On the evening of Monday 11 December in Strasbourg, the MEPs of the committee on economic and monetary affairs of the European Parliament discussed four legislative proposals of the 'banking risk reduction' package.
This package, which takes the form of amendments to existing directives and regulations and which was presented by the European Commission on 23 November 2016 (see EUROPE 11674), is considered the most ambitious of the institution's current mandate in the banking sector. Whilst the proposed directive on the hierarchy of creditors to be mobilised in the event of bank resolution and the proposed regulation on the application of the revised international financial standard IFRS 9 have already been adopted under a fast-track procedure (see EUROPE 11921), the work on the other parts of the package is only just beginning.
Sweden's Gunnar Hökmark (EPP) presented his two reports on the transposition of the TLAC standard into European legislation, modifying the directive on bank resolution and recovery ('BRRD') and the regulation establishing the single resolution mechanism.
Readers may recall that the TLAC standard, agreed upon at G20 level, requires banks of global systemic importance to hold a sufficient minimum amount of commitments that can be used for a bail-in in the event of the resolution of failing banks. It will be incorporated into EU law on requirements for capital to be mobilised in the event of bank resolution ('MREL'), which is already applicable to all European banks.
The line taken by the rapporteur aims to implement the TLAC standard without imposing any additional requirements, so as to allow an increase in investments and clarify risks to investors, he explained. He went on to stress that it is also important to avoid penalising well-capitalised banks by requiring them to issue extra debt in order to comply with a minimum capital requirement and eligible commitments.
The rapporteur furthermore hopes to introduce a rule of maintaining acquired rights, particularly in terms clearing. Under this approach - which has the support of the S&D and ECR groups - subordinate instruments issued before the date on which the eligibility criteria are adopted would be deemed eligible for the MREL without having to meet the new eligibility criteria brought in with the raft of measures on risk reduction.
During the discussions, the proposed moratorium instruments, preventing investors from selling their debt on a bank in difficulties, was discussed. The rapporteur is proposing to reduce the length of the moratorium to two working days, whilst the Commission proposed five working days. If you place an instrument under a moratorium, this sends out a very clear signal to the markets, showing that there is a problem with that bank and the longer the moratorium, the greater the credibility problem, he explained. Observing differences of opinion on this subject, he went on to stress that he was open to broader discussions. The ALDE group believes “greater enlightenment” from the European Commission would be welcome.
Peter Simon (S&D, Germany) also presented his report on two other planks of the package: reducing the leveraging effect of financial institutions and introducing greater proportionality in the banking prudential rules for smaller banks considered non-complex. Having detailed several adjustments made to the Commission's texts in these areas, he took a position in favour of setting the upper limit for the debt-equity ratio with leveraging effect at 4%, rather than the 3% proposed by the Commission, stressing that this threshold exists in many countries, such as the US and Switzerland.
Following the discussions, the two rapporteurs noted their colleagues' willingness to find a common solution on these dossiers follow. “After today's discussions, we can be optimistic”, Simon said.
The MEPs have until the end of January to table their amendments to the four reports. The committee will examine the amendments of 21 and 22 February 2018. (Original version in French by Marion Fontana)