Parliament Offers Olive Branch Over Resolution Funding?

On 4 February 2014, the EU Parliament published a press release on the latest negotiations over bank resolution.

As previously reported (see this blog post for more detail), negotiations over resolution funding seemed largely to have reached an impasse.  However, yesterday’s tone seems somewhat more conciliatory in nature. Continue reading

EU Commission to Publish Liikanen Proposal on 29 January 2014

On 24 January 2014, the EU Commission published a press release confirming that, on 29 January 2014, it will publish a legislative proposal on EU bank structural reform designed to implement the findings of the Liikanen High Level Group.

It is thought that political agreement on the legislative proposals will not be reached before the end of 2015, with restrictions on proprietary trading likely to take effect from 2018.

Liikanen Proposal by End of January?

On 17 January 2014, the EU Commission published a press release confirming that it will make a proposal “in coming weeks” for the reform of the structure of banking in the EU.  The proposal will be based on the findings of Liikanen Report, published in October 2012, and will apparently will be “the final piece of the puzzle to address “too big to fail” banks”.

EU Shies Away From Liikanen?

The FT is reporting this morning that the latest draft of the Liikanen proposals, which implement bank structural reform within the EU, will be significantly watered down.  According to the article, separation will no longer be mandatory and will be less restrictive than previously thought.  Wider discretion is also to be given to national competent authorities – not always a good thing – to decide whether certain trading activity constitute a “systemic risk”, based on metrics provided by the European Banking Authority.  However, there may be a sting in the tail, with the EU Commission apparently proposing an ‘EU Volcker-Lite’ ban on proprietary trading – but only for the EU’s 30 largest banks.

Council Deals Blow to SRM

The Single Resolution Mechanism (SRM) proposed by the EU Commission in July has suffered a fresh blow (see this blog for SRM background).  On 7 October 2013, an opinion from the European’s legal service sheds serious doubt on the legality of giving a new agency wide discretion to close troubled banks under EU treaties, potentially undermining a key element of the resolution proposal.

The 26-page document warns of the pitfalls involved in giving a body too many powers and in particular states that “The legal service considers that the powers which would be conferred by the proposal of the board…need to be further detailed in order to exclude that a wide margin of discretion is entrusted to the board”.  The legal opinion may cause the EU Commission to rethink the proposal, causing more delays.  The first stage of the proposal which involves the European Central Bank directly supervising 130 top euro zone lenders has already been delayed to the end of 2014.  The SRM which forms one of the building blocks of the EU Banking Union now needs backing of member states to become law.

ECOFIN Meet to Discuss SRM

On 14 September 2013, the Lithuanian Presidency of the Council of the EU published a press release and a note (synopsis) on the informal meeting of the European Economic and Financial Affairs Council (ECOFIN) in Vilnius.  EU Finance Ministers and Central Bank Governors discussed the proposal for a Regulation for a single resolution mechanism (SRM).

The SRM is one of the key elements of the European banking union.  Lithuanian Finance Minister and Chair of the ECOFIN Council, Rimantas Šadžius, stated that “Swift progress towards the Banking Union is essential to ensure financial stability and growth in the internal market, as well as sound framework of financial system.  In the light of this, the Single Resolution Mechanism must be agreed as soon as possible”.  The Presidency is concentrating its efforts on reaching a general approach on the proposal for the implementation of the SRM in November 2013.

EU Council Publishes new RRD Proposal

On 16 July 2013, the EU Presidency published a compromise proposal amending the EU Commission’s previous compromise proposal (dated 19 June 2013) relating to the Recovery and Resolution Directive (RRD).

As detailed in Annex 2 to the document, the main changes address issues such as:

  • the scope of the bail-in tool; and
  • resolution financing arrangements.

EU Commission proposes Single Resolution Mechanism

On 10 July 2013, the EU Commission proposed a Single Resolution Mechanism (SRM), a complement to the Single Supervisory Mechanism (SSM) and one of the building blocks of EU Banking Union.  The SRM is designed to ensure that the resolution of a failing bank can be managed efficiently with minimal costs to taxpayers and the real economy.

The proposed SRM would apply the substantive rules of the Recovery and Resolution Directive (RRD). The EU’s Council of Finance Ministers reached agreement on a general approach to the RRD on 27 June and the EU Parliament’s Committee on Economic and Monetary Affairs adopted its report on 20 May. Negotiations between the Council and the European Parliament are due to start soon with the aim of reaching final agreement on the RRD in autumn 2013.  At its recent meeting, the EU Council of Ministers set themselves the target of reaching agreement on the SRM by the end of 2013 so that it can be adopted before the end of the current European Parliament term in 2014. This would enable it to apply from January 2015, together with the RRD.

Under the SRM:

  • the European Central Bank (ECB) would signal when a bank in the euro area or established in a Member State participating in the Banking Union was in severe financial difficulties and needed to be resolved;
  • a Single Resolution Board, consisting of representatives from the ECB, the EU Commission and the relevant national authorities, would prepare the resolution of a bank;
  • a Single Bank Resolution Fund, funded by contributions from the banking sector and replacing national resolution funds, would be set up under the control of the Single Resolution Board;
  • on the basis of the Single Resolution Board’s recommendation, or on its own initiative, the EU Commission would decide whether and when to place a bank into resolution and would set out a framework for the use of resolution tools and the Single Bank Resolution Fund; and
  • under the supervision of the Single Resolution Board, national resolution authorities would be in charge of the execution of a resolution plan.

EU Commission Extends Liikanen Consultation

The EU Commission has extended its consultation on reforms to the structure of the EU banking sector to 11 July 2013 according to its webpage.  The consultation was launched on 16 May 2013 and was expected to run until 3 July 2013.  The Commission is seeking views on policy options relating to the scope of banks potentially subject to structural separation.