布鲁盖尔-Bank-liquidation-in-the-European-Union_-clarification-needed_13页_303kb

Summary of "Bank liquidation in the European Union: clarification needed"

Core Content

This document discusses the differences between bank resolution and bank liquidation under the current European Union (EU) banking frameworks, with a focus on the implications of these distinctions for financial stability, public funds, and equal treatment of banks in the context of the European Banking Union.

The key issue is the lack of clarity in the EU's legal framework regarding the definition of critical functions and public interest, which are central to determining whether a bank should be subject to resolution or liquidation. This ambiguity can lead to discrepancies in how Member States apply liquidation aid, potentially undermining the principle of predictability and fairness in banking union.

Main Points

• Resolution vs. Liquidation:

  • Resolution is governed by the EU Bank Recovery and Resolution Directive (BRRD) and involves the use of public funds with a bail-in requirement of up to 8% of liabilities.
  • Liquidation is governed by national insolvency laws, with a lighter burden-sharing requirement (equity and junior debt only), and is subject to state aid rules.
  • Resolution is considered an exceptional tool, reserved for banks that provide critical functions or whose liquidation would threaten financial stability.

• Two-Tier Framework:

  • The EU framework allows for two different legal regimes for bank failure: resolution under EU law and liquidation under national law.
  • This framework can result in different outcomes for banks, creditors, and taxpayers, depending on which regime is applied.
  • The Single Resolution Board (SRB) is responsible for assessing whether resolution is in the public interest, while Member States have the final say on whether to provide liquidation aid.

• Case Studies:

  • The liquidation of Veneto Banca and Banca Popolare di Vicenza in Italy highlights the uncertainty and discrepancy in the application of the two-tier system.
  • These cases were not deemed critical by the SRB, leading to their liquidation under Italian law.
  • In contrast, Banco Popular in Spain was subject to resolution, involving a capital raise and bail-in of equity and junior debt.

• Public Aid in Liquidation:

  • The use of public funds in liquidation is subject to state aid rules, with a light burden-sharing requirement.
  • The Italian government provided €3.5 billion in state aid to support the acquisition of the two banks by Intesa San Paolo, while also granting €12 billion in guarantees.
  • This aid was justified on the basis of local economic impact, despite the SRB's conclusion that systemic or local impacts were not significant.

Key Questions Raised

1. Clarity of Critical Functions and Public Interest:

   • Should the definitions of critical functions and public interest be harmonized at the EU level?
   • The SRB’s assessment criteria appear clear, but the application of these criteria by national authorities remains uncertain.

2. Predictable Equal Treatment:

   • Does the current legal diversity among Member States create uncertainty about the outcomes of liquidation procedures?
   • The absence of EU-wide insolvency law allows for different interpretations and different levels of support for banks, which may lead to paradoxical results.

Implications for Banking Union

• The European Banking Union aims to ensure clarity and predictability in the treatment of banks during crises.
• However, the two-tier system creates asymmetries in the treatment of banks, depending on whether they are subject to resolution or liquidation.
• To ensure effective banking union, there is a need for greater harmonization of insolvency frameworks and explicit EU-level criteria for liquidation aid.

Conclusion

The document argues that more clarity and harmonization are needed in the EU legal framework for bank liquidation to ensure predictable outcomes, fair treatment, and transparency for all stakeholders, including creditors, taxpayers, and banking institutions. The Veneto Banca and Banca Popolare di Vicenza cases illustrate the complexities and risks associated with the current system, emphasizing the importance of EU-level coordination in insolvency procedures.