EP published a briefing in context of the design of the new arrangements for provision of liquidity funding in bank resolution in the Banking Union. The report describes the existing arrangements in the Banking Union, compares those arrangements with the U.S. and the UK regimes, and echoes ongoing reflections on possible new arrangements with a view to completing the Banking Union.
In EU, the Single Resolution Mechanism (SRM) Regulation has entrusted the Single Resolution Fund (SRF) with the task of providing liquidity in resolution. The SRF is designed as financing arrangements under the Bank Recovery and Resolution Directive (BRRD). While not designated as financing arrangements for resolution under BRRD, other public sources of liquidity exist: Emergency Liquidity Assistance (ELA) provided by national central banks and State Aid support authorized by EC, where feasible and appropriate. While the SRF has not been used so far, the recent cases involved ELA and State Aid support. The resolution of Banco Popular has, in particular, raised questions on whether existing public financing arrangements during bank resolution are sufficiently robust to finance banks under resolution.
The report highlights that, in keeping with the FSB principles for effective resolution, the U.S. and UK have equipped their resolution toolkit with a special facility intended to provide funding to banks under resolution, where short-term liquidity from the private sector is not immediately available. The Banking Union framework has been qualified as “being geared towards addressing solvency issues more than liquidity.” For example, if a bank that is short of sufficient collateral be resolved on a Friday, bail-in would not provide on Monday additional collateral that would allow the bank to have access to central bank money. That is why there is a need for central banks to step in and to provide liquidity in resolution. Additionally, the analysis highlights that unlike the UK and U.S. regimes, financing in resolution in the Banking Union is provided by different bodies, which may raise coordination challenges, as different sources of liquidity (ELA, SRF, and the backstop, once in place, and State support) may be available depending on the circumstances of each case and the availability of the SRF fund (and its backstop). While the funding provided by the SRF is capped by the size of the SRF, its backstop, and the amount of ex post contributions that the SRF may raise, liquidity in resolution in the UK is designed to be provided “in the necessary scale.”
The recent case of Banco Popular has shown the importance of liquidity funding in the context of bank resolution. The Eurogroup report endorsed by the December 2018 Euro Summit noted the “broad support for the assessment of the institutions that there are limitations in the current framework (for liquidity provision in resolution), which may hamper its effectiveness. The June 2019 Euro summit has not yet reached any conclusions on the design of that liquidity facility, as planned. The Eurogroup is expected to report back to the Euro-Summit regarding this in December 2019.
Keywords: Europe, EU, UK, US, Banking, Banking Union, SRMR, BRRD, SRF, Bank Resolution, Liquidity Risk, EP
APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.
EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).
HM Treasury notified that, after considering all responses, the government intends to bring forward further legislation, when the Parliamentary time allows, to address issues identified in the consultation on supporting the wind-down of critical benchmarks.
EIOPA launched the 2021 stress test for the insurance sector in EU.
UK authorities jointly published the third edition of Regulatory Initiatives Grid setting out the planned regulatory initiatives for the next 24 months.
EC is requesting feedback on the proposed Commission Delegated Regulation on the content, methodology, and presentation of information that large financial and non-financial undertakings should disclose about their environmentally sustainable economic activities under the Taxonomy Regulation.
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.
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.
ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.
EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.