Brussels, 10/06/2013 (Agence Europe) - On Friday 7 June, the national experts of the member states gave a reasonably warm welcome to the fifth proposed compromise from the Irish Presidency of the Council of Ministers on the directive harmonising national banking restructuring regimes.
“In general, it looks very promising: there are no major problems”, said a European source. The Irish Presidency will do all it can to reach a political agreement on this matter at the Ecofin Council of Friday 21 June (see EUROPE 10861). Between now and then, the national ambassadors will discuss the issue on Wednesday 12 and Monday 17 June, in order for the proposal of the European Commission introducing a “European agency” for banking restructuring to be presented before the European Council.
“Bail-in”. The legislative proposal brings in rules at European level on internal refloating (“bail-in”), a technique whereby the support of the shareholders and creditors of a bank will be called upon ahead of certain categories of depositors, in the event of the restructuring of a failing bank. The latest proposed compromise of the Irish Presidency lays down a preference for the deposits of physical persons and SMEs (companies employing fewer than 250 people and with a turnover of less than €50 million, and/or total assets of less than €43 million).
The Presidency explained in a document annexed to its proposed compromise that this change to the text will strengthen the position of the deposits of physical persons and SMEs, as there is now a category, that of deposits of (large) companies, which will absorb losses before them. Allocating a preference to these categories is theoretically justified by the fact that large companies have the resources and incentives to follow the risk level in banks, and the change aims to remove the risk of different treatment between the deposits of large companies and unsecured obligations, a risk which was raised at the Ecofin Council (see EUROPE 10845), the document continues.
The issue of when the bail-in would enter into general use has not yet been decided on. Although the majority of countries would like to give the industry until 2018 to come into line, a few member states - including Germany - and the ECB are arguing for the rules to apply from 2015. Through its Hökmark report, the European Parliament is favouring a 2016 entry into force for the bail-in (see EUROPE 10849).
MREL. The national experts discussed provisions on the obligation on banks to hold a minimum share of own funds and eligible mobilisible assets in the event of tough times (articles 39 and 40). A number of delegations (Finland, the UK, the Netherlands and, to an extent, Italy) would like harmonised rules defining a minimum level, whereas Spain opposes this.
What is at issue is the location of this minimum capacity to absorb losses within a bank group, a question which is connected to relations between the home and host competent authorities. In a document annexed to its recent proposed compromise, the Irish Presidency explains its suggestion that a minimum level of own funds and eligible assets be set both at group level and at the levels of the various entities of the group. However, it would prefer a different approach based on a minimum level for each entity of the group and taking account of intra-group loans, as does the industry itself.
The future European law will provide for the introduction of national funds fed into by the industry on an ex ante basis and for the purposes of funding a bank restructuring programme. The level of funding to be reached in the medium term has still to be decided upon. However, these funds could conditionally appeal to the solidarity of their counterparts from other states. In the event of a cross-border restructuring operation, specific rules will apply. (MB/transl.fl)