European Commission VP Almunia: bank bail-ins preferred, but bailouts still possible in crisis

AMSTERDAM – The vice-president of the European Commission has said that direct tax-payer funded bailouts of ailing banks remains a possibility if Europe’s debt crisis were to return, though he repeated that the governments’ preferred method will always be forcing creditors to pony up first.

Speaking at an investor’s conference in London, Joaquin Almunia said Tuesday that some investors “logically” want more information about what will happen if the newest round of stress tests Europe’s largest banks are facing reveal capital shortfall.

He repeated the Commission’s position that shareholders and junior creditors will be the first to have to give up money, in a “bail-in” scenario, before senior creditors or depositors would.

However “if financial stability were at risk…public backstops can intervene before ‘bail-in’ takes place,” he said.