A senior EU official has said the European Commission will propose rules this week that could force lenders to banks to share the costs of their winding up.
The proposal to inflict the pain of a bank failure on its bond holders is one in a series of measures designed to cope with lenders in difficulty.
But the idea, which mirrors German plans to force lenders to governments to share the pain of any sovereign default, is likely to be controversial. Germany's push for a regime for government bond holders from 2013 has rattled bond investors worried about the security of their investments.
'We need sound legal basis for that to develop in Europe,' said the official, quoted by the Reuters news agency. He was outlining the Commission's desire to break the status quo, where bank bond holders have typically enjoyed protection while shareholder investments crumble.
One option, said the official, would be to transform a bank bond into shares should the institution run into difficulty. 'Banks can already issue convertible bonds,' he said. 'But that is very rare at the moment. We need a legal framework for that.'
