MEPs drafted yesterday a report with recommendations to the Commission on cross-border crisis management in the banking sector. The Committee on Economic and Monetary Affairs makes recommendations on a common EU crisis management framework, on systemic banks, EU financial stability fund, and on a resolution unit.
EU Framework for Cross-Border Crisis Management
MEPs recommend that the legislative act should create a European crisis management framework with a common minimum set of rules and ultimately a common resolution and insolvency law, applicable to all banking institutions operating in the Union and with the following objectives:
- promote stability of the financial system;
- limit/prevent financial contagion;
- limit public cost of interventions;
- optimize position of depositors and guarantee their equal treatment across countries;
- preserve provision of core banking services;
- avoid moral hazard and charge costs to industry and shareholders;
- ensure equal treatment of each class of creditors in the Union;
- strengthen the EU financial services internal market and its competitiveness.
Systemic Banks
Systemic Banks, due to their special risk profile, require to be urgently addressed by a new special regime to be known as the European Bank Company Law to be designed until the end of 2011.
Systemic Banks shall adhere to the new special regime which shall overcome legal impediments to effective action across borders while ensuring clear and predictable treatment of shareholders, depositors, creditors and other stakeholders.
EU Financial Stability Fund
MEPs recommend the creation of an EU Financial Stability Fund, under the responsibility of the EBA, to finance interventions (rehabilitation or orderly winding-up) aimed at preserving the systems stability and limit contagion from failing banks. The Commission shall present to the Parliament, by April 2011, a proposal with details of the Funds charter, structure, governance, size, operating model as well as a precise calendar for implementation.
Resolution Unit
The report says that a Resolution Unit shall also be established within the EBA to lead the resolution and insolvency procedures for Systemic Banks. This unit shall:
- operate within the strict boundaries defined by the legal framework and the EBAs competencies;
- be a pool of legal and financial expertise specially skilled in bank restructurings, turnarounds and liquidation;
- cooperate closely with national authorities on implementation, technical assistance and sharing of staff;
- propose the disbursements from the Stability Fund.
