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Global bank meltdown September 2015? Germany approves bank bail-in plans


Germany OKs plan to make creditors prop up banks


By Andrea Thomas


BERLIN--Germany's cabinet Wednesday approved plans to force creditors into propping up struggling banks beginning in 2015, one year earlier than required under European-wide plans that set rules for failing financial institutions.

The new bail-in rules are part of a package of German legislation on the European banking union--an ambitious project to centralize bank supervision in the euro zone and, when banks fail, to organize their rescue or winding-up at a European level.

Germany "leads the way" in Europe by implementing European rules quickly and "creates instruments that allow the winding-down of big systemically relevant institutions without putting the financial stability at risk," the country's finance ministry said in its draft bill seen by The Wall Street Journal.

"This ensures that in times of crisis mainly owners and creditors will contribute to solving the crisis, and not taxpayers."

European finance ministers agreed earlier this year on Europe-wide legislation on bank recovery and resolution, which sets a cascading hierarchy of investors who would be hit when a bank fails. These rules will come into force in 2016.

Germany will apply these rules already from next year, according to the bill. Struggling bank creditors, in addition to shareholders, will have to help financial institutions, covering up to 8% of liabilities, before the banks can tap Germany's financial markets stabilization fund SoFFin.

In an expertise report presented Wednesday, Germany's independent Monopoly Commission, which advises the government on competition and regulation issues, said its "skeptical whether market participants can muster sufficient capital buffer to effectively prevent the general public from being held liable."

The SoFFin rescue fund, which was scheduled to be dissolved this year, will be operated until the end of 2015 to bridge the time until a European-wide restructuring fund is in place.

The plan comes as Europe' banking supervisor, the European Banking Authority, conducts a new round of stress tests aimed at making the European Union's financial sector more resilient. The results, expected by the end of October, might reveal a need for fresh capital. Banks failing the tests then have up to six months to raise fresh capital from private investors.

Bankers say that keeping SoFFin alive longer is a sign that the government wants to ensure that the country's regional public-sector lenders, or Landesbanken, would have a last resort should the stress test unveil a capital shortfall.

Eyk Henning in Frankfurt and Gabriele Steinhauser in Brussels contributed to this article

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Zechariah 12:3,9:
And in that day will I make Jerusalem a burdensome stone for all people; And it shall come to pass in that day, that I will seek to destroy all the nations that come against Jerusalem.
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