May 06, 2019

The SRB Chair Elke König published an article that outlines the potential resolution framework priorities for the next EU legislature, just as the mandate of the current European Commission and Parliament draws to an end. This article was published in The Eurofi Magazine.

In the article, she mentions that, from the perspective of SRB, the finalization of the Banking Package represents a milestone in strengthening the resolution framework. The partial harmonization of the creditor hierarchy was another step forward. Building on these achievements, SRB is hopeful that the next legislature will deliver on the implementation, review, and completion of the resolution framework. She then outlined the issues that legislators in the next mandate could address to the complete framework:

  • Addressing asymmetries between the EU resolution regime and national insolvency frameworks
  • Aligning the conditions to determine that a bank is "failing or likely to fail" with the criteria for liquidation at national level
  • Addressing the issue of the requirements for burden sharing under the 2013 Banking Communication of EC, which apply in cases of precautionary recapitalization and liquidation aid, not being entirely in line with those for bail-in under the Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR), potentially giving wrong incentives when compared to resolution
  • Fully harmonizing the ranking of creditors in insolvency, as Directive 2017/2399 focused only on unsecured debt instruments in the hierarchy, while national differences remain on the ranking of the rest of the creditors

She highlighted that deepening the Economic and Monetary Union in EU requires the completion of the Banking Union and of the Capital Markets Union. A common framework for banks’ insolvency would constitute a significant advance on both paths. Both strong Banking Union and European capital market can play an important role in the creation of the needed liquidity for capital instruments and Minimum Requirement for own funds and Eligible Liabilities (MREL). Therefore, work on these must continue to progress in the new EU legislature.

 

Related Link: Article by SRB Chair

 

Keywords: Europe, EU, Banking, BRRD, SRMR, Directive 2017/2399, MREL, Resolution Framework, Creditor Hierarchy, Banking Union, SRB

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