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CEBS Response to the European Commission's Communication on an EU Framework for Cross-Border Crisis Management in the Banking Sector

Core Content

CEBS (Committee of European Banking Supervisors) welcomes the European Commission's Communication on an EU framework for cross-border crisis management in the banking sector, published on 20 October 2009. CEBS has already contributed to this area by mapping supervisory objectives and powers, and providing advice to the Commission in March 2009. The response focuses on enhancing the EU's crisis management framework to ensure financial stability, effective early intervention, and orderly bank resolution, while maintaining a balance between supervisory powers and stakeholders' rights.

Main Objectives of the Framework

CEBS supports the development of a common toolbox for competent authorities across the EU, with the following key objectives:

• Maintaining the stability of the financial system
• Preserving critical banking functions
• Protecting depositors
• Maintaining and enhancing public and market confidence

These objectives are interconnected and should be pursued simultaneously. The framework should also promote market discipline, reduce moral hazard, and minimise the costs of intervention, particularly through private sector solutions.

Scope of the Framework

CEBS emphasizes that the framework should apply to all banking institutions, including cross-border ones, to ensure a level playing field. It argues that the framework should not be limited to systemic institutions, as systemic importance varies and defining it ex ante is problematic. Furthermore, identifying systemic institutions in advance could increase moral hazard.

CEBS also highlights the complexity of applying a single framework across all financial sectors and suggests that the banking sector should be the starting point for cross-sectoral convergence.

Intervention Tools

CEBS supports the development of a minimum set of intervention tools that should be available to all competent authorities across the EU. These tools should be:

• A common minimum to facilitate cooperation
• A range of options for authorities to choose based on the situation
• Independent of national institutional structures

The tools should include measures such as:

• Restructuring activities
• Ceasing harmful practices
• Limiting intra-group and inter-group asset transfers

CEBS also advocates for the inclusion of restoration plans, which are corrective responses to specific difficulties, and recovery and resolution plans, which are contingency measures developed in normal times. These plans aim to minimise disruption, protect public funds, and increase market discipline.

Effectiveness and Legal Considerations

CEBS stresses that the tools must be timely and effective, and that legal clarity is essential to ensure they can be implemented without hindrance. It calls for addressing legal obstacles such as:

• Disclosure requirements under Transparency and Market Abuse Directives
• Financial Collateral Directive to allow brief delays in close-out rights
• State Aid rules to ensure clarity on measures like bridge banks and deposit guarantee scheme (DGS) support

CEBS also raises concerns about contract law and the potential for close-out clauses to hinder crisis resolution. It recommends that expropriatory measures should only be used when less intrusive measures are insufficient, and that compensation mechanisms should be in place to ensure stakeholders are not left worse off than in a liquidation scenario.

Financing Intervention Measures

CEBS highlights the importance of financing mechanisms for early intervention. It supports the use of private sector funding and suggests that national DGSs and industry funds should be considered as potential sources. CEBS notes that while public funds may be necessary, they should not be the primary source.

It also advocates for harmonisation of DGS funding mechanisms and suggests exploring multilateral reinsurance among DGSs to enhance solidarity and risk-sharing.

Conditions for Using Tools

CEBS supports the proportionality principle in the use of intervention tools, ensuring that actions are justified by public interest and not excessive. It opposes hard triggers and prefers discretionary powers based on the specific situation of the institution.

The use of quantitative thresholds to trigger intervention should be based on the infringement of legal or supervisory requirements, rather than on automatic rules. CEBS also recommends that supervisory authorities should have a common understanding of the risk profile and financial situation of cross-border institutions to ease the implementation of prudential measures.

Liability of Authorities

CEBS notes that differences in liability regimes across Member States could hinder cross-border cooperation. It recommends harmonising statutory immunity for supervisory authorities to ensure consistent liability protection across the EU.

Conclusion

CEBS encourages the Commission to continue developing a common minimum toolbox, while ensuring flexibility and clarity in its application. It also calls for harmonisation of legal and regulatory frameworks, improved information exchange, and greater use of private sector funding to support crisis management. The final goal is to enhance financial stability, reduce moral hazard, and ensure an orderly resolution of banking crises without undermining market discipline or stakeholders' rights.