Public funding of failing banks in the European Union (LBF vol. 19) 2020/2.1:2.1 Introduction

Public funding of failing banks in the European Union (LBF vol. 19) 2020/2.1

2.1 Introduction

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

This chapter aims to provide the necessary background on the basics of the funding profile of banks in order to gain a better understanding on how the State aid regime and resolution framework interact. Joosen already mentioned that there is a close relationship between judgments by competition law authorities in State aid cases and the applicability of prudential supervision law to the bank concerned.1 (Non-) compliance with prudential requirements may trigger the need for State aid and at the same time may also restrict the access to State aid.2 With the introduction of the resolution framework, a similar relationship originated between the prudential requirements and the resolution framework. If there are not sufficient capital instruments and eligible liabilities on its balance sheet, the resolution of a bank will be difficult to envisage without the use of public funding.3 The resolution framework therefore provides for a minimum requirement for own funds and eligible liabilities (MREL), through which banks are required to maintain a certain level of own funds and ‘eligible liabilities’, that is liabilities that are eligible for bail-in. The MREL applies in addition to the regulatory capital requirements under the prudential framework laid down in CRR/CRD IV. The MREL needs to safeguard that the bank is resolvable. A bank is resolvable, if it is feasible and credible to either wind up the bank in normal insolvency proceedings or to resolve it by applying resolution tools and exercising resolution powers.

The prudential requirements that are applicable to banks will change as a result of the Banking Package. Where relevant in this chapter, reference is made to the Banking Package.

This chapter is structured as follows. Section 2.2 discusses what a bank is by taking a closer look at the definition of credit institution in banking regulation and the business model of a bank. Section 2.3 discusses the composition of the funding profile of a bank. Section 2.4 swiftly explains the regulatory capital requirements that have to be met by banks. Section 2.5 describes the impact of the MREL on the balance sheet of a bank. Section 2.6 describes what funding instruments and asset measures are available, if a bank gets into financial difficulties. Section 2.7 concludes this chapter.

Deze functie is alleen te gebruiken als je bent ingelogd.