On 20 September 2023, the European Parliament Economic and Monetary Affairs (ECON) Committee held its first exchange of views on the European Commission’s (Commission) crisis management and deposit insurance (CMDI) legislative package. The legislative package contains amending proposals to the EU regime for the recovery and resolution of credit institutions. The legislative package consists of:
- Proposal for a Directive amending the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD).
- Proposal for a Regulation amending the Single Resolution Mechanism (SRM) Regulation ((EU) 806/2014).
- Proposal for a Directive amending the Deposit Guarantee Schemes Directive (2014/49/EU) (DGSD).
The main aim of the Commission’s proposed amendments is to address a number of deficiencies that have been identified following a review of the framework and to improve the effectiveness of the resolution and deposit protection regimes for EU banks. A notable proposed amendment to the CMDI regime is to the public interest assessment (PIA) test, which determines whether resolution authorities will intervene when a bank is failing or likely to fail.
The ECON Committee has chosen to treat the three legislative proposals as a single package, meaning that the discussion that took place on 20 September covered all three proposals at the same time. The discussion itself serves as an initial debate to take stock of the views of each of the political groups ahead of the publication of draft amendments to the proposals.
Luděk Niedermayer (European People’s Party, CZ), rapporteur for the proposal amending the BRRDstarted the discussion by stating that he considers the CMDI package to be very important in the light of recent bank failures. Niedermayer welcomed the Commission’s proposals that provide medium-sized banks with new tools to manage incidents that are transparent, predictable and less harmful for the economy than at present. However, he is of the view that the amendments to the current CMDI framework should be balanced. For Niedermayer, the fundamental part of the proposal is the removal of super-preference of deposit guarantee scheme (DGS) claims in the hierarchy of claims in liquidation. Without this super-preference, the DGS would not have an interest to be included in finding a different solution instead of liquidation. It may, in his view, also lead to higher costs for the taxpayer. The second part of the proposal is, in his view, fine tuning of the details of how the hierarchy of claims in a liquidation would work, and in how far the hierarchy of claims should be harmonised throughout the EU. Niedermayer also feels that there should be a debate in how many small- and medium-sized banks should be included in the regime through the broadening of the PIA assessment. The third main part of the proposal is the fine-tuning of the existing mechanism relationship between Member State national competent authorities (NCAs), and early intervention measures.
Pedro Marques (Socialists and Democrats, PT), rapporteur for the proposal amending the SRM Regulation, started his intervention by stating that he is unhappy about the fact that the European Deposit Insurance Scheme (EDIS) has still not been adopted. In his view, the CMDI package will improve the current resolution framework but a number of the Commission’s proposed amendments need to be tweaked. Marques is in favour of a swift adoption of the European Parliament position and hopes that trilogue negotiations with the Council and the Commission can start in the beginning of 2024. For Marques, the core of the SRM Regulation proposal is to expand the scope of the resolution framework to ensure that small- and medium-sized banks can tap into the single resolution fund when needed. He acknowledged that banks that are not considered to be significant institutions can still create systemic risk. Marques stated that he considers there to be three main issues that the European Parliament must address in its negotiating position. In his opinion the final text should try to protect the conditions that the banks have to meet to be eligible for resolution, to ensure that banks do not take on undue risk in their business. By expanding the use of DGS funds for resolution Marques argues that the risk of exhausting these funds should be considered as well, and safeguards must be established to prevent taxpayer money to be used instead. The CMDI proposals must be considered as a whole and the proposed expanded PIA test and claim hierarchy must be assessed to ensure that these provide the most suitable solutions. The Commission proposed to maximise cases in which DGS funds might be tapped for resolution, and Marques is on the same page with them, but still thinks that consequences must be analysed before taking a decision.
Ernest Urtasun (Greens, ES), rapporteur for the DGSD amending proposal, stated that the current loopholes of the resolution framework are very well known. In his view, a more predictable resolution framework is needed. For him, the Commission proposal is heading in the right direction: he welcomed expanding the scope of resolution through changes to the PIA test, which, in his opinion, is one of the enabling steps to complete Banking Union. However, Urtasun also sees a number of inconsistencies in the proposal that need to be addressed by the European Parliament negotiating position In addition, Urtasun queried the proposed removal of the super-preference of DGSs in the claim hierarchy. With regard to the DGSD proposal, Urtasun stated that it is his intention to use the reform to pave the way towards EDIS, as he considers the reform to be more effective if the EDIS safety net is set up. Urtasun also wants to amend the proposal to clarify that the EU state aid framework applies to DGSs as well.
Shadow rapporteur Giles Boyer (Renew, FR) is of the view that the timetable for the adoption of the negotiating position that was put forward is very ambitious, and that no time should be wasted as the ECON Committee needs to go into great detail before reaching a position. For him, it is better to have a good negotiating position which takes longer to reach than to have a flawed one. Boyer thinks that the framework should contain fair rules that apply to everyone to ensure harmonisation. Among other things, he hopes that the ECON Committee can come up with a negotiating position which ensures financial stability without causing moral hazard, that further consolidates the single market and the Banking Union, that uses the DGSs in the best possible way, and that balances the powers of the different resolution authorities.
Finally, shadow rapporteur Marco Zanni (ID Group, IT) started his intervention by confirming that his group shares the goals set by the Commission. With regard to the content of the proposed amendments to the framework, Zanni shares some of the concerns of the other rapporteurs and shadow rapporteurs. He stated that he hopes that the negotiations on the European Parliament position will consider the lessons learned from the recent banking crisis, which showed that the speed of intervention is very important. He also discussed the role of the DGS in a banking crisis, as he thinks that the Commission proposal provides actors in the framework with less flexibility in choosing which instrument to use. Zanni thinks that it is important that some broad flexibility is retained and that the DGS is used as an alternative instrument and as a stabiliser in a banking crisis.
Following the first exchange of views described above, the ECON rapporteurs will publish their draft reports in the coming weeks. The draft reports will be presented in the ECON Committee on 23 or 24 October 2023, and the shadow rapporteurs have until 26 October 2023 to file their own amendments to the proposals. A further ECON Committee debate is planned on 27 or 28 November 2023, and an ECON Committee vote is scheduled for the week of 4 December 2023.