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Medium sized bank resolution: challenges and tools

Day 3 Morning

Friday 13 September

Room :

Fennia II - Roundtable

Speakers

Chair
Fernando Restoy - Chairman, Financial Stability Institute, BIS
Public Authorities
Antonio Carrascosa - Member of the Board, SRB
Pablo Hernández de Cos - Governor, Banco de España
Felix Hufeld - President, BaFin
Arthur Murton - Deputy to the Chairman for Policy, FDIC
Industry Representatives
Georg J. Huber - Head of the Representation to the EU, DSGV
David Vegara - Executive Board Member, Chief Risk Officer, Banco Sabadell

Objectives of the session

In the Banking Union, unlike in some other jurisdictions, there is a clear distinction between the resolution regime and the insolvency regime. The former is a single EU framework, applying to all banks that are failing or likely to fail and meet public interest criteria. The failing banks that do not meet the public interest test assessment are liquidated through the domestic insolvency regimes, which vary substantially across jurisdictions.

The European resolution framework introduces some constraints on the management of bank failures. Indeed, it not only substantially constrains any possibility of providing failing institutions public funds but also imposes a minimum amount of creditors’ bail-in (8% of total liabilities) as a precondition for the use of the Single Resolution Fund (SRF). In addition, all entities that could possibly be subject to resolution must issue a sizeable amount of bail-in-able securities (minimum requirement for own funds and eligible liabilities (MREL)).

Moreover, the state aid rules impose some restrictions on the use of Deposit Guarantee Schemes (DGS), especially when the governance of these Schemes is under the control of the public sector.

The EU crisis management framework does not seem easy to apply to medium sized banks (be they “Less Significant“ or “Significant “) whose funding depends quasi exclusively on deposits. The objective of this session is to assess whether the EU crisis management framework is well suited to the specificities of medium sized and small banks, to outline the resulting implications and possible dysfunctionalities and to discuss a possible way forward to improve the situation and ensure a better functioning of the Banking Union.

Speakers will be invited to propose a realistic way forward in the light of US experience in order to promote a more flexible crisis management regime for non-systemic institutions.

Points of discussion

Why some analysts and authorities think that the current EU resolution framework does not fit medium-sized banks.

How to improve the EU resolution and liquidation frameworks for medium sized banks?