European Parliament claims substantive agreement on EU bank resolution legislation

Vote on legislation for harmonised recovery and resolution processes postponed till May, but European Parliament says it has reached agreement on all the main points
European Parliament

The European Parliament's economic and monetary affairs committee has reached agreement on "all the main important areas" of new bank recovery and resolution legislation, including agreeing a "broad scope" of assets liable to be called on for a bail-in, according to a Swedish member of the committee.

The European Parliament was due to vote yesterday on the legislation, but the vote was postponed until May while the final text is agreed. Nevertheless, committee rapporteur and Swedish MEP Gunnar Hökmark provided reporters with an update on where the committee is making progress.

Hökmark added that he hoped the European Commission, under the direction of commissioner Michel Barnier, would hold off from introducing a single resolution mechanism until the parliament's legislation is in place, but conceded that may not happen as Barnier is under substantial pressure in Europe to introduce the new mechanism as soon as possible.

Hökmark said it is impossible to "overestimate the influence" that the new legislation "will have on how banks and decision-makers will act in the future". He said it would create "hundreds and hundreds of financial supervisors", as everyone with a stake in a bank will have a real interest in ensuring their investment is safe. "If you are taking big risks, you will also face the big risks as a result of that," said Hökmark.

However, he added that the legislation would also ensure the confusion surrounding the Cyprus bail-in, where small depositors were threatened with a haircut in the first iteration of the resolution plan, would not happen again. He said depositors with less than €100,000 would be exempt from taking part in bail-ins – and would have a second layer of protection under a deposit protection scheme.

Hökmark said the legislation should also provide for the establishment of "ex ante resolution funds", into which all banks will contribute but which will also be funded through the profits from reprivatising banks that are taken into taxpayer control in a crisis. He acknowledged, however, that ex ante resolution funds are unlikely to be sufficient to head off a systemic crisis.

"We have introduced a number of other instruments to be used in a systemic crisis," said Hökmark. "That means that public authorities and states can act, as they do already."

However, he added: "It's important to secure that when governments act it must not be distorting competition, it must not be state aid, it must be in ways that mean that taxpayers will get their money back."

He said the committee has "agreed on having ex ante funding, but with possibility for other member states to have other solutions, as long as all banks have a burden to pay into some kind of system".

The legislation will also enshrine clear roles for home countries and host countries in the event a bank gets into a crisis situation, "meaning that authorities in host countries will have a number of opportunities to have a say in recovery plans and resolution plans," Hökmark said.

The final say, however, will rest with the institution's home country's government, which will have the final responsibility for the bank's resolution.

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