Investors should price in the risk that EU authorities may exclude from bail-in bondholders of the same class, the Financial Times’ Lex column argues.
“Banks in urgent need of capital have no easy options. State bailouts sow moral hazard and raising equity or selling assets is hard, particularly at a moment of public weakness such as the aftermath of a failed stress test. The fashion now is for bondholders to step up and absorb losses, almost as if they owned equity. Fairness and prudence require that losses be dispersed evenly across all bondholders — so the hit is painful to all, but lethal to none.”