Elke König of SRB on Liquidation Rules for Small and Medium-Size Banks
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
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
OSFI Outlines Prudential Policy Priorities for Coming Months
OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.
BIS Announces TechSprint on Innovative Green Finance Solutions
Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.
EBA Proposed Regulatory Standards for Central Database on AML/CFT
EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.
ECB Responds to EC Consultation on Crisis Management Framework
ECB published its response to the targeted EC consultation on the review of the bank crisis management and deposit insurance framework in EU.
ACPR Publishes Version 1.0.0 of RUBA Taxonomy
ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.
BCBS, CPMI, and IOSCO to Survey Market Participants on Margin Calls
BCBS, CPMI, and IOSCO (the Committees) are inviting entities that participate in market infrastructures and securities markets through an intermediary as well as non-bank intermediaries to complete voluntary surveys on the use of margin calls.
ECB Amends Decision on TLTRO III
ECB published Decision 2021/752 to amend Decision 2019/1311 on the third series of targeted longer-term refinancing operations or TLTRO III.
Central Bank of Ireland Issues Draft Template for AnaCredit Reporting
The Central Bank of Ireland published Version 2.7 of the draft credit data template and rules for monthly AnaCredit reporting by banks.
OSFI Consults on Revisions to BCAR and Leverage Requirements Returns
OSFI proposed revisions to the Basel Capital Adequacy Reporting (BCAR) and leverage requirements returns for the 2023 reporting, with the comment period ending on July 09, 2021.
EBA Seeks Views on Revisions to Nonperforming Loan Data Templates
EBA published a discussion paper on review of the standardized nonperforming loans (NPL) transaction data templates, along with the proposed revised NPL data templates.
