Featured Product

    Elke König of SRB on EU Liquidation Regime and Gaps in Banking Union

    September 05, 2018

    Elke König of SRB published two articles that express her views on the need for an EU liquidation regime for banks and on ways to close the gaps in the Banking Union regarding funding in resolution. These articles were published in The Eurofi Magazine.

    Why we need an EU liquidation regime for banks. The resolution of banks is a specific insolvency procedure, introduced as an alternative to liquidation under national laws. The lack of an EU liquidation regime is a major obstacle toward full-fledged Banking Union. With nineteen different insolvency frameworks in the Banking Union, the analysis of the insolvency counterfactual for a cross-border bank in resolution is a challenge and results in diverging outcomes depending on the home country of the institution. Bank insolvency procedures should be subject to common standards and practices at the EU level. The ideal solution would be EU-wide rules on insolvency proceedings for the banking sector. SRB is working within the Single Resolution Mechanism on National Handbooks to define how to implement resolution schemes in each country as well as national implementation steps for a decision not to adopt resolution. This is a step in the right direction, but is only a “second best” option and not comparable to a harmonization of bank insolvency procedures—something only legislators can deliver. Proposals for harmonization will inevitably be fraught with political perils and resistance. An incremental approach—such as the one exemplified by the recent harmonization of the ranking of unsecured debt instruments in insolvency—may be a more palatable solution. The ultimate goal, however, must be to have in place an EU liquidation regime alongside an EU resolution regime.

    Gaps in the Banking Union regarding funding in resolution and how to close them. By definition a recapitalized bank that has absorbed losses will be solvent and have better access to funding. However, given that analysts and creditors will likely require time to re-assess the financial position, the return to market funding will be a process rather than a one-off fix. Addressing the risk of banks having insufficient liquidity following resolution action, therefore, presents a crucial task in resolution planning. FSB guidance recommends establishing temporary public backstop funding mechanisms. Such a tool does not exist in the Banking Union, which is a missing piece in the overall framework. A credible tool would address open issues in the current system and put the Banking Union framework at equal footing with other jurisdictions such as the US or UK. A credible temporary public solution will provide markets with the needed confidence and allow fast return to private funding. When designing a credible tool some fundamentals must be fulfilled:

    • First, all pre-conditions must be clear and resolution authorities should have certainty they can rely on the tool for finalizing all features of the resolution scheme, including funding, that is, liquidity on day one.
    • Second, the scale must be sizable and flexible enough to support the effective implementation of any resolution strategy. It goes without saying, that only viable and solvent institutions in resolution should be supported with funding.
    • Finally, the creation of a new sovereign-bank nexus should be avoided.

     

    Related Links

    Keywords: Europe, EU, Banking, Resolution Planning, Liquidation Regime, Banking Union, SRB

    Related Articles
    News

    APRA Decides to Standardize Submission Date for Quarterly Reporting

    APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.

    May 11, 2021 WebPage Regulatory News
    News

    Bundesbank Publishes Supporting Documentation for Reporting by Banks

    Bundesbank published a list of "EntryPoints" that are accepted in its reporting system; the list provides taxonomy version and name of the module against each EntryPoint.

    May 11, 2021 WebPage Regulatory News
    News

    ECB Working Group Publishes Recommendations on EURIBOR Fallbacks

    The private sector working group of ECB on euro risk-free rates published the recommendations to address events that would trigger fallbacks in the Euro Interbank Offered Rate (EURIBOR)-related contracts, along with the €STR-based EURIBOR fallback rates (rates that could be used if a fallback is triggered).

    May 11, 2021 WebPage Regulatory News
    News

    EBA Publishes Phase 1 of Reporting Framework 3.1

    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).

    May 10, 2021 WebPage Regulatory News
    News

    APRA to Finalize Capital Adequacy Standard Revisions by January 2022

    Asia Pacific Australia Banking APS 111 Capital Adequacy Regulatory Capital Basel RBNZ APRA

    May 10, 2021 WebPage Regulatory News
    News

    ESMA Issues Guidelines on Outsourcing to Cloud Service Providers

    ESMA published the final guidelines on outsourcing to cloud service providers.

    May 10, 2021 WebPage Regulatory News
    News

    EBA Publishes Data on Deposit Guarantee Schemes

    EBA published annual data for two key concepts and indicators in the Deposit Guarantee Schemes (DGS) Directive—available financial means and covered deposits.

    May 10, 2021 WebPage Regulatory News
    News

    OSFI Sets Out Plan for Future Guidance on Managing Technology Risk

    OSFI has set out the schedule for release of draft guidance on the management of technology risks by federally regulated financial institutions and private pension plans.

    May 10, 2021 WebPage Regulatory News
    News

    MAS Updates Housing Loan Rules, Proposes Corporate Governance Guidance

    MAS updated rules for new housing loans by banks and finance companies.

    May 10, 2021 WebPage Regulatory News
    News

    HKMA Publishes Guideline on Sustainable Finance Grant Scheme

    HKMA published a statement on the 100% Personal Loan Guarantee Scheme and a guideline on the Green and Sustainable Finance Grant Scheme (GSF Grant Scheme) as announced in the 2021-22 Budget.

    May 09, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6959