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New EU proposals to put in place new safeguards for taxpayers against the failure of financial institutions were welcomed by the British Bankers’ Association today.
The EU’s consultation on a possible EU framework for bank recovery and resolution is the third stage in the process of EU regulatory reform. The EU has already reformed the bank capital regime and its supervisory structures to make Europe’s financial services sector more resilient against financial crisis. Now it is addressing the steps to be taken if these safeguards do not work – if a bank faces failure.
BBA chief executive Angela Knight said:
“This paper does address prevention measures – principally how to identify problems in a bank at an early stage – but its main significance is that it would extend across the EU some of the protections already enjoyed by UK bank customers. It would put in place for the first time mechanisms to address the failure of cross-border institutions, so that they can recover or the business can be wound up without cost to the taxpayer.
“The UK’s ‘special resolution regime’ for banks is already in place, as the UK recognised early on that in the case of bank failures customers needed the best possible protection. This was enshrined in the Banking Act 2009. But the ambition of the EU is to ensure all members states have resolution authorities with similar powers.
“Taken together, the measures in this paper are very significant. They are intended to ensure that no European financial institution should be too big to fail. This is an ambitious report and care will need to be taken as to how the proposals are developed. The view of those who invest in banks is vital as well as the view of the banks themselves – our members. We will work with all to provide a comprehensive response”
Background
The European Commission has published the paper Technical Details of a Possible EU Framework for Bank Recovery and Resolution. It covers:- the scope of preparatory and preventative measures and resolution tools;
- the authorities responsible for resolution;
- supervision, preparation and prevention, including:
- recovery planning;
- intra-group financial support; and
- resolution plans;
- early intervention powers;
- resolution tools, powers and mechanisms;
- arrangements for group resolution;
- financing arrangements (i.e. should resolution funds be pre- or post-funded);
- possible approaches to the design of debt write-down ('bail-in') as a resolution tool; and
- possible changes to company law.
The deadline for responses is 3 March. The Commission intends to adopt a legislative proposal on bank recovery and resolution in June 2011.
