19 June 2024

Bank crisis management and deposit insurance framework: Council agrees on its position

The Council today agreed on a negotiating mandate on the review of the crisis management and deposit insurance (CMDI) framework for banks. The review includes a comprehensive set of measures designed to strengthen the existing EU crisis management framework, especially for small/medium-sized banks.

It also constitutes an immediate step towards the further completion of the Banking Union, as agreed by the Eurogroup in June 2022.  

With this mandate, we are taking a significant step towards a more integrated and effective crisis management framework that will reinforce our ability to address the challenges posed by the resolution of small and medium-size banks.  The revised CMDI framework will bring significant benefits in terms of strengthened financial stability, better protection of deposits and taxpayers’ money, and a level playing field between smaller and larger banks in the EU, all of which are key to the deepening of the Banking Union. This constitutes an important success for the Belgian Presidency, on a complicated and politically sensitive file.

Vincent Van Peteghem, Belgian minister of finance

With this agreement, the Council is ready to engage in negotiations with the European Parliament on the final shape of the legislation. 

Public interest assessment

A resolution procedure can only be initiated if it is considered to be in the public interest. The CMDI framework clarifies how the public interest assessment is to be conducted by resolution authorities. In particular, the reform aims to extend the scope of resolution to some small and medium-sized banks by broadening this public interest criterion. 

To reach this objective, the Council clarifies in its mandate that the public interest assessment should be conducted in two stages. First, the resolution authority must determine whether any of the resolution objectives would be threatened in case of insolvency. 

If this is the case, a normal insolvency procedure should only be possible if it achieves the resolution objectives more effectively than a resolution procedure. If a normal insolvency procedure is not more efficient, a resolution procedure must be initiated.

Finally, the Council mandate also provides that when assessing disruptions of the real economy, the resolution authority should focus on both the national and regional levels, reflecting the potential footprint of some small and medium-sized banks. 

‘Bridging the gap’

One of the main objectives of the CMDI reform is to facilitate the resolution of failing banks in the EU, thereby minimising contagion risks or spillovers to the real economy.

The review of the CMDI framework aims to make the framework more robust and more credible, in particular by addressing certain funding issues potentially faced by some small and medium-size banks in resolution. 

The first line of defence in resolution remains the minimum requirement for own funds and eligible liabilities (‘MREL’) that banks are required to maintain to ensure that their losses are absorbed and their recapitalisation needs are first provided by their own shareholders and creditors. 

Yet, the CMDI framework aims to facilitate the recourse to industry-funded safety nets (namely the national Deposit Guarantee Schemes or (DGSs) together with, in the Banking Union, the Single Resolution Fund or (SRF), or national resolution funds outside the Banking Union) as an additional source of funding to finance transfer strategies in resolution proceedings leading to a market exit. 

This is referred to as using DGS funds to 'bridge the gap' allowing to subsequently unlock an intervention of the SRF....

 more at Council

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