ECB quiet on Spanish bonds report


The European Central Bank refused to comment today on reports that it had recommended senior bondholders should take losses in the event of a restructuring of Spanish bank debt.

But two officials with knowledge of the ECB's thinking said it would no longer oppose the forcing of losses on senior bondholders of euro-area banks.

A key condition to imposing losses is if the bank in question is being wound down, one of the officials said. Both of them spoke on condition of anonymity as the talks are confidential.

A report in the Wall Street Journal today said ECB president Mario Draghi advocated imposing losses on senior bondholders issued by "the most severely damaged" Spanish savings banks at a meeting of European Union finance ministers on July 9th.

A spokesman for the Frankfurt-based central bank wouldn't comment on that discussion. The spokesman said in an e-mail that the ECB's advice aims to ensure that the treatment of senior bondholders is in line with EU rules. He added that national authorities regulate bank resolution processes. The ECB provides advice whenever requested, he said.

The cost of insuring against default on senior bank bonds rose in the aftermath of the report.

The Markit iTraxx Senior Financial Index of credit default swaps on 25 banks and insurers increased seven basis points to 280 at 1.44pm in London, the highest since July 9th.