Ireland’s Honohan: Senior Bank Bondholders Should Take Losses
PARIS (MNI) – Losses should be shared by both junior and senior
bondholders when failing banks are put into resolution, Ireland’s
central bank governor Patrick Honohan said Friday.
In a speech in Dublin, Honohan said the refusal of Ireland’s
international lenders to allow losses to be imposed on senior
bondholders, together with the bank guarantees issued by the government
in 2008, were key factors in tipping Ireland into its 2010 bailout.
“The extensive socialisation of losses – initially through the
September 2008 guarantee and subsequently when the Troika refused to
countenance burden sharing with the unguaranteed senior bondholders –
has been rightly subject to extensive criticism,” Honohan said.
In future banking crises, “prompt, transparent over-capitalisation”
should remain the preferred option for dealing with failing banks that
it is deemed necessary to save, Honohan said.
“Losses should be shared by both junior and senior creditors where
necessary in cases where the banks are put into resolution,” he said.
Since 2009, Ireland has spent E65 billion rescuing its banking
system after a collapse in property prices. The Irish government was
forced to pay off senior holders of Irish bank debt after the European
Central Bank refused to allow losses to be imposed on them because of
fears of contagion to other European banks.
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