EU to speed up how regulators tackle failing banks

The European Union plans, due to be presented next week, will seek to speed up the management of failed banks to ensure they are not bailed out with taxpayer funds, but rather using their own resources, EU documents show. EU seen by Reuters.

According to the documents, the draft plans would require EU authorities, including the European Central Bank, to give advance warning in the event of a risk of bank failure.

The EU proposals come at a time of great sensitivity in the banking sector after the merger of UBS with Credit Suisse and the bankruptcy of several US banks, including Silicon Valley Bank.

The goal of the EU is to update bank failure rules that were introduced after the financial crisis more than a decade ago, when taxpayers footed the bill for bank failures.

Since then, the use of the rules of “resolution” EU banking has been limited, and it is necessary to update them so that they can be used to deal with any type of bank, according to the document.

“To date, many small or medium-sized failed banks have been dealt with under national regimes that often involve the use of taxpayer money (bailouts) rather than industry-funded safety nets, such as the Single Fund for Resolution (FUR) in the Banking Union, which so far has not been used in the resolution“, said.

Banks contribute to the Single Resolution Fund, administered by the EU’s Single Resolution Board (SRB), which is in charge of closing failed banks.

The proposals would make the rules “fit-for-purpose for all EU banks, regardless of their size, business model and liability structure, even for the smallest and medium-sized banks, if required by prevailing circumstances”.

Member states and the European Parliament will have the last word on the proposals, which are due on April 18. These are drafts that may be modified before publication.

The ECB, which regulates the largest credit institutions in the euro zone, and the national regulators of the 27 Member States, which regulate the smallest banks, would be required to notify the SRB “with sufficient notice” if there is a risk of a bank failing or possibly failing, according to the documents.

Regulators would be empowered to withdraw a bank’s license in such a situation.

The European Banking Authority will have a new role: helping to check that banks can be wound up smoothly in the event of a crisis and coordinating EU-wide exercises to check and compare how resolution rules are applied in different Member States.

The proposals establish common requirements to improve and harmonize the level of protection for depositors, but do not regulate the different models used by countries, such as institutional protection systems (SIPs) or safety nets financed by the sector.

Germany has warned the EU not to alter the rules on SIPs.

The European Commission, drafter of the proposals, has stated that the package is balanced and reflects broad public consultation.

Source: Reuters