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Eurogroup: Bail-in first step in bank rescue

EU finance ministers have formulated a basis for an agreement on the issue of problematic European bank rescue, according to Eurogroup head Jeroen Dijsselbloem speaking to CNBC.

The agreement is expected to begin with a “bail-in: process, wherein clients with large deposits will participate in efforts to salvage collapsing banks.

If more capital is needed, national funds will participate in the salvage effort. If even more capital is necessary, these will be garnered from the whole region over the next 5 - 10 years forming the basis of a common fund.

"We will have a European fund as far as I'm concerned, but there will be, especially in the first years, some national responsibility," said Mr. Dijsselbloem, adding that “if that causes a problem then we will have the ESM [European Stability Mechanism] according to the agreed rules. So, I think the outlines of how this will work are becoming more and more clear,"

EU finance ministers have formulated a basis for an agreement on the issue of problematic European bank rescue, according to Eurogroup head Jeroen Dijsselbloem speaking to CNBC.

The agreement is expected to begin with a “bail-in: process, wherein clients with large deposits will participate in efforts to salvage collapsing banks.

If more capital is needed, national funds will participate in the salvage effort. If even more capital is necessary, these will be garnered from the whole region over the next 5 - 10 years forming the basis of a common fund.

"We will have a European fund as far as I'm concerned, but there will be, especially in the first years, some national responsibility," said Mr. Dijsselbloem, adding that “if that causes a problem then we will have the ESM [European Stability Mechanism] according to the agreed rules. So, I think the outlines of how this will work are becoming more and more clear," he added.

According to the Eurogroup head the "architecture" of a common rescue fund for European banks will be discussed possibly, on Wednesday next week, expressing confidence that a solution could be found before Christmas.

As he said, it is important that any single resolution fund agreed upon is "credible."

The Commission's proposal for bail-ins is very strictly structured with investors and uninsured depositors taking blows before rescue funds kick in.

According to this structure, losses will first be apportioned among shareholders, then low guarantee debt, followed by high guarantee debt, before hitting depositors.

he added.

According to the Eurogroup head the "architecture" of a common rescue fund for European banks will be discussed possibly, on Wednesday next week, expressing confidence that a solution could be found before Christmas.

As he said, it is important that any single resolution fund agreed upon is "credible."

The Commission's proposal for bail-ins is very strictly structured with investors and uninsured depositors taking blows before rescue funds kick in.

According to this structure, losses will first be apportioned among shareholders, then low guarantee debt, followed by high guarantee debt, before hitting depositors.