SRM- Mexican standoff Euro-style

The Conference of Presidents Group have held intensive talks with their EP negotiators on the state of SRM play. The result is firmly-worded missive sent today from their own current President, Martin Schulz, to Commission President Manuel Barroso, summary translations in bold italic: Continue reading

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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.

Banking Union Details to be Discussed in Emergency Meeting

Yesterday’s meeting of finance ministers in Brussels failed to establish crucial details over bail-in according to the Financial Times. The negotiations did produce a draft compromise broadly based on Germany’s revised position (see this blog post for more details).  The financing details will be left to an emergency meeting on the eve of the next EU summit in Brussels on 19 December 2013.  In the event Brussels rejects the board proposal, the plans would need the approval of the European Commission or a majority vote of banking union member states.

ECB thumbs up for the SRM

The ECB has published its legal opinion on the Single Resolution Mechanism (SRM), a short summary follows:

  • The SRM should include all EU credit institutions
  • Resolution should only be triggered by a supervisory assessment of “failing or likely to fail”
  • The SRM should not require new legislation, Article 114 of the Treaty should suffice as a legal basis
  • The ECB supports early implementation of the bail-in tool (currently 2018)
  • Resolution financing must be provided by the Single Bank Resolution Fund. The ECB proposes a “temporary, fiscally neutral backstop” to the SBRF in the form of a credit line supplied by Member States, but recoupable from the financial industry
  • The ECB seeks representation as an observer in all plenary and executive meetings of the Single Resolution Board

The opinion voices its full support for the SRM which it views as a necessary complement to the Single Supervisory Mechanism, although it considers it crucial that the responsibilities of supervisory and resolution authorities are kept distinct.  The ECB regards a fully-functioning single supervisory mechanism as a vital precondition for the establishment of the SRM, it therefore strongly supports adoption of the SSM legislation during the Parliament’s current term.  This being the case, the ECB voices its support for the SRM to become effective as of 1st January 2015.

The 32 page opinion contains little that is unexpected; it is notable though, for its bullish tone on scope and timing of implementation. Perhaps it may be unwise to rely on delay.

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.