Bail-in proposals are not necessarily bad for investors – M&G

Investors may have worked under the assumption they would be saved from losses on their holdings of bank debt by public bailouts, but they need to accept those days are over, writes Tamara Burnell of M&G Investments.

Tamara Burnell, M&G Investments

Bondholders should expect to take losses when they invest in a bank that fails. This is the principle of the European Commission’s so-called ‘bail-in’ proposals, contained in a consultation paper published on January 6. Any sensible, long-term fixed income investor should agree with them; and not just because the alternative, namely liquidation, is typically value destructive for creditors and the economy as a whole.

In fact they must agree, because the alternative to bailing in bondholders