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The Banking view on Recovery and Resolution of Credit Institutions and Investment Firms

The Banking view on Recovery and Resolution of Credit Institutions and Investment Firms. EU Crisis Management Framework Overarching Principles. Harmonised resolution frameworks to be introduced globally to ensure a level playing field

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The Banking view on Recovery and Resolution of Credit Institutions and Investment Firms

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  1. The Banking view on Recovery and Resolution of Credit Institutions andInvestment Firms

  2. EU Crisis Management FrameworkOverarching Principles • Harmonised resolution frameworks to be introduced globally to ensure a level playing field • There needs to be legal certainty with regard to the accountability and liability of Resolution Authorities • Broad but proportional scope of application of the Crisis Management Framework to all financial institutions • Emphasis on enhanced Supervision, Prevention and Early Intervention is pararmount • Resolution tools to adhere to least cost and no creditor worse off principles

  3. EU Crisis Management FrameworkPrevention: Recovery & Resolution Plans • A bank’s management should be responsible for recovery planning • Recovery and Resolution plans should be tailored based on Group structure • Confidentiality of Recovery and Resolution Plans should be strengthened • Recovery and Resolution Plans or other preventative measures should not be used for supervisory intervention in the structure or operation of healthy financial institutions • Need to establish recourse, with a suspensive condition, for the most intrusive resolvability and early intervention measures

  4. EU Crisis Management FrameworkEarly Intervention • Prevention, early intervention and resolution procedures and measures must be used proportionally • Public disclosure of the use of early intervention tools the recovery phase must remain private to avoid signaling market distress • Management should retain control during recovery to ensure that they are able to fulfil their fiduciary duties • The voluntary nature of ex-ante intra-group support agreements must be respected in all circumstances.

  5. EU Crisis Management FrameworkResolution • Given current degree of supervisory discretion resolution triggers and implementation need to be explained to market participants • Valuation should generally be based on a fair market value, which allocates the losses between the shareholders and the creditors • Valuation Methods have to be tailored to different resolution tools and objectives • The bridge bank should comply with regular prudential requirements and be managed in a way to minimise any distortion of competition.

  6. EU Crisis Management FrameworkBail-In • Bail-in as should be a resolution tool last measure (ultima ratio). • The EBF supports the proposition that a broad range of instruments be eligible for bail-in – but banks remain divided on the exclusion of short-term debt • There should be no requirement for firms to hold a specific proportion of their Total Liabilities as bail-in instruments. The level of bail-inable instruments depend on the structure and funding model of a bank • The bail-in regime needs to be compatible with third countries

  7. EU Crisis Management FrameworkResolution Funding • EBF support the creation of resolution financing arrangements in Members States • Synergy between Deposit Guarantee Scheme (DGS) and Resolution is welcome but there should be freedom to choose • Consistency between final DGS Directive is needed: • Proposed target level should be aligned with DGS • Fund should be built up over 15 years rather than 10 • Borrowing between national funds should be voluntary • Contributions should be capped • The least cost principle should be respected • Raising of contributions have to be fair and risk based (how to calculate fair between Investment and deposit taking banks?)

  8. EU Crisis Management FrameworkCross Border Issues • EBF supports heightened cooperation between national authorities in all phases of preparation, recovery and resolution • Resolution colleges should: • have a mandate for global financial stability • only be composed by one resolution authority per country • be led by the home authority • include 3rd countries if their rules respect the global financial stability

  9. Banking Union • EBF welcomes the SSM as first step to harmonise supervision in Euro Zone • Finalisation of DGS and Crisis Management Directives are logical next steps of Banking Union • EBF cautious of mutual borrowing between DGS/RF or a single EU DGS/Resolution Fund without single supervisor and fiscal burden sharing in place • EU Policy Makers need to take care to get the order of proposals for Banking Union right as well as complimenting them with further fiscal and economic integration

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