2023/0111/COD: Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 806/2014 as regards early intervention measures, conditions for resolution and funding of resolution action

A proposed new REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 806/2014 as regards early intervention measures, conditions for resolution and funding of resolution action was published in the Official Journal (OJ) of the EU. The proposed new regulation is part of a series of legislative measures known as the so-called 2023 Crisis Management and Deposit Insurance Legislative Package. The key purpose of the package is to strengthen the current bank resolution and deposit insurance frameworks so as to increase financial stability in the event of bank failures, protect tax payers money from being used to bail out failing institutions, and to provide further protection for depositors.
This particular regulation would modify the Single Resolution Mechanism Regulation (SRMR) primarily to improve the overall functioning of the single resolution mechanism (SRM) which was once created to provide a coherent, single regulatory framework for the resolution of failing institutions, but which has rarely been used in favor of local EU-member state resolution arrangements, particularly when it comes to applying the SRM to smaller and medium-sized banks. Specifically, the regulation would make targeted amendments to clarify the conditions for resolution, improve the usability and application of resolution tools, and clarify existing rules to foster the application of the SRM at Union level. The proposed amendments include the following, among others:
– in the context of public interest assessments, the objectives of a resolution – „minimising the reliance on extraordinary public financial support“ – would be complemented to provide that industry-funded resolutions (e.g. via the use of the Single Resolution Fund (SRF) or a Deposit Guarantee Scheme (DGS)) need to be considered preferable as compared to national resolution measures;
– the objectives of a resolution would also be amended to provide that „resolution should be preferred if insolvency would be more costly for the DGS“;
– the provisions as regards to when an insolvency should be chosen over a resolution would be amended to provide that an insolvency proceeding by member states should only be chosen when it reaches the objectives of the resolution framework better than a resolution (leaving the proof of burden on national competent authorities (NCAs));
– the use of DGS funds in case of resolution and transfer of an entity would be clarified to state that only the DGS to which the entity contributed can be used to finance transfer strategies;
– the restrictions on the use of public funds for failing institutions would be further limited to provide that such funds may only be used for „precautionary recapitalisation, preventive measures of DGS aimed at preserving the financial soundness and long-term viability of credit institutions, measures taken by DGS to preserve the access of depositors and other forms of support granted in the context of winding up proceedings“. For any other purposes, no such fund uses would be permitted and an institution shall be deemed a non-viable institution by the national resolution authority for resolution or insovency purposes;
– the term „precautionary recapitalisation“ would be further specified to require the measures to be temporary, with a pre-defined duration and exit strategy, subject to certain capital requirements – and „precautionary recapitalisation“ may only be advanced, if an institution is solvent at the time the measure is applied;
– provisions would be inserted to regulate minimum requirements for own funds and eligible liabilities (MREL) in cases where resolution involves the transfer of an entity to another (currently not included at all);
– provisions would be inserted to foster the communication between the European Central Bank, NCAs, and the Single Resolution Board (SRB), e.g. by requiring the notification of the SRB as soon as the ECB or the NCA have concluded that an institution belonging to a smaller, less significant cross-border group has been assessed as a failing institution or when there are reasonable grounds to believe that an institution is likely to fail; and
– provisions would be inserted to enlarge certain powers of the SRB when preparing for an institution’s resolution, e.g. to request additional information from the NCA or the ECB, require an affected institution to put up a digital platform that allows the marketing of the institution to potential buyers, or to require NCA’s to draw up an initial, preliminary resolution scheme for the affected institution.
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As the above summary only provides a very brief description of the proposed regulation, please refer to the enclosed legal document for more detailed, comprehensive information.