On Monday 11 March, MEPs on the Committee on Economic and Monetary Affairs (ECON) could finalise their negotiating position on the ‘CMDI’ legislative package designed to strengthen the management of a banking crisis within the European Union. But it was not absolutely certain that a vote would be held in the ECON Committee on Friday 8 March.
The main objective of the legislative initiative is to extend the scope of bank resolution to medium-sized banks by mobilising national deposit guarantee schemes (DGS) to provide bridge financing for bank resolution. This bridge financing would be authorised when a public interest assessment, carried out by the competent authorities, demonstrates that such a solution is the least costly and most likely to preserve financial stability.
To facilitate this extension of the scope of resolution, the European Commission has suggested rationalising the hierarchy of creditors who would be affected in the event of a banking crisis, by creating a single category of highly protected creditors including individuals, SMEs, large companies and public authorities.
In compromise amendments copied to Agence Europe, MEPs advocate a two-tier priority system for these better protected creditors. The deposits of individuals and SMEs would thus benefit from better protection than those of large companies.
Under the initial legislative proposal, a DGS scheme could intervene to provide a failing bank with the liquidity to reach the minimum level of internal bail-in required by EU law, before the bank concerned could access the Single Resolution Fund (SRF), the financial arm of the resolution component of the euro area banking union.
MEPs want to regulate this bridge financing provision. In particular, the idea is circulating that only banks that had complied with their prudential requirements in terms of MREL issues over a sufficiently long period (more than 4 years) before being declared bankrupt would have access to the scheme.
Preventive measures. In the case of banks that have not yet been declared insolvent, the DGS regimes will also be empowered to take preventive action.
MEPs are calling for stricter harmonised rules than those suggested by the Commission. They would like the banks concerned to draw up a detailed business reorganisation plan, and not just a note to be sent to the DGS regimes. The national authorities would be competent to decide on the granting of preventive measures on the basis of this commercial reorganisation plan. And only a bank that has not received extraordinary public financial support in the last 5 years would be eligible for a preventive measure from a DGS.
During the period covered by a preventive measure, the bank concerned would not be authorised to distribute dividends to its shareholders or bonuses to its employees.
See the compromise amendments: https://aeur.eu/f/b7v ; https://aeur.eu/f/b7w (Original version in French by Mathieu Bion)