European Bank Recovery & Resolution Directive Adopted

In late August, France adopted the European Bank Recovery and Resolution Directive into law, a risk negative outcome for debt investors of French banks as it permits resolution authorities, national or Europe-wide, to impose a bail-in of senior bank creditors.   This directive takes effect as of January 2016.  This was reported overnight by Moody's Investor Services.

France along with other countries such as the Netherlands and Luxembourg have been late to implement these laws and this action satisfies European requirements for France. The version adopted by France, like several other European countries, is considered a partial depositor preference where individual savers and SME deposits rank ahead of large sophisticated depositors such as large institutions.   Germany modified this approach when it implemented the law to instead subordinate bonds to other senior unsecured liabilities such as corporate deposits and Scheldschein.  

Some academics of bank corporate governance argue that such bail-in features, while arguably increasing the cost of financing for banks, may reduce the amount at risk for deposit insurance providers (in case of failure) while simultaneously increasing the monitoring practices conducted via market discipline activities, potentially a complement to board members and national authorities actions. 

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