February 08, 2019

European Parliament published a brief report that analyzes the key differences between the U.S. and the Banking Union resolution and liquidation framework, including differences in terms of funding arrangements. In view of recent liquidation and resolution experiences, the report assesses what an EU insolvency regime would bring to the Banking Union both in terms of small and medium-size banks’ resolution and in terms of strengthening the existing Bank Recovery and Resolution Directive (BRRD) resolution framework. The briefing finally outlines the key building blocks of an EU liquidation regime for the Banking Union.

As part of its July 2018 assessment of the Euro area, IMF recommended to entrust SRB with administrative liquidation powers, along the lines of the U.S. FDIC. Based on the FDIC experience, this would mean entrusting SRB with insolvency tools akin to resolution to deal with failing banks that do not meet the public interest test. At the December ECON hearing, the SRB Chair portrayed the FDIC model as a way to wind up small and medium-size institutions while protecting insured depositors. At the December 06 ECON hearing, the SRB Chair advocated a framework that links depositor protection (that is, Deposit Guarantee Scheme) and gives the chance to unwind small- and medium-size banks under national insolvency proceedings, referring to the FDIC. The report concludes that adopting the U.S. FDIC model in the Banking Union would imply further harmonization on three fronts:

  • An EU bank insolvency framework
  • Further supervisory functions for SRB
  • European Deposit Insurance Scheme underpinned by further harmonization of the DGS Directive

 

Related Link: Report

Keywords: Europe, EU, US, Banking, SRB, Resolution Framework, BRRD, FDIC, European Parliament

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