Following the results of the Asset Quality Review and Stress Tests before the end of the year, the bail in instrument will apply for senior debt bondholders whereas bail in of depositors is excluded.– Eurogroup statement on Greece, August 14th
Which ‘instrument’ might that be for wiping the senior bonds of under-capitalised Greek banks?
Is it:
a) The bail-in tool used under Article 43 of the EU’s Bank Resolution and Recovery Directive? In which case the banks would have to undergo resolution by the authorities first, before the instrument was applied to senior debt.
That resolution may be an arduous process to undertake in the present, somewhat delicate circumstances of Greece’s financial system. It may also depend on stress tests, and on how badly the summer’s Grexit near-miss damaged non-performing loans.
b) Some other instrument that would somehow apply as soon as Greek banks tapped recapitalisation funds? Which would be an interesting extension of the bail-in ethos but not, as far as we can tell, part of the BRRD procedure.
Because at pixel time on Monday, some of these bonds had dropped a third in price (admittedly in a less than liquid market).
A Piraeus Bank bond due next year, for example, fell from 53 cents on the euro to 40 cents.
Which suggests holders weren’t willing to wait for the semantic niceties either way…
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