Elke König, the SRB Chair, spoke at the ECON Committee Hearing about achievements of SRB in the last five years, implementation of the resolution framework, and the key priorities of SRB for 2019. Additionally, European Parliament published a report on the stock take of the activities of SRB over the past years. The report highlights that 2019 is a crucial year, as SRB needs to formally adopt resolution plans for all the banks under its supervision and set binding minimum requirements for bail-in-able debt, the Minimum Requirement for own funds and Eligible Liabilities (MREL).
During the speech, Elke König mentioned that lack of a sufficient MREL could be an important barrier to executing the resolution strategy, but it is not the only barrier. The findings from the first resolution planning cycles have revealed certain areas as potential obstacles to resolution, including group structures and operations, management information systems, operational continuity, and governance and communication. Next, Elke König discussed the internal priorities for 2019, considering that resolution planning remains the core task of SRB. SRB continues to work hard on its 2019 resolution planning cycle. The resolution teams have communicated the 2019 individual priorities for each bank. She added that SRB has been working internally on updating—or rather collating—the various policies in an updated resolution planning manual to be used by the internal resolution teams and the national resolution authorities. This Autumn, SRB is expected to set out a more comprehensive outline of the resolvability expectations toward all banks, which should help public understanding. Also, this year, SRB will prepare for the implementation of bank recovery and resolution directive (BRRD) II and single resolution mechanism regulation (SRMR) II.
Ms. König mentioned that SRB wants to continue its work toward financial stability and ensure that Europe develops, deepens, and strengthens the Banking Union and the Capital Markets Union. From the SRB perspective, EU evidently needs a stronger and more harmonized capital market. Banks need to strengthen their capital as well as issue and maintain the needed MREL. This should be doable in a deep and liquid European capital market in EUR, not just USD. She added that “The much discussed EDIS project remains a priority for the SRB… . The third and final pillar of the Banking Union is vital, let’s hope we see movement on it as soon as possible.”
The SRB Chair added that the divergence of national insolvency laws is a major obstacle toward a full-fledged Banking Union. The safeguard that no creditor shall be worse-off in resolution than in insolvency is an important protection provided for in the regulation. However, there might be different results in different countries depending on the national insolvency regime, which could negatively impact on the resolution procedure. While discussing the single resolution fund (SRF) backstop in Brussels, Ms. König noted that this will be an important buffer in giving the markets confidence in a time of crisis or resolution. Liquidity in resolution is a key gap in the framework. SRF could play a role in liquidity provisioning as a last resort, but this role will be limited due to size of SRF, both during the transitionary period and after the target level is reached, even when the common backstop has been added. Addressing this issue will materially enhance financial stability.
Keywords: Europe, EU, Banking, MREL, BRRD 2, SRMR 2, Banking Union, Resolution Framework, European Parliament, SRB
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