Brussels, 01/12/2013 (Agence Europe) - Yes to leeway for the national authorities, but in the framework of a single banking resolution mechanism. This is the message sent out by Elisa Ferreira (S&D, Portugal), two days ahead of the vote by the committee on economic and monetary affairs on the single banking resolution mechanism (SRM), to be held on Thursday 5 December.
There are three objectives: assuring financial stability, protecting the taxpayers and protecting savers, said Elisa Ferreira, who is steering the negotiations within the European Parliament (EP) on Monday 2 December. She announced that there was “convergence” between the main political groups on the need for a genuinely single resolution mechanism. There is no point in having a single supervision mechanism if there is no equivalent mechanism for resolution, she stressed, referring to an EP resolution dating from 2010 recommending that genuine banking union be set in place.
As regards the scope of application of single resolution, most of the EP are against a two-speed system, which only German MEPs, with the exception of the Greens, are calling for (see EUROPE 10966). According to Ferreira, it would be “bad for the EU's future” for European banks to be subject to different regimes and resolution funds. However, on the strength of the coalition agreement between the CDU/CSU and SPD parties, many German MEPs hope to limit the scope of application of the SRM to systemic banks. Stating that she hoped to forge the broadest compromise possible, Ferreira agreed to give the national resolution authorities “substantial room for manoeuvre”, particularly when preparing resolution plans to be applied in the event of the resolution of the defaulting bank. “These are the ones which must state what is feasible and what is not”, she said, arguing in favour of close cooperation between the national authorities and the European authority, even under normal economic conditions.
Safety net. The EP approves of the European Commission's proposal to create a single resolution fund to be fed into ex ante by the banks on the basis of the nature of the risks run (size, interconnection level). This fund should constitute an envelope equivalent to 1.5% of deposits covered, within between 10 and 15 years' time. In order to prevent it from being “powerless” for the first few years of its existence, we will be calling for a “safety net” to be set in place, the Portuguese Socialist MEP stated. This is an extremely sensitive issue at the Council. This backstop would take the form of a reimbursable “loan facility”, preferably coming “from a European public instrument”, such as the Community budget or the EIB. Or, if applicable, from the European stability mechanism (ESM), even though this is an intergovernmental instrument.
Another tricky issue is who is to decide to place a financial institution under resolution. There is a sizeable majority at the EP in favour of allocating this decision to the supervisory authority and, in particular the ECB for the 130 systemic banks of the eurozone which it will be supervising directly from November 2004. “We must stand extremely firm on this point”, said Ferreira, who believes that, if it was also granted to the resolution authority (as the Commission suggested in its initial proposal), this kind of competence would create legal uncertainty. The resolution authority will, however, have the power to ask the supervisory authority to explain why a struggling bank has not been placed under the resolution process.
Bail-in. Referring to the negotiations underway on the BRRD directive harmonising the national resolution regimes and scheduled to conclude by the end of 2013, Ferreira feels that it is necessary to “anticipate” the generalisation of bail-in tools, which will require the shareholders and creditors of a bank to contribute first and foremost, before any public financial aid. The EP recommends that the SRM and the BRRD directive are up and running from “July 2016”. Readers may recall that the political agreement of the Ecofin Council provides for the bail-in rules to apply in 2018, although Germany, Finland and the Netherlands are calling for this to be brought forward to 2015.
Ferreira, who is monitoring negotiations on the BRRD directive on behalf of the S&D Group, will continue to fight to step up protection for the savings of citizens and SMEs in the event of a bank bail-in. This, she argues, should be ensured by the creation of a specific category within the hierarchy of investors affected by the bail-in and the guarantee that the deposit guarantee regimes can be mobilised only for that category of investors. (MB/transl.fl)