Released on Tuesday 3 October, the draft reports by the European Parliament’s three co-rapporteurs on the reform of the European framework for banking crisis management validate the overall approach of the ‘CMDI’ proposal for reform of the European bank crisis management framework (see EUROPE 13164/7).
But some of the amendments go against the European Commission’s proposal to create a single category of creditors who would be affected - as a last resort - in the event of the resolution of a failing bank. Other amendments link national deposit guarantee schemes (DGS) to the Single Resolution Fund (SRF), the financial arm of the ‘resolution’ strand of the banking union.
The main purpose of the reform on the table is to extend the scope of bank resolution to medium-sized banks, by potentially mobilising DGS schemes to finance a resolution when a public interest assessment, conducted by the competent authorities, has demonstrated that such a solution is the least costly and most likely to preserve financial stability.
In his draft report amending Directive (2014/59) on deposit-guarantee schemes, Luděk Niedermayer (EPP, Czech) stresses the importance of choosing, between the liquidation or resolution of a failing bank, the solution that minimises the risk of recourse to public funds.
Above all, he suggests an alternative to the Commission’s proposal to create a ‘single-tiered category’ of highly protected depositors, which would include individuals (for deposits in excess of €100,000), SMEs, large companies and public authorities. Mr Niedermayer suggests a two-tier priority system for these highly protected creditors. This would mean slightly less protection for the bank deposits of large companies.
“Striking a balance in the change in the hierarchy of claims within the new framework should make sure some parts of uncovered deposits are treated pari passu with DGS claims. This adjustment is fundamental to the feasibility and effectiveness of the proposal”, explains Mr Niedermayer.
To see the ‘Niedermayer’ draft report, go to https://aeur.eu/f/8xx
On behalf of the Greens/EFA Group, Spain’s Ernest Urtasun suggests increasing the target level for national bank deposit guarantee schemes from 0.8% to 1% of eligible deposits, so that they have sufficient funds to fulfil their new responsibilities. This increased funding should be achieved 18 months after the legislative reform comes into force.
Mr Urtasun approves of giving the DGSs the power to finance preventive measures (guarantees, injections of liquidity, participation in a capital increase) before a bank is deemed to be failing and to enable the struggling bank to once again meet its prudential obligations. However, these preventive measures cannot be taken until the shareholders of a failing bank have been asked to contribute to reducing, “as far as possible”, the capital deficit observed in the financial institution concerned. Banks benefiting from preventive measures will not be allowed to pay dividends to shareholders or bonuses to their managers.
Above all, Mr Urtasun proposes that, when faced with a capital deficit, a DGS scheme should be authorised, on condition that it gives reasons for its request, to activate an “EU credit line” provided by the Single Resolution Fund (SRF). And even if it has used all the credit at its disposal, this national deposit guarantee scheme would be authorised to borrow from its counterparts, as is already provided for under EU law.
The amounts provided by the SRF, and possibly by other DGSs, would need to be repaid within 6 years.
To see the ‘Urtasun’ draft report, go to https://aeur.eu/f/8y1
Like Mr Urtasun, Pedro Marques (S&D, Portuguese) believes that the reform of the European banking crisis management framework should lead the way towards the completion of the banking union in the euro area with the establishment of a European Deposit Insurance Scheme (‘EDIS’).
In his draft report revising the Regulation (806/2014) framing banking resolution, Mr Marques strengthens the provisions allowing the SRF to support, in the form of a guarantee, a DGS scheme in the context of a banking resolution. This guarantee should be used as collateral to set up alternative financing arrangements.
It should be noted that Mr Marques amends the provisions on the terms of office for the Chair, Vice-Chair and members of the Single Resolution Board (SRB), which would only be extendable for a maximum of 2 years.
To see the ‘Marques’ draft report, go to https://aeur.eu/f/8y2 (Original version in French by Mathieu Bion)