SRB published an article that advocates developing a common set of rules for liquidation of small and medium-size banks in EU. The article was written by the SRB Chair Elke König and was originally published in Views, the magazine of the Eurofi Forum held in Helsinki in September 2019. The article notes that building the capital buffers may be challenging for smaller fully deposit-funded banks. Therefore, a common set of rules for winding down such banks—for some SRB banks and all less significant banks—could be beneficial.
The article highlights that the decision to put a failing institution into resolution depends on the outcome of a “public interest assessment,” determining if the preservation of a bank’s critical functions is required to maintain financial stability. If outcome of the public interest assessment is negative, a failing bank will be sent into national insolvency. To increase transparency, SRB recently published a paper on public interest assessment, presenting the methodology and how SRB assesses the criteria set out by the EU law.
In due consideration of proportionality in resolution planning, the loss-absorption requirements for each institution are carefully adjusted to the choice of resolution tools. The banks, for which (in case of failure) no resolution is foreseen, do not have to build the Minimum Requirement for own funds and Eligible Liabilities (MREL) on top of their supervisory capital requirements for going concern. In contrast, for banks, whose preferred strategy is resolution, the MREL policy of SRB and its expectations for resolvability provide for certain adjustments to allow for proportionality as well. SRB can also grant transitional periods for banks to allow for a gradual build-up of MREL requirements. SRB must strike a careful balance between feasibility of the build-up of MREL and the credibility of the resolution strategy.
While there is one common European resolution scheme in the Banking Union, there are 19 national insolvency laws when winding-down a (cross-border) bank. A set of common standards, practices, and harmonized rules for the liquidation of banks would considerably facilitate resolution planning, increase predictability, and prevent diverging outcomes in different member states. Needless to say that administrative procedures might be preferable to judicial procedures. At the end of this process might stand the creation of a European bank liquidation regime—a European FDIC. Not only would this ensure centralized decision-making but also the application of a harmonized and effective toolbox supported by a European deposit insurance.
Related Link: Article
Keywords: Europe, EU, Banking Union, MREL, Resolution Planning, Proportionality, Capital Buffers, Deposit Insurance, Capital Requirements, SRB
The Australian Prudential Regulation Authority (APRA) released an update on the timelines for revisions to the market risk prudential standards and the implications for the broader capital framework.
Three global standard-setters launched a joint consultation that reviews the margining practices during the COVID-19 pandemic and identifies potential areas for further policy work.
The Bank of England (BoE) published the Statistical Notice 2021/09 requiring additional information from firms and software vendors to assist in the onboarding and testing phases for migrating statistical reporting to the BEEDS portal.
The European Banking Authority (EBA) published the final draft regulatory technical standards on gross jump-to-default amounts and on residual risk add-on under the Capital Requirements Regulation or CRR.
The Financial Conduct Authority (FCA) published the final rules on the Investment Firms Prudential Regime (IFPR) to streamline and simplify the prudential requirements for solo-regulated UK firms authorized under the Markets in Financial Instruments Directive (MiFID).
The European Supervisory Authorities (ESAs) have delivered to the European Commission (EC) the final report on the draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR).
The European Banking Authority (EBA) published an advice to the European Commission (EC) on funding in resolution and insolvency as part of the review of the crisis management and deposit insurance (CMDI) framework.
The Financial Stability Oversight Council (FSOC) released a report in response to the U.S. President's Executive Order on climate-related financial risk.
The Bank for International Settlements (BIS) published a paper that examines the business models and the associated risks posed by big technology firms foraying into financial services sector.
The Bank for International Settlements (BIS) announced the development of an Asian Green Bond Fund, in collaboration with the development financing community, to channel global central bank reserves to green projects in Asia Pacific.