Euro-Style Bail-In Plan Means Bondholder Wipe-Out: Brazil Credit

Brazil is drafting rules that would wipe out some creditors of failing banks in an effort to avoid taxpayer rescues, echoing European proposals to make bondholders shoulder more costs after three bailouts in as many years.

The central bank said May 6 it had prepared a draft of a “bail-in” proposal that would impose losses on holders of subordinated and unsecured bonds in case of insolvency and use their investments to revive the lenders. The measure would boost funding costs for the nation’s investment-grade banks, which currently pay a near record-low 3.77 percent on average to borrow dollars in the bond market, according to Carlos Thadeu de Freitas Gomes, a former central bank director.