July 06, 2018

The SRB Chair Dr Elke König delivered a keynote speech in Stockholm on the issue of banking resolution. She highlighted that, since the financial crisis, EU has put in place a number of measures and institutions to better deal with any shocks to the system going forward. However, there are many items still to be completed and dealt with.

She stressed that minimum requirement for own funds and eligible liabilities (MREL) buffers should be built in good times to avoid cyclical behavior; "if we do not adhere to this then the regulatory framework may end up being cyclical. And the same applies for other measures needed to address obstacles to resolvability. " While much progress has been made to date, work still remains to complete the Banking Union, including on issues such as the European Deposit Insurance Scheme and the backstop for the Single Resolution Fund.

The SRB Chair said, "this is the right time to continue to push for completion of the Banking Union... ." Insolvency procedures in the EU are still very much national. Bank insolvency procedures are not equally structured in all EU member states and should be elevated to a common best standard and practice. The ideal solution would be EU-wide rules on insolvency proceedings for the banking sector. However, the development of national handbooks is a very good "second best" option—for now at least. At present, there are 19 insolvency regimes in the Banking Union alone. This makes analyzing the insolvency counterfactual for a cross-border bank in resolution highly challenging and results in diverging outcomes, depending on the home country of the institution. Dr König encouraged all stakeholders to drive these pressing issues forward, given the favorable economic conditions that prevail at present.

Finally, the SRB Chair stressed the need for continued close cooperation within the euro area, with the Nordic countries, and on the international stage with partners such as the United Kingdom and the United States, to ensure continued success in maintaining financial stability.

 

Related Link: Speech (PDF)

Keywords: Europe, EU, Banking, Resolution Regime, Banking Union, SRF Backstop, Supervisory Cooperation, SRB