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Dealing with Distress in International Financial Conglomerates

Dealing with Distress in International Financial Conglomerates. Erwin Nierop Deputy General Counsel European Central Bank. Washington D.C. 2 June 2005. European legal framework for dealing with distress in financial conglomerates. Financial Conglomerates Directive ( 2002/87/EC)

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Dealing with Distress in International Financial Conglomerates

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  1. Dealing with Distress in International Financial Conglomerates Erwin Nierop Deputy General Counsel European Central Bank Washington D.C. 2 June 2005

  2. European legal framework for dealing with distress in financial conglomerates • Financial Conglomerates Directive (2002/87/EC) • Memorandum of Understanding on co-operation in financial crisis situations between the banking supervisory authorities, the central banks and the Finance Ministries of the EU(17 May 2005)

  3. Other EU legislation with potential impact • Winding-up Directives (2001/24/EC and 2001/17/EC) • Insolvency Proceedings Regulation (1346/2000/EC) • Settlement Finality Directive (98/26/EC) • Collateral Directive (2001/47/EC) • Proposed Capital Adequacy Directive (Basel II)

  4. Stages of crisis management 1. [Prevention] 2. Exchange of information 3. Cooperation 4. Decision-making

  5. Financial Conglomerates Directive Aims to improve the solvency and supervision of financial conglomerates and deals with: Introduction of measures to facilitate supplementary supervision for regulated entities that are established and authorised in the EU/EEA.

  6. Supplementary supervision and cooperation measures under FCD • Provides measures to facilitate supplementary supervision: - for each financial conglomerate a single coordinatoris appointed from among the competent authorities of the EU Member States. • Introduces cooperation and exchange of information between competent authorities among EU Member States: - requirement of close cooperation and exchange of information within EU/EEA; and - verification of the information concerning an entity, being part of a financial conglomerate and situated in another MS.

  7. Decision-making under the FCD • Provides additional decision-makingfunctions as a primusinter pares of the competentauthorities of the Member States in case of cross-border financial conglomerates. • Coordinators have an important role in distress situations but this role should be detailed further.

  8. Memorandum of Understanding 17 May 2005 • Not legally binding. • Respects responsibilities of competent authorities. • Builds further on MoU of 2003 between central banks and supervisors.

  9. Memorandum of Understanding 17 May 2005 • MoU on co-operation in financial crisis situations agreed on May 17, 2005 between the banking supervisory authorities, the central banks and the Finance Ministriesof the European Union • Covers, inter alia, crisis of banking groups or banking components of financial groups. • Objective: - Procedures for sharing of information and definition of information flow at national/cross-border level - Cooperation: arrangements for the development of contingency plans for the management of crisis situations along with stress-testing and simulation exercises.

  10. Future developments ? • FCD and MoU still relatively new legal instruments that have to be tested. • Many different supervisors. • Many different insolvency regimes. • More MoUs?

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