Brussels, 13/07/2016 (Agence Europe) - On Wednesday 13 July, the head of the Single Resolution Board (SRB), Elke König, defended application of banking rules allowing bail-in for bank collapses, referring to the hypothesis of public intervention from the Italian authorities to stabilise some of the country's banks, suffering from their holdings of toxic debt.
“The BRRD [Bank Recovery and Resolution Directive] provides for bail-in burden sharing before you can use the SRF [Single Resolution Fund] as a means to achieve a resolution - deliberate political decision taken - well wise to use the system we have,” said König in response to a question from Ramon Tremosa i Balcells (ALDE, Spain) at a public hearing at the European Parliament's economic and monetary affairs committee. She added: “Burden sharing has to happen and follow the hierarchy: equity, subordinated bonds and then senior bond holders.”
König did not hide the fact that the BRRD (Directive 2014/59) provides some “leeway” in that it allows “precautionary recapitalisation” of failing banks, pointing out that the European legislator clearly prefers bail-ins to public bailouts.
Fabio De Masi (GUE/NGL, Germany) asked the head of the SRB whether under the BRRD the Italian bank Monte dei Paschi di Siena would receive a preventive recapitalisation if its fails the European Banking Authority (EBA) stress tests. EU legislation refers to banks' “solvability” rather than failing stress tests, pointed out König.
Marco Valli (ELDD, Italy) slammed the “stupidity” of European bank recovery rules which don't cover big banks and penalise small investors. He said that given the political and economic consequences of a failed bank, only public intervention is feasible for restoring Italian banks to health because there aren't any rules to allow the separation of retail and investment banking at big banks.
Koenig did not rule out the possibility of providing compensation for small investors whose deposits are seized when a bank collapses because they were given bad advice when making their investment, but she said such compensation could not be done under the BRRD system.
Presenting the SRB's 2015 activity report, König said that the SRB was continuing to draw up resolution plans for big (systemic) banks. She said that despite the Commission's specific draft delegated act (EUROPE 11556), the SRB had not amended its approach to the introduction of capital requirements that can be mobilised in the event of a bank resolution (“MREL”). The level of capital required will be set bank-by-bank with a minimum of 8% of eligible assets for big financial institutions. Account will be taken of the TLAC capital buffer for big banks and also for other large banks.
Finally, the Single Resolution Fund (SRF), the financial arm of the resolution side of eurozone Banking Union, now has €10.7 billion. König said the question now was of investment policy for this money in an environment of very low or even negative interest rates. (Original version in French by Mathieu Bion)