Buying bank debt riskier than expected

European regulators seem intent on making it harder for banks to fund themselves.

The painful wind-down of Hypo Alpe Adria Bank in Austria shows government guarantees are no longer iron-clad; the German government wants to make senior debt haircuts possible, and the European Central Bank is not disclosing the capital targets that it has set for financial institutions in its new role as their supervisor.

Combined, these developments suggest that buying bank debt is riskier than investors thought. When the European Union leaders debated the Single Resolution Mechanism, which went into effect in August, the idea of bank “bail-ins” before regulators would even think of bailouts felt theoretical. Now, ways of putting it into practice are emerging, and there’s nothing for investors to like.