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European banks need bail-ins rather than bailouts of fresh capital, as the European Central Bank’s liquidity operations come to an end, according to ratings agency Fitch.
Bail-ins - where banks convert debt on their books into new equity rather than looking for fresh capital elsewhere – could expose banks’ creditors to greater risk. However, they would avoid the taxpayer being exposed even further to banks’ failure.
“There’s a balancing act going on between trying to make banks much safer and making sure that huge amounts of taxpayers’ money doesn’t go into bailing them out next time around,” Bridget Gandy, managing director and co-head of EMEA financial institutions, Fitch Ratings, told CNBC’s “ Squawk Box Europe .”
“They’re trying to make sure there’s a way that banks can resolve their problems by bailing in senior creditors. Trying to introduce legislation like that could send creditors running for the door – so this is where the balancing act could come in,” she warned.
The European Central Bank’s two mass liquidity injections , in December and February, helped buoy markets earlier this year, but concerns about the long-term consequences of the European debt crisis remain.
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