Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.6.3.1:4.6.3.1 Coordination with third country authorities under the BRRD

Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.6.3.1

4.6.3.1 Coordination with third country authorities under the BRRD

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Where a bank or parent company established in a third country has subsidiary institutions or significant branches established in two or more Member States, the resolution authorities of these Member States form a European resolution college. The European resolution college performs the tasks of the resolution college (as set out in section 4.6.2.1) with respect to the subsidiary institutions and/or the branches. Where a parent company has been established in a Member State, the European resolution college is chaired by the resolution authority of the Member State where the consolidating supervisor is located.1

The Commission may submit to the Council proposals for negotiation of international agreements with third countries for the situations in which groups have a presence in at least two Member States. Until these international agreements have entered into force, Member States may enter into bilateral agreements with a third country. In addition, the EBA may until that time enter into non-binding framework cooperation arrangements with third-country authorities. The competent and resolution authorities can subsequently conclude non-binding cooperation arrangements with the relevant third-country authorities in line with these framework arrangements.2

At the time of writing this dissertation, the EBA had entered into a framework cooperation arrangement with several US financial regulatory agencies.3

As long as no cooperation agreement has entered into force in relation to a specific third country, or this does not contain provisions for the recognition and enforcement of third-country resolution proceedings, Article 94 BRRD applies. Article 94 BRRD provides that the European resolution college takes the joint decision on whether to recognise third-country resolution proceedings relating to a third-country institution or parent company. If this has been reached, the recognised third-country resolution proceedings have to be enforced by the respective national resolution authorities. In the absence of a joint decision of the European resolution college, or in the absence of a European resolution college, each resolution authority concerned has to make its own decision on whether to recognise and enforce third-country resolution proceedings.

Resolution authorities may exercise the resolution powers:

(a)

in relation to the assets of a third-country institution or parent company that are located in their Member State or governed by the law of their Member State; and

(b)

in relation to rights or liabilities of a third-country bank that are booked by the branch located in their Member State or governed by the law of their Member State, or where claims in relation to these rights and liabilities are enforceable in their Member State;

(c)

in relation to the parent undertaking, subsidiaries or branches located in their Member State, if this is necessary in order to enforce the third-country resolution proceedings.4

If assets, rights, liabilities, shares or other instruments of ownership are located in third countries or governed by the law of a third country, the BRRD provides that the resolution authorities may require cooperation from the third country resolution authority. If it is highly unlikely that the transfer, conversion or action will become effective, the resolution authority should not proceed. Any order that has already been given would be void in such a situation.5

The BRRD also provides that banks have to include a contractual term by which the creditor or party to the agreement creating the liability recognises that the liability may be subject to the PONV conversion power and the bail-in tool and agrees to be bound by any reduction of the principal or outstanding amount due, conversion or cancellation effected by the exercise of those powers by a resolution authority, provided that this liability is (a) not excluded from the bail-in scope on the basis of Article 44(2) BRRD, (b) not a semi-covered deposit, (c) governed by the law of a third country and (d) issued or entered into after 1 January 2016.6 This obligation does not apply where the resolution authority of a Member State determines that the liabilities or instruments can be subject to the PONV conversion power or bail-in tool pursuant to the law of the third country or to a binding agreement concluded with that third country.7

The European resolution college - or the respective resolution authorities, where no European resolution college is established, - may also refuse to recognise or enforce third-country resolution proceedings, if it considers that (i) these would have adverse effects on financial stability in a Member State, (ii) if in relation to a branch, independent resolution action is necessary to achieve one or more of the resolution objectives, (iii) creditors would not receive the same treatment as third-country creditors, (iv) there would be material fiscal implications for the Member State or (v) the effects of this recognition or enforcement would be contrary to the national law.8

Lastly, the BRRD provides for the possibility for resolution authorities of Member States to resolve a Union branch.9

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