On Friday 20 June in Luxembourg, several Member States warned the Polish Presidency of the Council of the European Union against rushing to reach an agreement with the European Parliament, on Wednesday 25 June, on the ‘CMDI’ legislative package relating to the management of a banking crisis.
Saying he was “very concerned”, German Finance Minister, Lars Klingbeil, said that his country would reject an agreement that did not include a solution that preserves the national ‘institutional protection scheme’ (IPS), which “works well”. He also opposed any solution whereby the mobilisation of national deposit guarantee schemes (DGS) to finance the resolution of a failing bank would call into question the principle that a bank’s creditors and shareholders should always be in the front line to bear bank losses. “This is the main lesson of the financial crisis” in 2008, he said.
The Netherlands, Austria, Finland and Estonia supported the German position in favour of strict conditions for the use of DGS to finance a bank resolution (‘bridge-the-gap financing’). Such recourse must be “an exception”, said Estonia.
One of the issues at the heart of the current inter-institutional negotiations concerns the long list of conditions that the EU Council has imposed to authorise the use of DGS to finance a bank resolution, conditions that have been strongly criticised by the European Commission (see EUROPE 13437/4). According to a parliamentary source, the Parliament will eventually accept some of these conditions in order to ensure that the banks build up sufficient internal loss-absorption capacity beforehand. On the other hand, MEPs would like to remove the conditions that would prevent banking regulators from taking rapid resolution decisions, particularly over a weekend.
The ‘home/host’ principle. Belgium, Croatia, Estonia, Luxembourg, Romania and Slovakia, which host subsidiaries of banking groups established elsewhere in the EU, have also drawn attention to the balance struck by the Eurogroup in June 2022 (see EUROPE 12974/10) concerning the issue of ‘home’ and ‘host’ countries for large banking groups, a balance which, according to these countries, must not be affected by the negotiations on the ‘CMDI’ package.
“What is on the table does not contain the necessary balance that is essential in our eyes”, said the Belgian minister, Vincent Van Peteghem.
On this point, one of the issues concerns the hierarchy of creditors affected in the event of a bank resolution. There is a blocking minority of ‘host’ countries in the Council against the position of the European Parliament, which grants DGS schemes a ‘super-preference’ allowing them to be reimbursed first in the event of bank failure.
“For there to be an agreement, the European Parliament has to let go on this point”, conceded this parliamentary source.
The messages from Member States have been well received by the Presidency-in-Office of the Council. The Polish minister, Andrzej Domański, acknowledged that, for an agreement to be validated by the Member States, alignment with the Eurogroup statement was necessary in order to “preserve the balance between ‘home’ and ‘host’ countries”. We will also be very cautious about the bridging finance mechanism provided by DGS, the activation of which will have to be “truly exceptional” and “will not give rise to moral hazard”, he promised.
However, Mr Domański called on his counterparts to show openness and flexibility on this issue, without adding new problematic subjects.
Spain, France, Italy and Portugal consider that a political agreement with the Parliament is within reach. “The main political parameters for an agreement are known”, said Bertrand Dumont, Director General of the French Treasury, for whom the negotiating mandate on the table “seems to be the best possible balance”.
France also considered it “essential” to preserve the governance of the Single Resolution Board (SRB), the European authority responsible for the resolution of a failing bank. “The aim is to maintain the momentum of banking integration and avoid any renationalisation of the decision-making process. This is fundamental if we are to be serious about making progress towards banking union”, said Mr Dumont.
In its political agreement in principle of June 2024 (see EUROPE 13435/2), the Council grants more decision-making powers to the plenary session of the SRB to the detriment of the Executive Committee, a provision that the Commission had not included in its initial proposal. This is a “red line” that the European Parliament does not want to cross, said the parliamentary source.
Eager for a provoked inter-institutional agreement to be approved on Wednesday 25 June, the European Commissioner for Financial Services, Maria Luís Albuquerque, hoped that the revision of the European rules would constitute “a real step forward for banking union” and would not lead to “a renationalisation of the way we deal with banking crises”. (Original version in French by Mathieu Bion)