EU Banking Reform Legislation Expected January 2014

On 11 December 2013, the European Commission published a press release containing remarks made by Michel Barnier, European Commissioner for Internal Market and Services on EU banking structural reform.  Mr Barnier stated that the legislative proposal on EU banking reform will be presented at the beginning of January 2014.  Following the recent publication of the Volcker Rule on 10 December 2013, the Commission will also look at the details of this new rule (see this blog post for more details).  For certain banks deemed too big to fail, he explained that the EU banking reform proposal will consider separation, calibration and treatment of the risks taken by these banks.

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Bundesbank VP Calls for Single Resolution Authority

On Monday, Bundesbank Vice President Sabine Lautenschläger spoke out in favour of a single resolution authority at a conference in Berlin, according to this article.  She said an EU wide mechanism would be able to take a “bird’s eye view” of financial institutions allowing for an easier and quicker solution in crisis situations.  Lautenschläger added that it does not make sense to oversee banks at the European level while leaving their resolution to national authorities, although accepted that this would require amendment to EU treaties. 

Her comments are at odds with the German government which ideally seeks a network of national resolution authorities (although recently agreed to a “resolution board” made up of national authorities) and is resistant to any scheme that could empower an external agency to independently decide when to close a bank.  German Deputy Finance Minister Thomas Steffen, speaking at the same conference, said that the EU Commission would have a centralised resolution authority proposal soon. 

EU Commission to Have Power to Resolve EU Banks?

The FT is reporting that, under the terms of a discussion paper currently under review in Brussels in relation to the single resolution mechanism (SRM), the EU Commission would be given the power to resolve EU banking institutions directly, with member states merely implementing Commission decisions.  This is in contrast to the agreement reached last week between France and Germany that the SRM should be run by a “resolution board” made up of national authorities (which itself when further than the original Germany vision of the SRM as a “network” of national supervisors).  The Commission also wants the resolution authority to have a single bank resolution fund as well as the power to borrow, using the “assets of euro area banks” as a guarantee and backstop.

Barnier Tries to Force the Pace of EU Banking Reform

On 11 April 2013, Michel Barnier, European Commissioner for Internal Market and Services, gave a speech on the EU’s long-term financing needs, during which he touched upon the current status of the Recovery and Resolution Directive (RRD) and EU banking reform.

M Barnier remains open to the introduction of the EU bail-in regime before 2018, its original start date.  More to the point, he believes that the adoption of the main body of the RRD is “truly urgent” and should take place “within the next few weeks”.   However, given that the EU Parliament is not scheduled to consider the RRD until its plenary session of 9 to 12 September 2013, this seems unlikely.

On the subject of the Single Resolution Mechanism (SRM) – comprising a single resolution authority and a common resolution fund – M Barnier confirmed that the EU Commission would present a legislative proposal in the summer of 2013 (probably in June).  He also believes that the SRM can be established within the framework of current EU treaties.  However, if this FT article is to be believed, Germany may insist that revision to EU treaties is necessary, a position which the UK will use in order to secure the repatriation of powers from the EU to the UK.  If that proves to the case, EU banking reform risks being swallowed up in a political bun fight and we are unlikely to see its introduction any time soon.

Liikanen, Non-bank RRP and SRM Rules Expected in H2

On 27 February 2013, the European Commission published an updated summary of the legislative and non-legislative proposals it expects to adopt between 21 February and 31 December 2013.

Among the legislative acts expected to be adopted are a:

  • Directive/Regulation on the reform of the structure of EU banks (i.e. Liikanen), expected in Q3 2013;
  • Framework for crisis management and resolution for financial institutions other than banks, expected in Q4 2013; and
  • Regulation on a single resolution authority and a single resolution fund within a Single Resolution Mechanism (SRM), expected in Q4 2013.

EU to Adopt Liikanen Proposals and Non-Bank RRP in 2013

On 21 January 2013, the European Commission published a timetable for certain legislative proposals that it expects to adopt between 1 January 2013 and 31 December 2013, including the following:

Q3 2013:

  • Directive/Regulation on the reform of the structure of EU banks (i.e. the Liikanen reforms)

Q4 2013:

  • Framework for crisis management and resolution for financial institutions other than banks
  • Regulation on a single resolution authority and a single resolution fund within a Single Resolution Mechanism.