Public funding of failing banks in the European Union (LBF vol. 19) 2020/2.4.7.2:2.4.7.2 Early intervention measures

Public funding of failing banks in the European Union (LBF vol. 19) 2020/2.4.7.2

2.4.7.2 Early intervention measures

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The BRRD provides for a legal basis for the national competent authorities to impose early intervention measures when banks infringe the regulatory capital requirements or are likely to do so in the near future.1 These early intervention measures include, inter alia, the measures to require the management body of a bank to implement one or more of the arrangements or measures set out in the recovery plan, the measure to require one or more members of the management body or the senior management to be removed, the measure to require the management body of the bank to draw up a plan for negotiation on restructuring of debt and the measure to require changes to the bank’s business strategy.

It can be derived from the decision of the ECB dated 27 November 2017 in relation to the request of Dexia Crédit Local S.A. (Dexia) to include in CET 1 the preferred shares held by the Belgian and the French States that the ECB had imposed early intervention meas ures on Dexia by decision of 6 September 2017. To the author’s knowledge, this decision is not publicly available.

It can be read in a letter from Ms Nouy, Chair of the Supervisory Board of the ECB, to Mr Lamberts, member of the European Parliament that the implementation of the early intervention meas ures has proved challenging for the ECB, because the early intervention measures (referred to as EIMs in the following fragment of her letter) are not included in the SSMR and there is a significant overlap between EIMs and the supervisory measures set out in Article 104 CRD IV:

“ Although the ECB has made frequent use of the supervisory measures provided for in Article 16 SSMR, the implementation of EIMs has proved challenging so far, notably because: (i) the powers are not included in the SSMR and can only be exercised by the ECB on the basis of the respective transpositions of the Bank Recovery and Resolution Directive (BRRD); and (ii) there is significant overlap between EIMs and “regular” supervisory measures provided for in Article 104 CRD IV and Article 16 SSMR. This overlap means that some early intervention measures are also available as “regular” supervisory measures and are therefore usually adopted as such for proportionality reasons. In particular, a bank may be required to disclose early intervention measures, whereas this might not be the case for measures taken under Article 16 SSMR. To ensure that the toolkit available to supervisors in their crisis prevention role is effective and fully usable in practice, the ECB has expressed a wish for clarification of the early intervention meas ures available to the supervisors under the BRRD (reduction of the overlap with Article 16 SSMR) as well as their inclusion in a directly applicable regulation.”2

The views of the ECB on the shortcomings in the architecture of the early intervention measures have been reiterated by Ms Nouy in a letter of 24 January 2018.3 At the time of writing this dissertation, these shortcomings had not yet been addressed.

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