Public funding of failing banks in the European Union (LBF vol. 19) 2020/2.2.1:2.2.1 The definition of credit institution in banking regulation

Public funding of failing banks in the European Union (LBF vol. 19) 2020/2.2.1

2.2.1 The definition of credit institution in banking regulation

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The term ‘bank’ is not used in banking regulation. Instead, ‘credit institution’ is used. A credit institution is defined as “an undertaking the business of which is to take deposits or other repayable funds from the public and to grant credits for its own account.”1 The terms ‘deposits’, ‘other repayable funds’, ‘grants credits’ and ‘from the public’ used in this definition are not fur ther defined in banking regulation. This results in a degree of variation between the Member States as to the interpretation of the term ‘credit institution’, and therefore the entities to which the requirement to obtain a banking license applies. It is of considerable importance that the definition is interpreted in a uniform manner across the EU, taking into account that it is not only of significance for the purposes of determining whether an entity is subject to the authorisation requirement under CRD IV/CRR, but also whether or not an entity is in scope of the BRRD, SSM and SRM. The EBA provided some possible approaches to further clarify the term ‘credit institution’, by suggesting a definition of deposits and other repayable funds in an opinion dated 27 November 2014.2

“‘deposit’ (this could include the following core components: a sum of money; repayable on demand or at a contractually agreed point in time (but otherwise repayment of the principal is unconditional) and with or without interest or a premium; received from third parties [legal or natural persons]; and received in the course of carrying on the activity by way of business, and be subject to a number of exclusions, for example monies referable to the provision of property or services (for example, advance payments under a contract for the sale, hire or other provision of property or services which are repayable only in the event that the property or services are not in fact sold, hired or otherwise provided) or the giving of security could be excluded from the scope of the definition);

‘other repayable funds’ (this could be defined to include ‘bonds and other comparable securities such as negotiable ‘certificates of deposit’ providing these are continually issued by the entity concerned).”

In its opinion, the EBA urges the Commission to give consideration to possible clarifications to the definition of credit institution.3 At the time of writing this dissertation, the Commission had however not yet published these clarifications.4 In the remainder of this dissertation, the author uses the term ‘bank’, when referring to a credit institution as defined in Article 4(1)(1) CRR.

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