Single RuleBook for the Single Market
In the aftermath of the financial and Eurozone crisis, the EU introduced comprehensive legislation addressing the functioning of the EU financial sector and creating a new supervisory framework in the form of three European Supervisory Authorities: the EBA, EIOPA and EMSA. One of the main steps taken by the EU institutions has been the creation of the Single Rulebook for banks in the EU.
1-THE CAPITAL REQUIREMENT LEGISLATIVE PACKAGE (CRD IV – CRR)
On 26th June 2013 the capital requirement legislative package (CRD IV – CRR), which implements the Basel III agreement in the European Union, was published on the Official Journal of the European Union. From 1st January 2014 the phasing-in of the CRR/CRD and its different provisions began. The overarching goal of the new rules is to strengthen the resilience of the EU banking sector so it would be better placed to absorb economic shocks while ensuring that banks continue to finance economic activity and growth. In particular, the new rules require a higher ratio and better quality of capital, introduce additional capital buffers, enhance governance and introduce new ratios regarding liquidity and leverage. The European Banking Authority (EBA) is carrying out an extensive implementation of the CRD/CRR provisions through the publication of technical standards, guidelines and reports as mandated by the regulation. Such implementing acts cover a wide range of subjects including own funds, valuation prudential adjustments, treatment of retail deposits, treatment of large exposures etc.
RELATED LINKS:
--- DIRECTIVE 2013/36/EU (CRDIV)
--- REGULATION (EU) No 575/2013(CRR)
--- Single Rulebook
>> EACB STANDPOINT
The EACB had intensively followed the development of the CRD package, bringing forward the specific needs of co-operative banks. Among other topics, the Association contributed to the definition of the treatment for co-operative groups, here included a consolidated approach to liquidity management within IPS schemes. The EACB also actively accompanied the definition of capital (common equity) in the CRR, where finally specific provisions have been designed for co-operatives. Moreover, improvements could be achieved regarding the treatment of SME loans, the definition of highly liquid assets and numerous other aspects of the legal package.
With regard to the liquidity requirements the EACB brings forward the views of its Members regarding a balanced definition of the HQLA that recognises the specificities of the EU economy and the peculiarities of cooperative banking networks' liquidity systems. The EACB also underlines the impact of the requirements on financing the real economy. Also the specification of the leverage ratio calculation parameters require attention in relation, for example, to the consolidation scope of the measure, the treatment of securities financing transactions (SFTs), the treatment of intra-group exposures.
Overall, the issue of proportionate regulation is central to the cooperative banks, which operate based on decentralised networks deeply embedded in their local communities. They have weathered the recent crisis well and supported local economies and SMEs. In order to enable cooperative banks to maintain their specificities, appropriate calibration of both regulatory and supervisory rules is necessary. The EACB has strongly advocated for an explicit consideration of the Proportionality principle in the regulatory work.
RELATED LINKS:
--- POSITIONS PAPERS OF THE EACB
2-THE BANK RECOVERY AND RESOLUTION DIRECTIVE
The Bank Recovery and Resolution Directive applies from 1 January 2015 (with the exception of bail-in in force one year later). It provides for establishment of dedicated national resolution authorities in each Member State, and introduces a three-pillar EU framework for restructuring failing banks: prevention, early intervention and resolution. The Member States will have to set up resolution funds capitalised ex ante by banks. These will have to reach a target level of 1% of all covered deposits within ten years. Shareholders and creditors will be obliged to bare the losses though converting their debt into equity (so called 'bail-in'). The possibility of rescuing banks with public funds (‘bail-out') will not be entirely ruled out, but will be available only in exceptional circumstances.
RELATED LINK :
--- BRRD agreed in Trilogue
>> EACB STANDPOINT
Since those measures were primarily designed with the focus on banks which are ‘too-big-to-fail', co-operative banks may be faced with difficulties. For example, deposits over €100,000 held by natural persons and SMEs represent a big chunk on balance sheets of many co-operative banks, but will not count towards the ‘minimum amount'. This will weaken their bail-in capacities. The conditions for accessing resources of resolution funds may also be in practice rather restrictive for co-operative banks.
RELATED LINK :
--- EACB position paper on BRRD
3-DIRECTIVE ON DEPOSIT GUARANTEE SCHEMES (DGS)
The new Directive on Deposit Guarantee Schemes applicable from 2015, preserves the harmonised coverage level of €100,000 per depositor and per bank. Repayment deadlines will be gradually reduced from currently 20 working days to 7 working days. The Member States will have to set up deposit guarantee funds capitalised ex ante by banks. These will have to reach in principle a target level of 0,8% of all covered deposits within ten years.
RELATED LINK :
--- DGSD agreed in Trilogue
>> EACB STANDPOINT
Co-operative banks welcome that the DGS systems remain national. They have consistently called for preserving different deposit guarantee models in the EU, and fully support the final decision of the co-legislators to opt for the ‘three-pillar approach' as proposed by the European Parliament. This acknowledges the fact that there are different systems in Member States: pure pay-box systems, systems with early intervention/ resolution powers, and institutional protection schemes (IPS). Creating IPSs with early intervention and deposit protection functions has been the practice of many co-operative banks, providing additional flexibility, and minimising the intervention costs for the DGSs. It is very much welcome that they are recognised as valid and equivalent way to achieve the objectives of depositor protection and financial stability.
RELATED LINK :
--- EACB position paper on DGSD
4- BANK STRUCTURAL REFORM
The Commission adopted its Regulation on Bank Structural Reform in January. It proposes to introduce a ban on proprietary trading, and an obligation to separate nearly all trading activities from a deposit taking bank.
RELATED LINK :
--- COM proposal for Bank Structural Measures Reg
>> EACB STANDPOINT
Co-operative banks subscribe to the intentions to foster prudent banking and take a stand against any and all forms of irresponsible, high risk banking. Well designed reforms can contribute to the stability of the financial sector, including protection of tax payers' interests, economic growth, innovation and competition. However, with the implementation of the CRDIV/CRR reforms and the Banking Union package, as well as the ongoing Asset Quality Review, the timing of structural separation is questionable. Indeed, such radical reform would run the risk of disrupting the market in a fragile economic context, driving costs, rising uncertainty among clients and investors, and hampering efforts towards economic growth. Divergences of the proposal vis-à-vis already implemented or discussed national legislation could disturb the competition within the Single Market by imposing one specific separation model. Moreover, many elements of the proposal may damage the existing business models, such as co-operative banks, which have proven their capacity to finance SMEs and local companies. It is absolutely essential that co-operative specificities are more adequately addressed in the final legislation.
RELATED LINK :
--- EACB position paper on structural reform
Banking Union for the Eurozone
1-THE SINGLE SUPERVISATORY MECHANISM (SSM)
The Single Supervisory Mechanism (SSM) is a historical step towards strengthening the Economic and Monetary Union (EMU). Under the new ECB Regulation, the European Central Bank is vested with the ultimate responsibility for supervisory tasks related to the financial stability of banks in the euro area, and in all Member States which choose to participate. As part of preparation for assuming its full responsibility for supervision in November 2014, the ECB must now complete a number of operational arrangements. By far the most significant one is the comprehensive assessment which aims at greater transparency of the banks' balance sheets and restoring confidence in the stability of the banking sector.
>> EACB STANDPOINT
The shifting of the supervision of banks in the Euro Area to the European Central Bank (ECB) is a historical change and co-operative banks will have to adjust to this new architecture. They welcome the approach which allows for more direct supervision by the ECB for large banks with a certain systemic relevance while giving greater responsibility to national bodies to supervise smaller banks. This approach reflects practical realities and subsidiarity aspects, and it will be important that subsidiarity aspects are reflected in the day-to-day supervision as well. The comprehensive assessment scrutinising the banks' balance sheets will be another important challenge.
RELATED LINKS :
--- SSM/ECB Regulation
--- EBA Regulation
--- Statement by the Council concerning voting arrangements --- Inter-institutional Agreement
--- EACB position paper on SSM
2- SINGLE RESOLUTION MECHANISM (SRM)
The Single Resolution Mechanism (SRM) and Fund (SRF), is set to centralize competences and resources for resolution of banks in the Euro Area and SSM-participating countries. To ensure that the set up is Treaty-proof, the Commission proposed that, as an EU Institution, it would have to ‘rubber-stamp' the decisions of the EU Resolution Authority. The proposal raised numerous legal questions, while many Member States strongly opposed the idea of mutualisation of risk at EU level through creation of a single fund. The Council proposed a separate Inter-Governmental Agreement which would for at least 10 years maintain certain level of national separation of funding. Despite the differences, the co-legislators set out to adopt this last pillar of the banking union structure before the Parliamentary elections in Spring 2014.
>> EACB STANDPOINT
A shared view across the co-operative banking sector is that if the proposal is adopted, it is essential that the legislators ensure consistency across the files, and particularly that the rules agreed under the bank recovery and resolution directive are not altered under the single resolution mechanism legislation. Furthermore, there should be a stronger focus on appropriate calibration and simplifying the obligations imposed on the credit institutions, taking into account their size, nature of business, risk profile and interconnectedness. The processes envisaged for resolution must be based on clear rules on accountability, efficiency, task division, and confidentiality of information.
RELATED LINKS :
--- COM proposal for SRM Regulation
>> EUROPEAN BACKSTOP
While the SRF is being discussed, the question of what happens if a bank needs to be resolved before the fund is filled, or what happens if the cost of resolution is larger than the fund itself, needed answering. The proposals to use the euro zone's €500 billion rescue fund, the European Stability Mechanism (ESM) as a source of a credit facility put forward by the European Parliament met with serious opposition from some Member States and the ESM itself. In the end, the agreement reached in December 2013 envisages that during the transitional phase (while the fund is being build up), countries that need emergency funding could either get bridge financing from other Member States' funds/compartments or, in exceptional cases, apply to, the ESM, in line with agreed procedures. After the build-up phase in 2025, when the Single Resolution Fund (SRF) is full, additional money for emergency financing could be raised by the SRF itself through borrowing.
3-MUTUALISATION OF NATIONAL DEPOSIT GUARANTEE SYSTEM (DGS)
Co-operative banks welcome that it currently not envisaged to mutualise the DGS systems which shall remain national.
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1st Half 2012 |
• May: At informal meeting of the European Council Member States agreed on the need to make the economic union commensurate with the monetary union, and opened the way to exploring how to do so • June: President of the European Council, Herman van Rompuy, presents a report entitled 'Towards a Genuine Economic and Monetary Union'. The future EMU is to based on four building blocks: (i) An integrated financial framework (BANKING UNION), (ii) An integrated budgetary framework, (iii) An integrated economic policy framework, (iv) Democratic legitimacy and accountability • June: The European Council invites the President of the European Council, in close collaboration with the President of the Commission, the President of the Euro Group and the President of the ECB, to present a specific and time-bound roadmap for the achievement of a genuine EMU • 28 June: European leaders decide to establish a single supervisory mechanism that will cover all the banks in the Eurozone • June: COM makes its proposal for the first element of the Banking Union - Directive on Bank Recovery and Resolution
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| 2nd Half 2012 |
• September: COM makes its proposal for Single Supervisory Mechanism November: COM issues Communication “A blueprint for a deep and genuine economic and monetary union - Launching a European Debate" further developing European Council commitments of June
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1st Half 2013
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• July: The Commission makes its proposal for Regulation establishing Single Resolution Mechanism and Single Resolution Fund | |
| 2nd Half 2013 |
• October: The Council and European Parliament adopt the Single Supervisory Mechanism package (ECB Regulation & EBA Regulation)
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