Public funding of failing banks in the European Union (LBF vol. 19) 2020/8.6.1:8.6.1 Further refinement of concepts of EPFS and ELA

Public funding of failing banks in the European Union (LBF vol. 19) 2020/8.6.1

8.6.1 Further refinement of concepts of EPFS and ELA

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In order to ensure that the concepts of EPFS and ELA are correctly used, and also taking into account the consequences that are attached under the resolution framework to the qualification of public funding as EPFS or ELA, the author suggests to make the following amendments to the resolution framework:

1.

Clarify that ELA does not qualify as EPFS, unless it qualifies as State aid, taking into account the conditions set out in the 2013 Banking Communication.

2.

Supplement the objective of EPFS with “or to resolve the bank or its group by applying resolution tools and powers” in order to clarify that the use of the national resolution funds and the SRF always qualifies as EPFS.

3.

Provide that alternative measures taken by deposit guarantee schemes in accordance with Article 11(3) DGS Directive do not qualify as an FOLTF indicator, similar to precautionary guarantees and precautionary recapitalisation and independent of their qualification as State aid.

4.

Introduce a definition of solvency in relation to precautionary recapitalisation and guarantees. As soon as Eurosystem Resolution Liquidity (ERL) is available, it may in addition be possible to use the same definition of solvency, both in relation to ELA and ERL.

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