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The Banking view on Recovery and Resolution of Credit Institutions and Investment Firms. EU Crisis Management Framework Overarching Principles. Harmonised resolution frameworks to be introduced globally to ensure a level playing field
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The Banking view on Recovery and Resolution of Credit Institutions andInvestment Firms
EU Crisis Management FrameworkOverarching Principles • Harmonised resolution frameworks to be introduced globally to ensure a level playing field • There needs to be legal certainty with regard to the accountability and liability of Resolution Authorities • Broad but proportional scope of application of the Crisis Management Framework to all financial institutions • Emphasis on enhanced Supervision, Prevention and Early Intervention is pararmount • Resolution tools to adhere to least cost and no creditor worse off principles
EU Crisis Management FrameworkPrevention: Recovery & Resolution Plans • A bank’s management should be responsible for recovery planning • Recovery and Resolution plans should be tailored based on Group structure • Confidentiality of Recovery and Resolution Plans should be strengthened • Recovery and Resolution Plans or other preventative measures should not be used for supervisory intervention in the structure or operation of healthy financial institutions • Need to establish recourse, with a suspensive condition, for the most intrusive resolvability and early intervention measures
EU Crisis Management FrameworkEarly Intervention • Prevention, early intervention and resolution procedures and measures must be used proportionally • Public disclosure of the use of early intervention tools the recovery phase must remain private to avoid signaling market distress • Management should retain control during recovery to ensure that they are able to fulfil their fiduciary duties • The voluntary nature of ex-ante intra-group support agreements must be respected in all circumstances.
EU Crisis Management FrameworkResolution • Given current degree of supervisory discretion resolution triggers and implementation need to be explained to market participants • Valuation should generally be based on a fair market value, which allocates the losses between the shareholders and the creditors • Valuation Methods have to be tailored to different resolution tools and objectives • The bridge bank should comply with regular prudential requirements and be managed in a way to minimise any distortion of competition.
EU Crisis Management FrameworkBail-In • Bail-in as should be a resolution tool last measure (ultima ratio). • The EBF supports the proposition that a broad range of instruments be eligible for bail-in – but banks remain divided on the exclusion of short-term debt • There should be no requirement for firms to hold a specific proportion of their Total Liabilities as bail-in instruments. The level of bail-inable instruments depend on the structure and funding model of a bank • The bail-in regime needs to be compatible with third countries
EU Crisis Management FrameworkResolution Funding • EBF support the creation of resolution financing arrangements in Members States • Synergy between Deposit Guarantee Scheme (DGS) and Resolution is welcome but there should be freedom to choose • Consistency between final DGS Directive is needed: • Proposed target level should be aligned with DGS • Fund should be built up over 15 years rather than 10 • Borrowing between national funds should be voluntary • Contributions should be capped • The least cost principle should be respected • Raising of contributions have to be fair and risk based (how to calculate fair between Investment and deposit taking banks?)
EU Crisis Management FrameworkCross Border Issues • EBF supports heightened cooperation between national authorities in all phases of preparation, recovery and resolution • Resolution colleges should: • have a mandate for global financial stability • only be composed by one resolution authority per country • be led by the home authority • include 3rd countries if their rules respect the global financial stability
Banking Union • EBF welcomes the SSM as first step to harmonise supervision in Euro Zone • Finalisation of DGS and Crisis Management Directives are logical next steps of Banking Union • EBF cautious of mutual borrowing between DGS/RF or a single EU DGS/Resolution Fund without single supervisor and fiscal burden sharing in place • EU Policy Makers need to take care to get the order of proposals for Banking Union right as well as complimenting them with further fiscal and economic integration