On Wednesday 19 June, the ambassadors of the Member States to the European Union (Coreper) reached a political agreement in principle on the ‘CMDI’ legislative package designed to strengthen the European bank crisis management framework (see EUROPE 13430/12).
This regulatory framework will bring “significant benefits in terms of strengthened financial stability, better protection of deposits and taxpayers’ money, and a level playing field between smaller and larger banks in the EU, all of which are key to the deepening of the Banking Union”, said Belgian minister Vincent Van Peteghem in a press release.
The Council’s position introduces additional safeguards on the way in which national bank deposit guarantee schemes (DGS) could, over a maximum period of 10 years, intervene to contribute to the financing of the resolution of a medium-sized bank. Such a contribution would enable a failing bank to reach the legal threshold requiring it to mobilise at least 8% of its total liabilities including own funds (‘MREL’ assets) for its bail-in before being able to have recourse to ‘Single Resolution Fund’ (SRF), the financial arm of the ‘resolution’ strand within the Banking Union, over a three-year period.
According to the Council, these guarantees are intended to avoid unintended consequences or moral hazard, ensuring that shareholders and creditors remain the first line of defence in the event of bank failure. They will enable the financial burden to be shared between the DGS schemes and the SRF funds, by subjecting their interventions to limits and a ‘pecking order’, in particular giving the SRF priority for repayment purposes.
Other provisions restrict access to resolution financing to banks with a balance sheet size of between €30 billion and €80 billion.
It should also be noted that Member States have eliminated the creation of a single category of creditors (savers, SMEs, public authorities) who would be better protected in the event of a bank resolution.
The European Commission takes a dim view of the Council’s position. “We are concerned that the Council position won't significantly expand the scope of resolution, and there will not be credible access to industry-funded safety nets because it puts so many conditions to use those safety nets in resolution”, said an EU official.
The Commission has listed 19 new limitations or restrictions that the Council has added in order to condition the use of rescue nets to finance a resolution. In particular, it cites: - capping the use of a DGS scheme to finance a resolution at 62.5% of its target level; - the obligation for the directors of the bank concerned to repay retrospectively bonuses received up to two years before the mobilisation of a DGS scheme; - approval by the Board of a resolution plan.
The Council’s political agreement paves the way for the start of negotiations with the European Parliament, as soon as it is reconstituted. MEPs adopted their position in March (see EUROPE 13376/21).
See the texts approved by the Member States: https://aeur.eu/f/cqc (SRM regulation); https://aeur.eu/f/cqb (‘BRR’ directive); https://aeur.eu/f/cqa (‘DGS’ directive) (Original version in French by Mathieu Bion)