In total, no fewer than 1,911 amendments have been tabled to the four draft reports on the banking risk reduction legislative package (see EUROPE 11674). During their examination, on Thursday 22 February, by the committee on economic and monetary affairs of the European Parliament (ECON), the rapporteurs expressed confidence that the stated timetable can be kept to.
On the two reports by Sweden’s Gunnar Hökmark (EPP) concerning the transposition of the international TLAC standard into European legislation, modifying the directive on bank recovery and resolution (‘BRRD’) and the regulation establishing the single resolution mechanism, 611 amendments have been tabled.
These amendments cover matters such as the calibration of capital requirements to be mobilised in the event of banking resolution ('MREL') and the moratorium instruments proposed.
Striking the right balance for ‘MREL’
The line followed by the rapporteur aims to incorporate the TLAC into EU law governing capital requirements to be mobilised in the event of bank resolution ('MREL'), without imposing any further requirements. This standard requires banks of global systemic importance to hold a minimum amount of commitments that can be used for a bail-in in the event of a resolution of bank deficits. On this matter, the rapporteur is confident that he has fairly broad support or, in any case, his approach has been understood.
Hökmark also wishes to bring in a rule of maintaining rights acquired, whereby subordinate instruments issued before the date on which the eligibility criteria were adopted should be deemed eligible for MREL without having to meet the new eligibility criteria brought in along with the raft of measures on risk reduction - an approach that has the support of the S&D and ECR groups.
The question of an upper limit on the level of MREL in the text was also discussed. The ECR considers that establishing a minimum level, rather than an upper limit, would be preferable, in order to give the resolution authorities a bit of margin for manoeuvre.
Moratorium instruments key to debate
The Commission proposed introducing two moratorium instruments, to prevent investors from selling their receivables in a bank in difficulties: - the first could be activated in the early intervention stage for a maximum of five working days, and; - the second would be triggered during the resolution phase, also for a maximum of five working days.
This approach continues to divide the MEPs (see EUROPE 11924). The ECR and EFDD groups are proposing simply to drop these instruments. Less radically, the Social Democrats stress in their amendments that introducing a preventative moratorium could prove counter-productive and undermine confidence, lead to mass withdrawals and ultimately accelerate the failure of a bank. Concerning the moratorium instruments used during the resolution phase, they propose shortening its duration to two working days, as proposed by the rapporteur.
Although the Greens can see the virtue of a pre-resolution moratorium, the ALDE group is not currently convinced by the advantages of these instruments and is planning broader discussions with stakeholders before taking a position.
Despite noting the differences in opinion, Hökmark remains confident as to the possibility of reaching a compromise on this point.
Furthermore, he warned against the high number of exemptions called for by the MEPs, stressing that similar discussions had taken place during the negotiations on the ‘BRRD’ directive. He argued the need for being fairly restrictive, as the text could otherwise end up like Swiss cheese.
On this subject, Germany’s Sven Giegold (Greens/EFA) urged the rapporteur not to give in and abandon the ground won with the ‘BRRD’ directive, criticising the amendments of some of his colleagues aiming to transform the package into an exercise in increasing the risks.
More proportionate prudential rules for smaller banks
The draft reports by Peter Simon (S&D, Germany) concern two other planks of the package: reducing the leverage of financial institutions and injecting more proportionality into the banking prudential rules for smaller banks considered non-complex.
On the 1,300 amendments proposed, the rapporteur noted that many of them aimed to bring in even more proportionality to the text. Referring to the amendments proposed by the Greens to reduce capital requirements for smaller banks, he expressed openness and said that it was an interesting approach.
The Greens are proposing to amend the criteria to be met by institutions in order to benefit from simplifications and exemptions. They suggest changing the definition of ‘small institution’ proposed by the Commission as follows: - increasing the asset value limit to €5 billion, rather than €1.5 billion set out by the Commission; - adding higher capital and leverage requirements (with ratios of more than 15% and 6% respectively), plus qualitative criteria commensurate with a non-complex corporate model (see EUROPE 11958).
It is worth noting that several political groups tabled amendments to remove the obligatory deduction of banks’ investments in software from their regulatory capital. Readers may recall that this is a long-standing call by the European banking industry, which considers that the current prudential treatment discourages investments in innovation and put the EU at a disadvantage compared to its international competitors (see EUROPE 11851).
Better risk reduction in order finally to move forward on risk-sharing
At the end of the meeting, Giegold called for the current negotiations to be placed within the broader context of the completion of the Banking Union in the Eurozone.
Stressing the need ultimately to share out the risks, with the creation of a European deposit insurance system (EDIS), he said that in order for this to be politically acceptable, progress must first be made on the risk reduction plank. Concerning this, he said that the European Parliament should lead the way. At the same time, he sent out a political message to his colleagues, warning against any potentially dubious alliance with those not wishing to share the risks.
The committee votes on these reports are scheduled for 16 and 17 May. Although intensive debates are to be expected, the negotiators of the political groups believe the timetable is achievable. Readers may recall that the Council of the EU set a target of reaching a political agreement in principle (general approach) in March (see EUROPE 11965).
The worst we could do to this package is not finish work before the end of the year, warned the chair of the ECON committee, Roberto Gualtieri (S&D, Italy). Some of the texts of the package are to enter into force in 2019, when Parliament will be hitting the campaign trail in April. (Original version in French by Marion Fontana)