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Public funding of failing banks in the European Union (LBF vol. 19) 2020/1.2.2
1.2.2 The introduction of the European Banking Union
mr. M. Louisse-Read, datum 01-06-2020
- Datum
01-06-2020
- Auteur
mr. M. Louisse-Read
- JCDI
JCDI:ADS213803:1
- Vakgebied(en)
Financieel recht / Europees financieel recht
Staatssteun (V)
Voetnoten
Voetnoten
EC, Communication from the Commission to the European Parliament and the Council: A Roadmap towards a Banking Union, COM(2012) 510 final.
This framework also applies to certain investment firms (also referred to as ‘BRRD investment firms’) that, due to their activities, are considered to be similar to banks. This makes them ineligible for certain derogations to required levels of own funds. See Article 4(1)(2) CRR for the definition of investment firm. The definition of investment firm that is used in the BRRD and the SRMR differs from this definition as a result of which even a smaller group of investment firms falls in scope of the BRRD and the SRMR.
Directive 2014/49/EU (DGS Directive).
The BRRD had to be implemented by the Member States by 31 December 2014, except for the bail-in provisions that Member States could choose to apply only from 1 January 2016 when they became mandatory. The SRMR is applicable from 1 January 2016 (with the exception of a number of provisions, mainly in relation to the setup of the SRB). The SRB became fully operational on 1 January 2016. As will be discussed in section 4.3.4, the BRRD and SRMR also contain the resolution framework for entities other than banks, such as certain investment firms and financial institutions.
Recital (7) DGS Directive.
President of the European Council Report 2012, p. 4.
As contained in Council Regulation (EU) No 1024/2013 (the SSMR).
The SSM is also open to non-Eurozone Member States willing to join the European Banking Union. Currently, there are no non-Eurozone Member States that have joined the European Banking Union. EP Annual Report Resolution 2018, under G.
Intergovernmental Agreement on the Transfer and Mutualisation of Contributions to the Single Resolution Fund (May 2014) (the SRF Agreement).
Coordination between supervisors within the EU network of supervision was deemed a vital step, but the GFC had shown that mere coordination was not enough. Primarily in the context of a single currency, there was a need for common decision-making. The Commission proposed the European Banking Union in mid-2012 in order to create a common structure for decision-making based on a harmonized set of rules.1
The foundation of the European Banking Union is the Single Rulebook.2 The Single Rulebook sets out a regulatory framework that applies to banks in all Member States,3 consisting of the Capital Requirements Directive and Capital Requirements Regulation (CRD IV and CRR),4 the Bank Recovery and Resolution Directive (BRRD) and Single Resolution Mechanism Regulation (SRMR),5 and a thorough revision of the Directive on Deposit Guarantee Schemes (DGS Directive).6
BRRD and SRMR (resolution framework)
The BRRD and the SRMR together form the basis of the resolution framework for the banking sector as of 1 January 2016.7 This framework has to provide for sufficiently early and quick intervention in an unsound or failing bank so as to ensure the continuity of the bank’s critical financial and economic functions, while minimising the impact of a bank’s failure on the economy and financial system.
DGS Directive (deposit guarantee framework)
The DGS Directive provides for harmonisation and simplification of protected deposits, faster pay-outs and improved financing, notably through the ex ante funding of deposit guarantee schemes paid for by contributions from banks and a mandatory borrowing facility between national schemes within certain fixed limits.8 The DGS Directive applies in the Member States from 3 July 2015.
CRD IV and CRR (prudential framework)
The CRD IV and CRR provide for a harmonized framework for the prudential requirements for banks. The CRD IV and CRR apply in the Member States from 31 December 2013 and 1 January 2014, respectively.
Although the Single Rulebook forms the foundation of the European Banking Union, the idea of the Single Rulebook precedes the idea of the European Banking Union. Both the CRD IV and the CRR were finalised in 2013 gafter intense negotiations, whereas the fourth President’s Report, the first document referring to the European Banking Union, is from 2012.9 In addition, the concept of the Single Rulebook is disentangled from the European Banking Union: the Single Rulebook applies to all Member States, even though it is a clear help to the establishment of the European Banking Union.
Within the European Banking Union, the Single Rulebook is (currently) accompanied by two pillars. The first pillar is the Single Supervisory Mechanism (the SSM)10 under which the European Central Bank (ECB), in cooperation with the national competent authorities, carries out tasks to ensure that banks and bank groups in the Eurozone11 comply in a uniform way with the prudential requirements for banks, as included in CRD IV and CRR. The second pillar is the Single Resolution Mechanism (the SRM).12 The SRM is a common framework on bank recovery and resolution, under which a centralised power of resolution is established and en trusted to the Single Resolution Board (SRB) established in accordance with the SRMR and to the national resolution authorities, for banks and bank groups in the Eurozone.13 In addition, the SRMR provides that a Single Resolution Fund (SRF) is built up over a period of eight years for the funding of resolution of banks and bank groups in the Eurozone. The SRF is financed by ex ante contributions from the banking industry.
The SRF is considered an essential element without which the SRM could not work properly. If the funding of resolution were to remain national in the longer term, the link between sovereigns and the banking sector would not be fully broken, and investors would continue to establish borrowing conditions according to the place of establishment of the banks rather than to their creditworthiness.14 An intergovernmental agreement15 (the SRF Agreement) between 26 Member States regulates the core elements of the SRF, including (i) transferring the contributions raised at national level to the national compartments of the SRF, (ii) mutualisation of the national compartments' funds over a transition period of eight years, (iii) lending between national compartments that are not yet mutualized and (iv) the potential contribution of non-Eurozone Member States to the SRF. The SRF Agreement has been ratified by 20 Member States, including all 19 current participating Member States of the SSM and Hungary. The SRF shall reach the target level of at least 1% of the number of covered deposits of all banks within the European Banking Union by 31 December 2023.