Member State experts are continuing to negotiate at a sustained pace in the Council of the European Union on the ‘CMDI’ proposal revising the European framework for banking crisis management (see EUROPE 13183/2), with the aim of reaching an interinstitutional political agreement before the end of the current legislative cycle.
The Spanish Presidency of the EU Council, which aims to reach a political agreement in principle by all EU27 Member States before the end of 2023, has circulated several notes on specific provisions of the legislative text. One of the latest notes, of which EUROPE has received a copy and which was discussed by Member State experts on Tuesday 21 November, concerns: - questions of public interest assessment (PIA), which a resolution authority carries out to decide whether a failing bank should be subject to resolution or traditional liquidation; - financing of the resolution, with the legislative proposal suggesting that national bank deposit guarantee schemes (DGS) be mobilised to ensure that a failing medium-sized bank achieves the minimum level of bail-in required under EU law.
PIA. Noting that most Member States agree that the legislative reform should resolve a larger number of banks, the Spanish Presidency suggests a phased approach to filter out the vast majority of small banks that will continue to be subject to liquidation in the event of failure.
The competent authority should first assess whether, in the event of the failure of a small banking institution, the objectives of resolution – maintaining critical banking functions whose cessation would have an impact on financial stability, protecting savers, limiting the use of public funds, etc. – are subject to proven risks. If this is not the case, the company will be wound up. If there is at least a risk that, in the event of winding up, one of the objectives of resolution will not be achieved, the competent authority should carry out a public interest assessment to determine whether resolution is necessary and proportionate. If this is the case, a bank resolution will take place.
DGS. The Spanish Presidency notes that a majority of Member States support the introduction of provisions whereby, in the event of the resolution of a failing bank, the intervention of DGS must be counted towards the 8% threshold of liabilities that must be mobilised before calling on the Single Resolution Fund (SRF), the financial arm of the ‘resolution’ component of the banking union. They also approve the introduction of maximum limits on the mobilisation of these national bank deposit guarantee schemes to finance a resolution, with some countries also stressing the importance of being able to lift such limits if the situation so requires.
Access to the SRF should also be guaranteed to banks facing liquidation, as they have contributed 13% of the Fund, or nearly €10 billion.
Hierarchy of creditors. The CMDI proposal rationalises the hierarchy of creditors affected in the event of a banking crisis by creating a single category of depositors, including individuals, SMEs, large companies and public authorities.
On the other hand, the Spanish Presidency is proposing a dual system (‘two-tier creditor hierarchy’) that would allow sufficient funds to be released from DGS to finance a resolution, while not granting maximum protection to certain deposits from large companies that are similar to investments.
See the note from the Spanish Presidency: https://aeur.eu/f/9r4 (Original version in French by Mathieu Bion)