The Chair of the Single Resolution Board (SRB), Dominique Laboureix, raised the issue of developing a regulatory framework for managing a crisis arising from the failure of a ‘non-banking financial institution’ (NBFI) on Wednesday 15 October at a conference organised to mark the 10th anniversary of the European authority responsible for resolving major bank failures within the banking union.
“From banks’ exposures to non-bank financial institutions to the development of the ‘crypto world’, it is becoming increasingly urgent to ask ourselves: has the time come to start exploring a crisis management framework for more NBFIs?” questioned Mr Laboureix.
While the scope of financial resolution now includes insurance companies and clearing houses, he noted that many financial operators in the shadow banking sector either “provide bank-like functions or do business with banks”, with the result that some of them “have already become, or are about to become, too big to fail”.
Nevertheless, he warned, the cost of inaction would be “significant “, because “sooner or later, one of these players will fail, with dire consequences for financial stability”.
The 10th anniversary of the SRB provided an opportunity to take stock of the resolution aspect of the banking union. European banks have raised more than €2,600 billion in ‘MREL’ assets that can be mobilised in the event of default in order to comply with bail-in rules. No fewer than 150 bank resolution plans have been drawn up by banks, in cooperation with supervisors, to prepare for a possible crisis.
And the ‘Single Resolution Fund’ (SRF), which has a budget of €80 billion, is now fully operational, even if it still lacks the ‘backstop’ represented by the ‘European Stability Mechanism’, the permanent rescue fund for euro area countries, due to Italy’s blockage.
During the discussions, several participants - including ECB Vice-President Luis De Guindos and European Commissioner for Financial Services Maria Luís Albuquerque - called for the completion of the banking union, with the establishment of the ‘EDIS’ bank deposit guarantee scheme.
Others, such as Héctor Grisi of the Spanish bank Santander, have advocated the creation of a framework “with a lender of last resort” (liquidity backstop) to manage liquidity issues in the event of a crisis.
Priscille Szeradzki, President of the European Association of Cooperative Banks (EACB), said that the banking regulatory framework could be simplified, particularly in terms of implementing measures (levels 2 and 3), to avoid duplication of reporting requirements. (Original version in French by Mathieu Bion)