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Revision of the bank crisis management and deposit insurance framework

In “An Economy that Works for People”

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On 19 October 2020 the European Commission's work programme for 2021 was published. Under the third priority - 'an Economy that Works for People', the Commission announced its intention to review the regulatory framework for bank crisis management and deposit insurance.

On 18 April 2023, the European Commission tabled a package proposals to amend the banks crisis management and deposit insurance (CMDI) framework. The objective is to calibrate the latter, nine years after its entry into force, so to reach its goals, but also deepen the banking union in a political context where the proposal for a single deposit insurance scheme, which would constitute the third and last pillar of the 'Banking Union', has been discussed by co-legislators since 2015.

The main area the CMDI revision touches upon are the early intervention procedures, public interest assessment (PIA) and the choice between resolution and insolvency, and the use of deposit guarantee schemes funding. The objective of the EU resolution framework is to ensure an orderly resolution of failing banks with minimal costs for taxpayers and to the real economy.

In Parliament, the Committee on Economic and Monetary Affairs Committee (ECON) is the lead Committee. Rapporteurs are: Pedro Marques (S&D, Portugal), 2023/0111(COD); Luděk Niedermayer (EPP, Czechia), 2023/0112(COD); Jonás Fernández (S&D, Spain), 2023/0113(COD). Rapporteur on file 2023/0115(COD) is to be appointed.

In his draft report – 2023/0111(COD) – rapporteur Pedro Marques emphasises that the banking 
union remains incomplete owing to the absence of the EDIS, whereas completion of the banking union forms an integral part of economic and monetary union and of financial stability. The draft report is concerned with the risk that using DGS funds for resolution and liquidation, particularly given the proposed changes to the creditor hierarchy, would increase the demands on those industry-funded safety nets. Therefore, robust and favourable alternative funding arrangements are required and the rapporteur proposes that the SRB should be able to 'provide a guarantee based on the Single Resolution Fund to a deposit guarantee scheme in order to facilitate its access to markets at favourable financing conditions' (amendment 15). The draft report also defines 'critical functions' as 'activities … the discontinuance of which is likely … to lead to the disruption of services that are essential to the real economy or to disrupt financial stability at national or regional level, due to the size, market share, external and internal interconnectedness, complexity or cross-border activities of an institution or group, with  particular regard to the substitutability of those activities, services or operations'.

In his draft report –2023/0112(COD) – rapporteur Luděk Niedermayer amends the text to express clearly that the PIA is an 'ad hoc decision' which 'lacks transparency and has negative consequences for the level playing field in the internal market', adding that the funding through resources from the budget of Member States 'should be considered only under extraordinary circumstances'.. 21 It also introduces an amendment that requires EBA to 'contribute to monitoring and promoting the effective and consistent application of the PIA', and to provide a report on the scope and application of paragraph 5 within 3 years of the entry into force of the directive, and assess the effectiveness of the measures outlined in paragraph 5 and their impact on the level playing field. The draft report confirms that the 'modification in the ranking of creditors and the removal of the DGS super preference not only enhances the accessibility of DGSs and the SRF rather than the use of public support, but also paves the way for more financially effective solutions in the resolution of financial institutions' (amendment 9). The rapporteur substitutes the single-tier ranking of the Commission's proposalwith a 'two-tier priority system'.

In his draft report –2023/0115(COD) – on the proposal for a directive amending the DGSD, rapporteur Ernest Urtasun supports a smooth transition to the completion of the banking union through the harmonisation of the functions that DGSs can perform (amendment 2). The key feature of the draft report is to grant DGS access to EU credit lines that would be provided by a dedicated fund, managed by the SRB to 'depleted' national DGS. Where both the national DGS and the EU credit line are depleted, other DGS would step in to provide the depleted DGS with the necessary financial means.. It also proposes to raise the target level of DGS funds to 1 % of covered deposits – instead of 0.8 %, currently – within 18 months of the entry into force of the directive. Finally, the draft report proposes to reinforce the note that credit institutions should prepare outlining the preventive measures to achieve their objective. The note should include the details of the measures envisaged to prevent the failure of the bank, and measures to prevent capital outflow. The measures should be approved by competent authorities as regards their feasibility and credibility to ensure the bank restores regulatory compliance. It also gives additional powers to competent authorities, which would be able to request DGSs to finance preventive measures where the competent authorities consider that those measures would enable the credit institution to restore compliance with the supervisory requirements.

The vote in Committee took place on 20 March 2024, and the report is scheduled on the agenda of the second April plenary session.

References:

Further reading:

Author: Issam Hallak, Members' Research Service, legislative-train@europarl.europa.eu

As of 20/03/2024.