10 December 2013

ECOFIN Council ready to conclude negotiations with Parliament on banking sector rules (BRRD/DGS)

With the adjusted negotiation mandate the Presidency of the Council will seek political agreement with the European Parliament on both directives on 11 December. The two proposals are closely interlinked and will be applicable throughout the EU. At the same time they form part of the "single rule book" underpinning the functioning of the Union's future Banking Union.

Rimantas Šadžius, the Lithuanian Minister for Finance and chair of the meeting, believes that the negotiations with the Parliament will be successful and that agreement will be reached by the end of the year. 

The ministers also discussed main elements of the proposal for the Single Resolution Mechanism. The proposal will be further discussed in the ECOFIN Council meeting, provisionally scheduled to take place on 18 December. 

Press release (with video link to press conference)

SRM-terms of reference, 10.12.13 (leaked on the FT's Brussels Blog - subscription)

“On the Single Resolution Mechanism, we have no formal result in our pocket or on the table but we made a huge leap forward defining the concrete directions and schemes that can be consulted with the experts of the Member States and then put forward for the ECOFIN next week", said Rimantas Šadžius, Lithuanian Finance Minister and Chair of the ECOFIN Council. On the basis of the ministers’ discussion, the Lithuanian Presidency will continue work to present the compromise legal proposals for the ECOFIN next week.
 
The minister said that the updated mandate on the Bank Recovery and Resolution as well as Deposit Guarantee Schemes directives will make it possible for the Lithuanian Presidency to conclude the negotiations with the European Parliament this year. “Bank Recovery and Resolution as well as Deposit Guarantee Schemes directives shall create an essential foundation for all further efforts to build the Banking Union, one of the top priorities of the Lithuanian Presidency", said Minister Šadžius.

Lithuanian Presidency press release

Presidency report on SRM detailing outstanding issues, 6.12.13

SRM-compromise proposal, 6.12.13

See also: Video: structure of banks: Commission looking at different options, explains Nadia Calviño

ECOFIN Council results

The Council updated its position on bank recovery and resolution and deposit guarantee schemes, in light of ongoing negotiations with the European Parliament. The Council adjusted its position in the light of negotiations with the European Parliament on proposed legislation harmonising national rules on bank recovery and resolution and deposit guarantee schemes. On this basis, the presidency will aim to reach agreement with the Parliament at a trilogue on 11 December.

The two dossiers are linked by a number of issues, such as funding arrangements and the use of funds, and trilogue negotiations have been held in parallel since July 2013.

Bank recovery and resolution

The proposed directive is aimed at providing national authorities with common powers and instruments to pre-empt bank crises and to resolve any financial institution in an orderly manner in the event of failure, whilst preserving essential bank operations and minimising taxpayers' exposure to losses.

The directive would establish a range of instruments to tackle potential bank crises at three stages: preparatory and preventative, early intervention, and resolution. It would require Member States, as a general rule, to set up ex-ante resolution funds to ensure that the resolution tools can be applied effectively.

Institutions would be required to draw up recovery plans, and update them annually, setting out the measures they would take to restore their financial position in the event of significant deterioration. Resolution authorities would have to prepare resolution plans for each institution, laying out the actions they might take if an institution were to meet the conditions for resolution.

Authorities would also have the power to appoint "temporary administrators" or special managers to an institution if its financial situation were to deteriorate significantly or if there were serious violations of the law.

The main resolution measures would include:

• the sale of (part of a) business;
• establishment of a bridge institution (the temporary transfer of good bank assets to a publicly controlled entity);
• asset separation (the transfer of impaired assets to an asset management vehicle)
• bail-in measures (the imposition of losses, with an order of seniority, on shareholders and
• unsecured creditors).

Bail-in provisions would enable resolution authorities to write down or convert into equity the claims of the shareholders and creditors of institutions which are failing or likely to fail. Certain types of liabilities would be permanently excluded from bail-in. Under the Council's general approach, a minimum level of losses equal to 8 per cent of total liabilities including own funds would have to be imposed on an institution's shareholders and creditors before access could be granted to the resolution fund. Eligible deposits from natural persons and micro, small and medium-sized enterprises would have preference over the claims of ordinary unsecured, non-preferred creditors and depositors from large corporations. The deposit guarantee scheme, which would always step in for covered deposits (i.e. deposits below €100,000), would have a higher ranking than eligible deposits.

Under the Council's general approach, a contribution of the resolution fund would be capped at 5 per cent of an institution's total liabilities. In extraordinary circumstances, where this limit has been reached, and after all unsecured, non-preferred liabilities other than eligible deposits have been bailed in, the resolution authority could seek funding from alternative financing sources.

The proposed directive is aimed at transposing into EU law commitments made at the G20 summit in Washington DC in November 2008, when leaders called for a review of resolution regimes and bankruptcy laws "to ensure that they permit an orderly wind-down of large complex cross-border financial institutions."

Based on article 114 of the Treaty on the Functioning of the European Union, the directive requires a qualified majority for adoption by the Council, in agreement with the European Parliament.

Deposit guarantee schemes

The draft directive recasts legislation currently in place in order to improve the protection of depositors' savings. The main elements are:

• Simplification and harmonisation, in particular relating to coverage and payout arrangements;
• Further reduction of the time limit for paying out depositors, and better access for DGSs to information about their members (i.e. banks);
• Financing requirements for DGSs, with the introduction of ex ante financing as a fixed percentage of deposits;
• Borrowing between DGSs on a voluntary basis.

Under the proposed directive, all banks would be required to join a DGS, and all DGSs would be supervised on an ongoing basis and would have to perform regular stress tests of their systems. Depositors would not have to submit an application and their eligibility would be simplified and harmonised.

The proposed directive would repeal and replace directive 94/19/EC and its successive amendments. Following the near-collapse of Northern Rock in 2007, and to prevent future bank runs, the Parliament and Council in 2009 raised guarantee levels and reduced pay-out delays in the event that deposits of a bank would become unavailable. Specifically, the coverage level was increased from a minimum of €20,000 to €100,000 and the pay-out deadline reduced to 20 working days.

Based on article 53(1) of the Treaty on the Functioning of the European Union, the directive requires a qualified majority for adoption by the Council, in agreement with the European Parliament.

Full results

© European Council