Brussels, 28/10/2015 (Agence Europe) - The president of the Single Resolution Board (SRB), Elke König, has called for a “European solution” to harmonise the order in which financial actors will be called upon to contribute in the event of the failure of a systemic bank.
“As a European body, we would very much welcome a European solution to this. But that means changes in the legislation, which might take time”, König said in an interview with EUROPE on Wednesday 21 October.
The 'BRRD' directive (2014/59), which has been in force since January 2015, brings in a bail-in rule at European level, whereby the shareholders, creditors and depositors of a bank will be approached in the event of its failure. This role will not apply until January 2016, when the Single Resolution Fund (SRF), the financial arm of banking union in the eurozone, managed by the SRB board, is up and running.
In the exercise of transposing the directive, several member states specify more clearly than the European law the order of players potentially affected by banking resolution. Germany and Italy have opted for statutory subordination, including a pre-determined order of affected holders of debt in their solvency law. The German bill will protect certain holders of subordinated debt less, whilst the Italian bill pursues the objective of increased protection for all deposits, not simply those of individuals and SMEs. In Spain, banks will be obliged to issue an increased volume of subordinated debt, which would be levied in the event of a bail-in. Taking inspiration from international discussions on the total loss absorption capacity (TLAC) of the major systemic banks, the United Kingdom favours a structural approach (structural subordination), whereby the assets of a bank at the level of its holding would be called upon.
“We are not talking about countries deviating from or derailing the 'BRRD'”, said König. She explained that these “slight differences” in the application of European or national level are not a problem, “as long as they are all going in the same direction”. “We need to have some leeway” on how to introduce the rules, particularly as “we don't have harmonised solvency law, tax law or company law in Europe”, she pointed out. In a speech before the German parliament in September, the SRB judged Germany's approach positively. It describes the Italian procedure as a new attempt, but which does not fully resolve the issue of the subordination of the debt instruments in the event of bank resolution.
Resolution plans. The 'BRRD' directive requires 6,000 European banks to draft, together with the banking regulator, resolution plans to be applied in the event of failure. One of the four committees of the SRB is exclusively active in developing these plans. “The aim is to have consistency at the level of a bank group”, explained the former president of the German financial supervisory authority (BaFin), stressing the importance of a good level of cooperation with the national resolution authorities. All of the European banks considered globally systemic already have a plan of this kind, in line with their international obligations. As for the other credit establishments directly supervised by the ECB in the framework of banking union in the eurozone, not all of these have a resolution plan at this stage, notably due to the fact that the 'BRRD' directive has not yet been transposed in all member states (see EUROPE 11416). “The recovery plans - submitted by the banks - are not all to the same level of detail. Our resolution plans will be much more to a standard. Harmonization is one of our key objectives”, said König, who went on to explain that the obstacles to be tackled in drafting the resolution plans arise as a result of particularly complex organisational structures, IT systems that are not fit for purpose and the absence of cooperation agreements with certain counterparties.
Banking union. Banking union is currently based on the 'supervision' and 'resolution' pillars. The countries of the eurozone have undertaken to reach an agreement, before the end of 2015, on bridge financing for the SRF fund to give it an envelope of €55 billion from January 2016, for the transitional period of its build-up (2016-2023). At the insistence of Germany, the member states will set in place national credit lines which will cover the contributions of the national banking industries to the national compartments of the SRF (see EUROPE 11402). “It will be a compartmentalised solution” and “the idea is that the compartments are pooled”, König confirmed.
The European Commission has announced that before the end of 2015, it will present a legislative proposal to set in place a European insurance mechanism for the national banking deposit guarantee schemes, the third pillar of banking union (see EUROPE 11415). This plan has come under heavy fire from Germany. But the president of the SRB board feels that it makes sense, with one caveat: all of the member states must include in their internal law the 2014 revision of the 'deposit guarantee' directive, which has been applicable since July 2015. This legislative revision requires the creation of national guarantee funds, paid for by the industry at a level of 0.8% of bank deposits covered (see EUROPE 11061). “Only a minority of member states have already transposed”, König observed. (Original version in French by Mathieu Bion)