The SRB Chair Elke König published an article in The Eurofi Magazine and the article discusses the implications of bank consolidation and the challenges to be addressed by regulators toward financial integration in the Banking Union. From the perspective of SRB, whose mandate focuses on achieving resolvability of banks, having strong European banks is a natural aspiration. She highlighted that consolidation can improve diversification of risks in banking groups, increase bank access to capital markets, and decrease their funding cost, ultimately facilitating the build-up of loss absorption capacity to meet the minimum requirement of eligible liabilities (MREL).
Cross-border banks can play the important role of reducing risks through private risk-sharing in the Banking Union. Consolidation in the banking sector should not be seen as a shortcut to avoid necessary reforms. It is crucial for a resolution authority that consolidation facilitates, instead of hindering, the resolvability of a bank, in line with the resolvability expectations of SRB. In addition, the establishment of the institutional infrastructure of the Banking Union can also be seen as a favorable element. Even though the third pillar, common deposit insurance, is yet to be built, a single supervisory mechanism and a single resolution mechanism are up and running.
However, financial integration within the Banking Union is still lagging behind. There are challenges that could be addressed by policymakers and regulators. The harmonization of relevant legislation, such as insolvency proceedings, could also contribute to remove barriers for the cross-border consolidation of banks. Rule-makers and regulators should resist the temptation of ring-fencing capital and liquidity resources, as this can lead to sub-optimal location and rigidity in the deployment of such resources. Regrettably, the recently agreed banking package does not mark a step forward on this aspect. Rather, it runs the risks of, first, fragmenting decision-making in the Banking Union on external MREL, and second, ring-fencing of internal MREL. SRB already invests and will continue to invest significant resources to reach joint decisions with national authorities on resolution plans, on calibration and location of MREL, and on bail-in playbooks.
Related Link: Article
Keywords: Europe, EU, Banking, MREL, Banking Union, Financial Integration, Consolidation of Banks, SRB, Resolution
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.
The European Banking Authority (EBA) published the final report on the guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits and the time and measures needed for institutions to return to compliance.
The Prudential Regulation Authority (PRA) issued the policy statement PS20/21, which contains final rules for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies.
The European Banking Authority (EBA) revised the guidelines on stress tests to be conducted by the national deposit guarantee schemes under the Deposit Guarantee Schemes Directive (DGSD).
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
The Hong Kong Monetary Authority (HKMA) issued a circular, for all authorized institutions, to confirm its support of an information note that sets out various options available in the loan market for replacing USD LIBOR with the Secured Overnight Financing Rate (SOFR).
The Office of the Comptroller of the Currency (OCC) issued a new "Problem Bank Supervision" booklet of the Comptroller's Handbook. The booklet covers information on timely identification and rehabilitation of problem banks and their advanced supervision, enforcement, and resolution when conditions warrant.