EBA欧洲银行-Session-3.1-Bank-recovery-26-resolution-Emanuele-Spina_19页_1mb

Summary of the EBA Workshop on Proportionality in the EU Crisis Management Framework

Core Content

The EBA Workshop on Proportionality, held in London on 3 July 2015, discussed the application of the proportionality principle within the EU's crisis management framework. The event was led by Emanuele Spina from FEDERCASSE, the Italian Federation of Co-operative Credit Banks. The workshop aimed to address the challenges of applying uniform rules to a diverse banking sector, particularly in the context of recovery and resolution (R&R) procedures for financial institutions.

Main Views

The EU crisis management framework was designed to prevent or resolve failures of systemic banks without resorting to public funds. It includes a twofold approach at the global and EU levels, with the G20 and FSB setting standards for R&R and the EU implementing its own regulatory overhaul through the Single Supervisory Mechanism (SSM), Bank Recovery and Resolution Directive (BRRD), and Deposit Guarantee Schemes Directive (DGSD).

Key Elements of the Framework

• BRRD/SRM: This framework includes:
  • Recovery Plans: All institutions not part of a consolidated group must have recovery plans to restore financial stability.
  • Resolution Plans: These outline actions to resolve a failing institution, including loss-absorbing mechanisms and contributions to the Single Resolution Fund (SRF).
  • Resolvability Assessment: A process to determine whether a bank can be resolved without public funds.
• DGSD: The directive aims to:
  • Protect savers in the event of a bank's insolvency.
  • Maintain financial system stability while avoiding systemic risk.

Proportionality in Practice

Proportionality is a central principle in the application of R&R rules. It is intended to ensure that the administrative burden on institutions is minimized and that the rules are appropriate to the size, complexity, and risk profile of each bank.

• Level 1 Proportionality (Art. 4 BRRD) includes considerations such as:
  • The nature of the institution's business.
  • Its size, legal form, and risk profile.
  • Interconnectedness with the market.
  • Membership in cooperative systems (e.g., IPSs).
• Case-by-Case Approach: While the current approach applies proportionality on a case-by-case basis, this often leads to discretionary and inconsistent application, especially for smaller institutions.
• Structural Proportionality: A more systematic and threshold-based approach could help identify categories of institutions eligible for simplified obligations, improving efficiency and reducing administrative burden.

Key Information

• Blind Spots: The current framework may overlook the risks of atomistic liquidation for small co-operative banks, even though they are not considered systemic.
• Role of DGSs: Deposit Guarantee Schemes (DGSs) are primarily used for deposit reimbursement and alternative measures to avoid systemic risk. However, they are not explicitly involved in recovery or early intervention actions.
• Simplified Obligations: The EBA has developed guidelines and technical standards for simplified obligations, but these are not sufficient to fully address the asymmetries in the application of R&R rules.
• Recommendations:
  • The application of simplified obligations should be mandatory, not discretionary.
  • Early intervention measures should be enhanced, especially for cooperative institutions.
  • Structural proportionality could better align with the diversity of the banking sector and support the righteous goals of the EU crisis management framework.

Conclusion

The workshop emphasized that proportionality is essential to ensure effective, non-distortive, and appropriate application of R&R rules. While some mechanisms, such as cooperative mutual solidarity systems (IPSs), already provide tailored solutions, the case-by-case approach may not be sufficient. A structural approach within the Single Rulebook could better capture the diversity of the banking sector and enhance the effectiveness of the EU's crisis management framework.