Featured Product

    Elke König of SRB on Liquidation Rules for Small and Medium-Size Banks

    September 23, 2019

    SRB published an article that advocates developing a common set of rules for liquidation of small and medium-size banks in EU. The article was written by the SRB Chair Elke König and was originally published in Views, the magazine of the Eurofi Forum held in Helsinki in September 2019. The article notes that building the capital buffers may be challenging for smaller fully deposit-funded banks. Therefore, a common set of rules for winding down such banks—for some SRB banks and all less significant banks—could be beneficial.

    The article highlights that the decision to put a failing institution into resolution depends on the outcome of a “public interest assessment,” determining if the preservation of a bank’s critical functions is required to maintain financial stability. If outcome of the public interest assessment is negative, a failing bank will be sent into national insolvency. To increase transparency, SRB recently published a paper on public interest assessment, presenting the methodology and how SRB assesses the criteria set out by the EU law.

    In due consideration of proportionality in resolution planning, the loss-absorption requirements for each institution are carefully adjusted to the choice of resolution tools. The banks, for which (in case of failure) no resolution is foreseen, do not have to build the Minimum Requirement for own funds and Eligible Liabilities (MREL) on top of their supervisory capital requirements for going concern. In contrast, for banks, whose preferred strategy is resolution, the MREL policy of SRB and its expectations for resolvability provide for certain adjustments to allow for proportionality as well. SRB can also grant transitional periods for banks to allow for a gradual build-up of MREL requirements. SRB must strike a careful balance between feasibility of the build-up of MREL and the credibility of the resolution strategy.

    While there is one common European resolution scheme in the Banking Union, there are 19 national insolvency laws when winding-down a (cross-border) bank. A set of common standards, practices, and harmonized rules for the liquidation of banks would considerably facilitate resolution planning, increase predictability, and prevent diverging outcomes in different member states. Needless to say that administrative procedures might be preferable to judicial procedures. At the end of this process might stand the creation of a European bank liquidation regime—a European FDIC. Not only would this ensure centralized decision-making but also the application of a harmonized and effective toolbox supported by a European deposit insurance. 


    Related Link: Article


    Keywords: Europe, EU, Banking Union, MREL, Resolution Planning, Proportionality, Capital Buffers, Deposit Insurance, Capital Requirements, SRB

    Featured Experts
    Related Articles

    EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis

    The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.

    November 28, 2023 WebPage Regulatory News

    EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules

    The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.

    October 31, 2023 WebPage Regulatory News

    BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks

    As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.

    October 19, 2023 WebPage Regulatory News

    BCBS and EBA Publish Results of Basel III Monitoring Exercise

    The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.

    October 18, 2023 WebPage Regulatory News

    PRA Updates Timeline for Final Basel III Rules, Issues Other Updates

    The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.

    October 18, 2023 WebPage Regulatory News

    US Treasury Sets Out Principles for Net-Zero Financing

    The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.

    October 17, 2023 WebPage Regulatory News

    EC Launches Survey on G7 Principles on Generative AI

    The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.

    October 14, 2023 WebPage Regulatory News

    ISSB Sustainability Standards Expected to Become Global Baseline

    The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.

    September 18, 2023 WebPage Regulatory News

    IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance

    Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.

    September 18, 2023 WebPage Regulatory News

    BCBS Assesses NSFR and Large Exposures Rules in US

    The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.

    September 14, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8938