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 coul
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