19 December 2013

Comments on Banking Union/SRM: AGB, EBF, FBF

The German, European and French banking organisations welcomed the progress made by ECOFIN on Banking Union. The agreement provides for the progressive creation of a European resolution fund with national contributions, which could be used for the structured recovery of an establishment from 1.1.16.

AGB: Banking Union - The foundations for the second phase of construction have been laid

"Now that Europe's finance ministers have reached an agreement, Europe is on the home strait towards the second phase of Banking Union", said general manager Michael Kemmer.

It was a sound decision taken last night to place responsibility for restructuring and resolution on the same level as that for supervision, namely European level. “Here, too, there should be no divergence between oversight and liability", stressed Kemmer.

Earlier this week, the European Parliament adopted a position on the single resolution mechanism (SRM) and the single resolution fund (SRF). The Association of German Banks believes that the Parliament, Council and Commission should now try to find common ground as soon as possible in the trilogue process. “The second cornerstone of Banking Union, the resolution mechanism, should be in place without undue delay after the launch of the single supervisory mechanism", Kemmer added.

Both the SRM and SRF were major building blocks of the Banking Union project. “This will make the financial system much more stable in the event of future crises. But Banking Union should not allow responsibility for national legacy debt to be shifted to European level", Kemmer emphasised. At most, the new resolution tools would make it easier to “clean up” after the 2008 crisis. So the European finance ministers were basically right to decide that national responsibility would be phased out in stages and that a single resolution fund would take over only at the end of this process.

Another important point, in Kemmer’s view was that there should be “no two-class system of winding down banks". It was therefore correct to make all banks subject to the SRM and liable to pay contributions to the SRF. “It would be short-sighted to ignore decentralised network structures (savings and cooperative banking networks) and focus only on the risk situation of a single bank. Just think of what happened to the Spanish savings banks, for example.” The systemic risks inherent in decentralised banking network structures were recently highlighted by the German Council of Economic Experts in its Annual Economic Report.

The current compromise on who should take the decision to wind down a bank and at what stage was a marked improvement on previously discussed plans. “It is important not to put off a decision about winding down a bank; national sensitivities should not be permitted to get in the way", said the General Manager of the Association of German Banks.

Press release

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EBF: SRM agreement is essential to Banking Union, say banks

Guido Ravoet, Chief Executive of the EBF, said “For us, the Single Resolution Mechanism – with an independent Board and fund - is the logical next step in the Banking Union process, which we strongly support. It will ensure a consistent application of the recently agreed Bank Recovery and Resolution framework for banks within the Single Supervisory Mechanism (SSM).”

The EBF welcomes in particular the trend to give the Single Resolution Board more autonomy to make decisions on the resolution of banks deemed unviable by the new single supervisor for the SSM-zone. “It is crucial that the SRB is able to take decisions regarding all banks within the SSM whether directly or indirectly supervised by the ECB. An efficient and timely decision-making process for the resolution of cross border banks in the SSM will be of the utmost importance", explained Ravoet.

The EBF highlights that only a sound decision-making process will facilitate the speed of resolution, which in turn may minimise the wider impact of a bank failure and the need for taxpayer support. “At this stage, we are not sure whether the co-legislators’ starting positions are really that conducive to efficiency and swift decision-making”, commented Ravoet.

There remains much work to be done before the Parliament’s current legislature closes. “In fact that means that the co-legislators must come to a common view by April 2014, which puts a lot of pressure on these talks. But the need to come to a rapid conclusion must not be at the expense of the lasting quality of this crucial part of the Banking Union”, warned Ravoet.

Almost all EBF members are supportive of the creation of a Single Resolution Fund. They however emphasise the need to deal with the legacy assets of the recent crisis and believe that bail-in instruments should act as the primary means of absorbing losses in a bank failure. Resolution financing would only serve to finance the residual and operational cost of a bank resolution. To this end EBF Members welcome the clear signal of the Council to create a Single Resolution Fund by merging national funds into a single resolution fund which would allow for a mutualisation of resolution financing over time. EBF members recognise the synergies of a common fund and therefore see no need for a dual system of national and supranational funds.

Press release

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FBF: Banking Union - a major step towards a stable European banking system

The French Banking Federation (FBF) welcomes the progress made by the Finance Ministers of the European Union in the implementation of a European Banking Union. It underlines the major financial impact that the introduction of the future single resolution fund, which will be financed ex-ante by the banks, will have on their operating statements and equity.

Introduction of a pan-European crisis prevention and resolution mechanism

The FBF welcomes the agreement which will allow for the adoption of the directive on the pan-European resolution of banking crises which it has always supported. The agreement will substantially alter the legal framework governing the banks of the 28 Member States, notably because it will avoid governments having to intervene to bail out banks in difficulty as has been the case in certain European countries since the crisis in 2008.

The FBF is satisfied that the legal framework for the European resolution mechanism is based on the notion that banks in difficulty must first seek a bail-in across a broad scope, with priority recourse to shareholders and creditors. In principle, the new mechanism would avoid failing banks becoming a burden for the taxpayer.

Progress on the road to a Banking Union for the eurozone

As far as the eurozone is concerned, the agreement provides for the progressive creation of a European resolution fund with national contributions, which could be used for the structured recovery of an establishment from 1 January, 2016. French banks call for vigilance as to the terms of the ex-ante financing of the resolution fund: the contributions by European banks (estimated at €55 billion over 10 years) alongside their contributions to the Deposit Guarantee Scheme would commensurately impact on their earnings and equity. This in turn would reduce their capacity to finance the economy since Basel III requires that European banks maintain a higher equity buffer to cover client debt levels.

Assigning systemic tax to the resolution fund

Under the new mechanism, the criteria defined for financing the resolution fund may see French banks obliged to make disproportionate contributions: it is there imperative that the systemic tax introduced three years ago and paid by French banks to the State budget be assigned to the resolution fund as of 2014, in accordance with its intrinsic logic.

Furthermore, it is important that the European resolution authorities are able to react quickly should a bank find itself in difficulty. For the time being, the decision channels defined by the Resolution Council are cumbersome and complex and require the intervention of a very large number of participants: the talks that will continue between the Council and the Parliament must lead to a simple and efficient system.

The FBF also reiterates that it unreservedly approves the introduction in November 2014 of a single supervisory mechanism for all eurozone banks which is one of the core pillars for the Banking Union.

Press release