October 28, 2019 / 3:35 PM / a month ago

Slovenia lawmakers veto planned law on bank bail-in repayments

SARAJEVO (Reuters) - The Slovenian parliament’s upper house unanimously vetoed on Monday a proposed law which would require the central bank to cover all possible repayments to those who lost their investments during a 2013 overhaul of the banking sector.

The lawmakers bowed to pressure from the Interest Group of Employers, which represents companies, that argued that the bank bail-in legislation did not give investors efficient legal protection. The lower house approved the proposed law last week.

A bail-in refers to a process in which a bank uses the money of its subordinated bondholders to restructure its capital to stay afloat.

In 2013 the government poured more than 3 billion euros ($3.33 billion) into mostly state-owned local banks to prevent them from collapsing under the burden of bad loans. This allowed Slovenia to avoid an international bailout.

Following Monday’s veto, the 90-member lower house will hold another vote on the legislation in coming weeks and it can be passed into law without the lower house’s approval if it wins an absolute majority.

But the Slovenian central bank, which is backed by the European Central Bank, has said that even if parliament passed it, it would challenge the law in the Constitutional Court, which could prevent or significantly delay its enforcement.

The Bank of Slovenia and the ECB claim that making the central bank liable for any damages arising from court cases related to the 2013 bank rescue breaches the European Union’s monetary financing rules.

The legislation was prepared by the finance ministry which said it was in line with a 2016 Constitutional Court ruling that urged parliament to give greater legal protection to investors who lost assets during the bank rescue.

During the bail-in process, which was led by the Bank of Slovenia in coordination with the government, the European Commission and the ECB, some 600 million euros of subordinated bonds issued by the troubled banks were scrapped as well as bank shares held by some 100,000 shareholders.The rescued banks were later privatized.

Reporting by Maja Zuvela; Editing by Emelia Sithole-Matarise

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