12/eu-bank-writedowns-to-exclude-pre-2013.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29