Brussels, 01/10/2013 (Agence Europe) - The European Banking Authority (EBA) is concerned about the impact on its mediation work of the high degree of flexibility granted in some financial legislation, such as the bank resolution system currently under negotiation.
“The degree of national flexibility in key legislative provisions can be very detrimental to achievement of the objectives assigned to the EBA; for example, it is very difficult for us to perform mediation in the area of recovery and resolution if national discretion is not constrained within a European framework of resolution planning and coordination among authorities, eg in the event of carving out certain creditors from bail-in,” explained the head of EBA, Andrea Enria, on Monday 30 September in a hearing at the European Parliament's economic and monetary affairs committee. He added: “It would be helpful if some ambiguities on the legal basis on binding mediation could be clarified to support our efforts.'
The agreement in principle at the ECOFIN Council on the BRRD directive to harmonies national bank wind-up rules gives discretionary power to member states to adjust the list of private investors whose deposits can be raised, depending on the type of bank involved (see EUROPE 10876). This discretionary power needs to be re-confirmed in talks with the Parliament and there will be rules attached. It would only apply if there were the danger of a domino effect and only if 8% of eligible instruments have already been bailed in.
Stress tests. Enria said: “The crisis has seriously impaired the functioning of the Single Market in banking,” and therefore the EBA is “engaged in that is aimed at rebuilding trust and cooperation amongst national supervisors in the EU” which are members of the EBA.
To allay concerns about the strength of European banking, national and European bank authorities are analysing bank balance sheets. “There will be one asset quality review only, conducted by the competent authorities - which, for the banks falling under the remit of SSM, will be the ECB - and only one stress test, which the EBA will closely coordinate with the ECB and other national competent authorities,” explained Enria, saying that the EBA has agreed on a recommendation to all competent national authorities “to carry out asset quality reviews which - along with our work on risk-weighted assets - should provide dispel the remaining uncertainties and provide a more reliable picture of the loss absorbency capacity of EU banks.'
Three areas are mentioned in Commissioner Michel Barnier's circles. Firstly, the EBA will examine a section of banks' balance sheets in order to see whether assets are properly valued. In parallel, the ECB will conduct an overview of bank balance sheets (a balance sheet assessment). This should give an idea of the health and solidity of banks based on the current capital requirements while giving an idea of what needs to be done by each bank to fully meet the solvency rules that will come into place in 2019. Thirdly, a stress test piloted by the EBA, in which national bank supervisory bodies will consider how banks could survive a hypothetical crisis, would be carried out - examining the impact of collapse of a housing bubble, for example. (MB/transl.fl)