24

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European Stability Mechanism – Main Features, Instruments and Accountability

11-10-2019

This document presents the main features of the European Stability Mechanism (ESM), including governance, capital structure and funding sources, main lending instruments, as well as its oversight and accountability framework. It also reviews recent proposals and contributions on the possible evolution of the ESM. This note is regularly updated.

This document presents the main features of the European Stability Mechanism (ESM), including governance, capital structure and funding sources, main lending instruments, as well as its oversight and accountability framework. It also reviews recent proposals and contributions on the possible evolution of the ESM. This note is regularly updated.

Amending capital requirements: The 'CRD-V package'

30-07-2019

In May 2019, the European Parliament and the Council (the co-legislators) adopted the legislative proposals amending the Capital Requirements Directive and Regulation, which establish the prudential framework for financial institutions operating in the EU. The amendments implement the most recent regulatory standards for banks, set at international level ('Basel III framework'). They also address some regulatory shortcomings and aim to contribute to sustainable bank financing of the economy. The ...

In May 2019, the European Parliament and the Council (the co-legislators) adopted the legislative proposals amending the Capital Requirements Directive and Regulation, which establish the prudential framework for financial institutions operating in the EU. The amendments implement the most recent regulatory standards for banks, set at international level ('Basel III framework'). They also address some regulatory shortcomings and aim to contribute to sustainable bank financing of the economy. The final acts were published in the Official Journal on 7 June 2019. The new provisions will for the most part apply as of 2021. Fourth edition. The 'EU Legislation in Progress' briefings are updated at key stages throughout the legislative procedure.

Recent measures for Banca Carige from a BRRD and State Aid perspective

15-02-2019

On 8 January 2019, Banca Carige’s temporary administrators issued a press statement setting out some initiatives they have taken to secure the future of the bank. This briefing contains background information on the case of Banca Carige and links the initiatives taken to respective legal requirements stemming from the Bank Recovery and Resolution Directive (BRRD) and the rules for State Aid (SA).

On 8 January 2019, Banca Carige’s temporary administrators issued a press statement setting out some initiatives they have taken to secure the future of the bank. This briefing contains background information on the case of Banca Carige and links the initiatives taken to respective legal requirements stemming from the Bank Recovery and Resolution Directive (BRRD) and the rules for State Aid (SA).

Liquidation of Banks: Towards an ‘FDIC’ for the Banking Union?

08-02-2019

This briefing looks at the key differences between the US and the Banking Union resolution and liquidation framework (Section 1) including differences in terms of funding arrangements (Section 2). In view of recent liquidation and resolution experiences, the briefing further assesses what an EU insolvency regime would bring to the Banking Union both in terms of small and medium-size banks’ resolution (Section 3) and in terms of strengthening the existing BRRD resolution framework (Section 4). The ...

This briefing looks at the key differences between the US and the Banking Union resolution and liquidation framework (Section 1) including differences in terms of funding arrangements (Section 2). In view of recent liquidation and resolution experiences, the briefing further assesses what an EU insolvency regime would bring to the Banking Union both in terms of small and medium-size banks’ resolution (Section 3) and in terms of strengthening the existing BRRD resolution framework (Section 4). The briefing finally outlines (Section 5) the key building blocks of an EU liquidation regime for the Banking Union.

Valuation reports in the context of banking resolution: What are the challenges?

05-07-2018

The paper discusses the problem of valuation in bank resolution. In an overview over the most relevant principles of valuation theory, the paper notes the difficulties inherent in valuing risks and illiquidity in holding non-traded assets. Subsequently, the paper briefly reviews the resolution of Banco Popular Español, and then discusses the need for clarification of the no-investor-worse-off principle, the relation between the price in a sale of business and the presumed outcome in an insolvency ...

The paper discusses the problem of valuation in bank resolution. In an overview over the most relevant principles of valuation theory, the paper notes the difficulties inherent in valuing risks and illiquidity in holding non-traded assets. Subsequently, the paper briefly reviews the resolution of Banco Popular Español, and then discusses the need for clarification of the no-investor-worse-off principle, the relation between the price in a sale of business and the presumed outcome in an insolvency procedure, and the difficulties attached to assessing the value of an illiquid asset that is held. The paper concludes with a discussion of the need for time, for valuation and in resolution, warns against a moratorium on withdrawals and payouts, and argues that time pressures would be much reduced if funding in resolution was provided for.

Valuation reports in the context of banking resolution: What are the challenges?

05-07-2018

This study discusses the challenges concerning bank valuation reports in resolution. The resolution mechanism has three types of valuation reports, respectively to determine whether a bank is failing or likely to fail (valuation 1), to inform the use of the resolution tools including bail-in (valuation 2), and to ensure that the no creditor worse off condition is respected (valuation 3). The first experience with the preparation of valuation reports shows that even with the more formal procedures ...

This study discusses the challenges concerning bank valuation reports in resolution. The resolution mechanism has three types of valuation reports, respectively to determine whether a bank is failing or likely to fail (valuation 1), to inform the use of the resolution tools including bail-in (valuation 2), and to ensure that the no creditor worse off condition is respected (valuation 3). The first experience with the preparation of valuation reports shows that even with the more formal procedures there are still substantial uncertainties regarding the outcome of these valuations due to organisational, legal and economic challenges. Additional mitigating measures should be considered to reduce the uncertainty.

Externe auteur

Willem Pieter de Groen, CEPS

Valuation Reports in the Context of Banking Resolution: What are the Challenges?

13-06-2018

This paper discusses from a legal perspective the challenges and difficulties involved in the production of the valuation reports required by the BRRD and considers the option of a moratorium tool for use by the resolution authorities as a possible way forward, which could address the concerns about timing and flexibility in the valuation process. Given the discretionary powers of the resolution authorities and the need for SRB independence, the paper also considers the wider issues of legitimacy ...

This paper discusses from a legal perspective the challenges and difficulties involved in the production of the valuation reports required by the BRRD and considers the option of a moratorium tool for use by the resolution authorities as a possible way forward, which could address the concerns about timing and flexibility in the valuation process. Given the discretionary powers of the resolution authorities and the need for SRB independence, the paper also considers the wider issues of legitimacy and accountability in the actions and decisions taken by the Single Resolution Board in light of the unique and complex institutional structure of the SRM.

Externe auteur

Rosa María Lastra , Rodrigo Olivares-Caminal

Recovery and resolution of central counterparties (CCPs)

25-04-2018

In recent years, the role and systemic importance of central counterparties (CCPs) has expanded with the gradual implementation of the obligation to centrally clear liquid and standardised over-the-counter (OTC) derivatives. The relevant EU regulatory framework lays down prudential requirements for CCPs, as well as requirements regarding their operation, oversight and risk management. No harmonised EU rules, however, exist for the unlikely situations in which these standards prove insufficient to ...

In recent years, the role and systemic importance of central counterparties (CCPs) has expanded with the gradual implementation of the obligation to centrally clear liquid and standardised over-the-counter (OTC) derivatives. The relevant EU regulatory framework lays down prudential requirements for CCPs, as well as requirements regarding their operation, oversight and risk management. No harmonised EU rules, however, exist for the unlikely situations in which these standards prove insufficient to address major financial or operational difficulties that CCPs may incur or their outright failure. The international standard-setting organisations have developed standards for the recovery and resolution of financial market infrastructures, including CCPs. In a 2013 own-initiative resolution, the Parliament called on the Commission to prioritise the recovery and resolution of CCPs and reiterated this request in a 2015 resolution on building a capital markets union. In November 2016 the European Commission adopted a proposal for a regulation requiring CCPs to prepare recovery measures and providing resolution authorities with early intervention and resolution powers. Parliament’s Committee on Economic and Monetary Affairs (ECON) adopted its report on the proposal on 24 January 2018. Second edition. The ‘EU Legislation in Progress’ briefings are updated at key stages throughout the legislative procedure.

Ranking of unsecured debt instruments in insolvency hierarchy

29-01-2018

Following the global financial crisis, the European Union extensively reformed its regulatory framework for financial services. With legislation such as the Bank Recovery and Resolution Directive (BRRD), it ensures that, through mechanisms such as 'bail-in', the recovery or restructuring of distressed financial institutions is done without spreading to other institutions, or using taxpayers' money to bail them out. To ensure that sufficient financial resources are available for bail-in, the BRRD ...

Following the global financial crisis, the European Union extensively reformed its regulatory framework for financial services. With legislation such as the Bank Recovery and Resolution Directive (BRRD), it ensures that, through mechanisms such as 'bail-in', the recovery or restructuring of distressed financial institutions is done without spreading to other institutions, or using taxpayers' money to bail them out. To ensure that sufficient financial resources are available for bail-in, the BRRD requires resolution authorities to set financial institutions a minimum requirement for own funds and eligible liabilities (MREL). In parallel, a similar standard, the total loss-absorbing capacity (TLAC), was adopted internationally for systemically important financial institutions. The discretionary requirements in MREL and the compulsory requirement in TLAC concerning subordination of eligible liabilities have driven some countries to amend the ranking of certain bank creditors. Because national rules adopted so far diverge, unsecured debt holders and other creditors of banks can be treated differently from one Member State to another. The Commission therefore proposed to set harmonised rules. On 30 November and 8 December 2017 respectively, Parliament and Council adopted the text agreed in interinstitutional negotiations. The final act was published in the Official Journal on 27 December 2017.

The Provision of Critical Functions at Global, National and Regional Level - Is there a need for further legal/regulatory clarification if liquidation is the default option for failing banks?

30-11-2017

This paper defines critical banking functions and considers whether there is a need for further legal/regulatory clarification if liquidation is the default option for failing banks. We rely on EU law and soft law principles (FSB) bearing in mind that ‘liquidation’ is at times a loosely defined concept. Despite efforts to agree upon a set of qualitative and quantitative criteria to assess the critical nature, or lack thereof, of relevant functions we argue that simplification is needed. Given the ...

This paper defines critical banking functions and considers whether there is a need for further legal/regulatory clarification if liquidation is the default option for failing banks. We rely on EU law and soft law principles (FSB) bearing in mind that ‘liquidation’ is at times a loosely defined concept. Despite efforts to agree upon a set of qualitative and quantitative criteria to assess the critical nature, or lack thereof, of relevant functions we argue that simplification is needed. Given the discretionary element in the determination of public interest and critical functions and the existence of different legal sources with different purposes, we recommend a consistent application of the resolution rules to build up credibility in the Banking Union project, considering in particular the differential treatment by the competent resolution authorities in recent Spanish and Italian liquidation and resolution cases.

Externe auteur

Rosa M. Lastra, Rodrigo Olivares-Caminal, Costanza A. Russo

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JURI: ICM Meeting on "Better Law Making from a digital perspective"
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