Featured Product

    EP Compares Regimes for Providing Liquidity Funding in Bank Resolution

    July 16, 2019

    EP published a briefing in context of the design of the new arrangements for provision of liquidity funding in bank resolution in the Banking Union. The report describes the existing arrangements in the Banking Union, compares those arrangements with the U.S. and the UK regimes, and echoes ongoing reflections on possible new arrangements with a view to completing the Banking Union.

    In EU, the Single Resolution Mechanism (SRM) Regulation has entrusted the Single Resolution Fund (SRF) with the task of providing liquidity in resolution. The SRF is designed as financing arrangements under the Bank Recovery and Resolution Directive (BRRD). While not designated as financing arrangements for resolution under BRRD, other public sources of liquidity exist: Emergency Liquidity Assistance (ELA) provided by national central banks and State Aid support authorized by EC, where feasible and appropriate. While the SRF has not been used so far, the recent cases involved ELA and State Aid support. The resolution of Banco Popular has, in particular, raised questions on whether existing public financing arrangements during bank resolution are sufficiently robust to finance banks under resolution.

    The report highlights that, in keeping with the FSB principles for effective resolution, the U.S. and UK have equipped their resolution toolkit with a special facility intended to provide funding to banks under resolution, where short-term liquidity from the private sector is not immediately available. The Banking Union framework has been qualified as “being geared towards addressing solvency issues more than liquidity.” For example, if a bank that is short of sufficient collateral be resolved on a Friday, bail-in would not provide on Monday additional collateral that would allow the bank to have access to central bank money. That is why there is a need for central banks to step in and to provide liquidity in resolution. Additionally, the analysis highlights that unlike the UK and U.S. regimes, financing in resolution in the Banking Union is provided by different bodies, which may raise coordination challenges, as different sources of liquidity (ELA, SRF, and the backstop, once in place, and State support) may be available depending on the circumstances of each case and the availability of the SRF fund (and its backstop). While the funding provided by the SRF is capped by the size of the SRF, its backstop, and the amount of ex post contributions that the SRF may raise, liquidity in resolution in the UK is designed to be provided “in the necessary scale.”

    The recent case of Banco Popular has shown the importance of liquidity funding in the context of bank resolution. The Eurogroup report endorsed by the December 2018 Euro Summit noted the “broad support for the assessment of the institutions that there are limitations in the current framework (for liquidity provision in resolution), which may hamper its effectiveness. The June 2019 Euro summit has not yet reached any conclusions on the design of that liquidity facility, as planned. The Eurogroup is expected to report back to the Euro-Summit regarding this in December 2019. 

     

    Related Links

    Keywords: Europe, EU, UK, US, Banking, Banking Union, SRMR, BRRD, SRF, Bank Resolution, Liquidity Risk, EP

    Featured Experts
    Related Articles
    News

    PRA Revises Branch Return and Updates Guidance for Regulatory Reports

    PRA published the policy statement PS17/19, which contains the final policy related to changes in the format and content of the Branch Return Form and reporting guidance.

    September 12, 2019 WebPage Regulatory News
    News

    FINMA Outlines Treatment of Stablecoins in Supplement to Guide on ICO

    FINMA published a supplement to its initial coin offerings (ICOs) guidelines, outlining the treatment for stablecoins under the Swiss supervisory law.

    September 11, 2019 WebPage Regulatory News
    News

    Ursula von der Leyen Presents Structure of Next European Commission

    President-elect Ursula von der Leyen has presented her team and the new structure of the next European Commission.

    September 10, 2019 WebPage Regulatory News
    News

    FED Proposes to Revise and Extend Reporting Form on Systemic Risk

    FED proposed to extend for three years, with revision, the Banking Organization Systemic Risk Report (FR Y-15; OMB No. 7100-0352).

    September 10, 2019 WebPage Regulatory News
    News

    EBA Issues Revised List of Validation Rules for Reporting

    EBA published the revised list of validation rules (version 2.9) in its implementing technical standards on supervisory reporting.

    September 10, 2019 WebPage Regulatory News
    News

    Bundesbank Publishes Supplementary Validation Rules for Reporting

    Bundesbank published the updated document containing supplementary validation rules in the context of the implementation of the reporting system at national level.

    September 10, 2019 WebPage Regulatory News
    News

    APRA Licenses Xinja Bank as Authorized Deposit-Taking Institution

    APRA granted Xinja Bank Limited a license to operate as an authorized deposit-taking institution without restrictions, under the Banking Act 1959.

    September 09, 2019 WebPage Regulatory News
    News

    FDIC Proposes Revisions to Regulations on Interest Rate Restrictions

    FDIC proposed revisions to its regulations covering interest rate restrictions that apply to less than well-capitalized insured depository institutions.

    September 09, 2019 WebPage Regulatory News
    News

    EBA Intends to Clarify End-Treatment of Grandfathered Instruments

    EBA announced its intention to clarify the prudential treatment applicable to own funds instruments at the end of the grandfathering period, which expires on December 31, 2021.

    September 09, 2019 WebPage Regulatory News
    News

    IMF Releases Reports on 2019 Article IV Consultation with Saudi Arabia

    IMF published its staff report and selected issues report in context of the 2019 Article IV consultation with Saudi Arabia.

    September 09, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3799