ECB's Liikanen: Bank shareholders must bear risk

Bank shareholders and investors should be prepared to accept greater risk in banking operations rather than laying the responsibility for bailouts on governments and taxpayers, a newspaper reported European Central Bank governing council member Erkki Liikanen as saying                               
In an interview Thursday with the daily Demokraatti on a proposed European banking union, Mr. Liikanen called for European banks to be better capitalized and more liquid so that they may better withstand adverse market conditions
At the same time, he called on shareholders to take on greater responsibility and risk                               
"Shareholders need to be in the front row and their risks should be primary. Their task is to ensure that the banks behave in such as way as not to incur losses," Mr. Liikanen said                               
He also trained his crosshairs on investors who lend to banks, saying that they too should accept their share of responsibility and risk in the event that banks don't fare well                               
"A central issue in the banking union discussion is that we create a system in which there is a kind of investor responsibility that would allow at least some of their loans to banks to be converted to capital," Mr. Liikanen said
"It cannot be that we change rules for the game after the fact," he added.
Mr. Liikanen said that shareholder and investor responsibility need to be effective enough to ensure that governments don't end up footing the bill for bank failures                               
Mr. Liikanen also said that it was unfortunate that the idea of a European-wide deposit guarantee system had aroused fear and suspicion
He said that if such a system were to be developed, it would have to be constructed from a clean slate