On Tuesday 6 June, several member states entered objections to the draft report of the Maltese Presidency of the Council of the EU taking stock of the work underway at the Council on reducing and pooling risks, ahead of the Ecofin Council to be held in Luxembourg on Friday 16 June.
“The report is not stable”, and it needs to be for a political agreement in principle to be possible on the two legislative proposals on the table, a European source said.
A number of delegations – Germany, Luxembourg and Belgium – are establishing a political link between this document and two proposals from the legislative package on risk reduction presented at the end of last year (see EUROPE 11674), namely: - the revision of the 'BRRD' directive, which introduces a new category of bank assets to be required to contribute in the event of a bail-in (see EUROPE 11802); - the phasing-in over five years of capital requirements stemming from the application of international financial standard IFRS 9.
In mid-June, the Ecofin Council will be called upon to reach a political agreement on both proposals.
On the ‘reduction of financial risks’ plank, the Maltese Presidency notes, in its draft report dated Friday 2 June and of which EUROPE has had sight, two politically controversial matters: eligible liabilities items and instruments and the balance of competences between host countries and home countries (‘home-host balance’) of banking groups.
Despite the misgivings of certain countries, Valletta has included two proposed compromises in its document on the above issues, which have the support of a large majority of member states. One of them aims to take account of the concerns voiced by at least 13 host countries regarding a possible exemption from the application of the liquidity requirements on an individual basis.
Finalising banking union. On the ‘pooling of financial risks’ plank, the Maltese Presidency takes stock of the work to finalise banking union in the Eurozone by creating a European deposit insurance system (EDIS) (see EUROPE 11734). It identifies six major questions, including the scope of application of the future system (possible inclusion of third-country subsidiaries and establishment of deposits currently in the ‘supervision’ plank of banking union), contributions of banks to the European deposit insurance scheme based on exposure to risks (these provisions will be included in the first-level legislative text), the question of the inclusion in the EDIS system of institutional protection schemes (IPS), which are common in Germany.
The fact remains that the definitive outlines of the future EDIS system continue to divide the member states, as the matter of putting together an inter-governmental agreement has not yet been resolved. A political agreement on finalising banking union is not expected any time soon, as no major breakthrough is anticipated before the German general elections of September. At the European Parliament, moreover, work on EDIS is at stalemate. (Original version in French by Mathieu Bion)