The EU bank crisis management and deposit insurance framework is being reviewed
In November 2020 the European Commission set out a roadmap for how it would try to develop crisis management procedures and ensure the equal treatment of depositors in crisis situations faced by different banks. In January, the Commission launched its public consultation on the viability of regulation and the need for change (CMDI). The public consultation ended on 20 April 2021. In February, the Commission also published a separate more general consultation document targeted at a wider public.
The Commission’s consultation will be used to assess any need to amend the Bank Recovery and Resolution Directive (BRRD), the Single Resolution Mechanism Regulation (SRMR) and the Deposit Guarantee Schemes Directive (DGSD). The Commission’s purpose is to issue the final draft legislative amendments to the Directives and the Regulation by the end of 2021. The initiative may incorporate a revised proposal for a European deposit insurance scheme (EDIS).
With regard to crisis resolution, the technical consultation will focus mainly on the following:
- Identification of the threshold for initiating a crisis resolution procedure, i.e. taking stock of what is in the public interest. The aim is to make the procedure more predictable and standardise its application across the Member States of the EU.
- Harmonisation of the crisis resolution with the procedures and measures that help assess the impact of a bank’s difficulties on financial stability, for example in the application of state aid rules.
- Investor responsibility and the prerequisites for using the Single Resolution Fund in the crisis management of small and medium-sized banks, the main aim being to improve the feasibility of the business sales tool.
- The need to harmonise insolvency procedures, in terms, for example, of the threshold for initiating them, the ranking of claims, and transfers of business and deposits. These have an effect both on judging what is in the public interest regarding crisis resolution, as referred to before, and the NCWO valuation. NCWO refers to the principle where creditors are no worse off financially with the crisis solution than they would have been in a case of bankruptcy.
- Sharing the so-called Home-Host responsibilities among the banks in different countries in crisis management.
With regard to the deposit guarantee, the technical consultation will focus mainly on the following:
- A single European Deposit Guarantee Fund, the options concerning which are considered to be either liquidity support for national funds, a comprehensive transnational loss carried forward scheme, or a solution somewhere between the two.
- Wider use of a deposit guarantee fund for crisis resolution for financing the prevention of the collapse of a bank and the transfer of business and deposits in an insolvency procedure.
- Increased harmonisation of deposit guarantees that would apply, for example, to the safeguarding of the funds of the customers of financial services companies, issues in connection with money laundering (AML), a bank’s migration from one deposit guarantee fund to another, and a definition of disposable funds.
The Financial Stability Authority has an influence on how crisis management procedures develop, providing the Ministry of Finance with its support and expertise and participating in committees and work groups made up of official bodies responsible for crisis resolution and deposit guarantees.