I TRE PILASTRI DELLUNIONE BANCARIA EUROPEA Origini sviluppi
I TRE PILASTRI DELL’UNIONE BANCARIA EUROPEA. Origini, sviluppi e possibili prospettive Dott. Ronzino Giulio LLM CANDIDATE IN BANKING AND FINANCE QMUL FUTURE ECB TRAINEE IN THE FINANCIAL LAW DIVISION
Banking union This process replicates the experience of the Federal Reserve System and the Federal Deposit Insurance Corporation in the USA one century ago. Banking Union (based upon the Single Rulebook) Establishment of the Single Supervisory Mechanism (SSM) Regulation of 15 October 2013 Start – 4 Nov 2014 European Stability Mechanism (ESM) Banking supervision Resolution* SSM ECB Direct recapitalisation National competent authorities / Regulation of 15 July 2014 Single Resolution Mechanism Regulation & IGA Commission, SRB/SRF & national resolution authorities Deposit guarantee European Deposit Insurance Scheme Proposal published Nov 2015 LOLR (the missing pillar) Fiscal backstop Fiscal union? 2
EURO AREA • • • The euro and the European Central Bank. The latter forms together with the National Central Banks of the EU Member States the European System of Central Banks. Austria, Belgium, France, Finland, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain adopted the euro on 1 of January 2002. Slovenia adopted the euro on 1 January 2007. Estonia joined in 2011. Latvia adopted the euro on 1 January 2014, Lithuania – in 2015 19 Member States of the European Union use the euro as their currency: Belgium, Germany, Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, The Netherlands, Austria, Portugal, Slovenia, Slovakia, Finland, Estonia, Latvia, Lithuania NON – PARTICIPANTS - Bulgaria, Czech Republic, Denmark, Hungary, Poland, Romania, Sweden and the United Kingdom are EU Member States but do not currently use the single European currency. 3
I PILLAR SINGLE SUPERVISORY MECHANISM 4
GLOBAL FINANCIAL CRISIS • The Global Financial Crisis of 2007 -2009 was originated by a number of factors: v Macro-economic imbalances that led to asset and credit bubbles v Weak or absence of regulation in certain areas. The operations of ‘Large and Complex Financial Institutions’ (‘LCFIs’) highlighted a weakness in EU regulation. As known, it takes time to adopt legally binding decisions at EU level • The crisis led to a complete overhaul of the EU regulatory and supervisory architecture with the aims of: Strengthening existing rules v Extending EU regulation to areas that were not regulated (RAs, HFs, PEs) v Focusing on crisis prevention + crisis management + crisis resolution 5
DE LAROSIERE MANDATE October 2008 the President of the European Commission conferred a mandate to the former Governor of the Banque de France (Jacques de Larosière) to chair a high-level group on financial supervision to make proposals to strengthen European supervisory arrangements covering all financial sectors, with the objective of establishing a more efficient, integrated and sustainable European system of supervision. 6
General Board: Macro-prudential supervision Voting members: –Governors of NCBs; – President and the vice-President of the ECB; – a Member of the European Commission; –Chairpersons of the three European Supervisory Authorities. Steering committee, Secretariat Early risk warning and recommendation to supervisors Micro-prudential information SSM Micro-prudential supervision Early risk warnings and recommendations to governments Non-voting members: –representatives of national supervisors; –President of the Economic and Financial Committee. Joint Committee of European Supervisory Authorities 2014 European Banking Authority (EBA) National Banking Supervisors European Insurance and Occupational Pensions Authority (EIOPA) National Insurance and Pension Supervisors Board of Appeal European Securities and Markets Authority (ESMA) National Securities Supervisors 7
SSM The Single Supervisory Mechanism (first pillar of the Banking Union) is the system of banking supervision composed of the ECB and national competent authorities (NCAs) of participating Member States 8
Interaction between ECB and National Competent Authorities Bank of Spain Bank of Greece Bank of Slovenia National Bank of Slovakia Banco de Portugal ECB National Bank of Netherland s Malta Financial Services Authority National Bank of Belgium Austria Financial Market Authority Central Bank of Cyprus Estonia Financial Supervisio n Authority Finnish Luxembur g - CSSF Central Bank of Ireland Financial Supervisor y France Authority Autorité de contrôle prudentiel et de résolution Germany -Ba. Fin Latvia – Banca Financial Bank of d'Italia and Capital Lithuani Market a Commissio n 9
ESCB – ECB + NCBs • The European System of Central Banks is a complex central banking system. – The European Central Bank + National Central Banks = The European System of Central Banks • Multi-layered complexity – Structural complexity • The ESCB is composed of the ECB and the NCBs. – EU Member States: “ins” and “outs” • The complex duality of the ESCB is further compounded - for a transitional period of unknown duration - by the division between the ‘ins’ (i. e. , member states whose currency is the euro) and the ‘outs’ (i. e. , and member states not participating in the single currency or ‘member states with a derogation’ according to the language of the Treaty). • The NCBs of the ‘ins’ and the ECB constitute the Eurosystem. Article 282 TFEU enshrines into EU law the term ‘Eurosystem’ 10
Article 127 TFEU (legal basis) 1. 2. 3. 4. 5. The primary objective of the European System of Central Banks (hereinafter referred to as ‘the ESCB’) shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union. The ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 119. The basic tasks to be carried out through the ESCB shall be: - to define and implement the monetary policy of the Union, - to conduct foreign-exchange operations consistent with the provisions of Article 219, - to hold and manage the official foreign reserves of the Member States, - to promote the smooth operation of payment systems. The third indent of paragraph 2 shall be without prejudice to the holding and management by the governments of Member States of foreign-exchange working balances. The ECB shall be consulted: - on any proposed Union act in its fields of competence, - by national authorities regarding any draft legislative provision in its fields of competence, but within the limits and under the conditions set out by the Council in accordance with the procedure laid down in Article 129(4). The. European. Central. Bankmaysubmitopinionstotheappropriate. Unioninstitutions, bodies, officesoragenciesor to the national authorities on matters in its fields of competence. The ESCB shall contribute to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system. 11
2. Allocation of tasks between ECB and NCAs within the SSM Significant supervised entities Less significant supervised entities Granting and withdrawal of authorization ECB Assessment of applications for the acquisition and disposal of ‘qualifying holdings’ ECB Conduct of micro-prudential supervision ECB NCA Conduct of macro-prudential regulation NCA or NDA Carrying out supervisory tasks in relation to recovery plans and early intervention ECB NCA Conduct of stress-tests ECB NCA Participation in colleges of supervisors ECB NCA Protection of the economic interests of consumers transacting with financial service providers NCA Prevention of the use of the financial system for the purposes of money laundering and terrorist financing NCA 12
A new era for banking supervision in the EU! FI SE IE LT NL Banking supervision 3, 600 banks, 19 countries, one system PT ES On 4 November 2014 the ECB took over supervisory responsibility for banks in the euro area. The ECB directly supervises the 120 significant banks of the participating countries. These banks hold almost 82% of banking assets in the euro area. IT GR 13
Functioning of the SSM National Competent Authorities (NCAs) European Central Bank (ECB) Direct supervision io vis er up s ct Direct supervision re di In in Joint Supervisory Teams (ECB + NCA staff) n The ECB may decide at any time to take responsibility for a less significant banks. “Significant” banks (approx. 120 groups) “Less significant” banks
SIGNIFICANCE CRITERIA To qualify as significant, banks must fulfil at least one of these criteria: Significance criteria Size the total value of its assets exceeds € 30 billion Economic importance for the specific country or the EU economy as a whole Cross-border activities the total value of its assets exceeds € 5 billion and the ratio of its cross-border assets/liabilities in more than one other participating Member State to its total assets/liabilities is above 20% Direct public financial assistance it has requested or received funding from the European Stability Mechanism or the European Financial Stability Facility A supervised bank can also be considered significant if it is one of the three most significant banks established in a particular country. 15
Joint Supervisory Teams (JSTs) • A JST for every significant banking group • JST supervision is done at the highest level of consolidation within the SSM • JST is the main tool within which NCAs assist the ECB in the supervision of significant banking groups • Horizontal and specialised functions support JSTs 16
SINGLE RULEBOOK • CRR • BRRD (CAPITAL REQUIREMENTS REGULATION 575/2013 ) (BANKING RECOVERY AND RESOLUTION DIRECTIVE 59/2014) • CRD IV • DGSD CAPITAL REQUIREMENTS DIRECTIVE 36/2013) (DEPOSIT GUARANTEE SCHEME DIRECTIVE 49/2014) ( 17
II PILLAR SINGLE RESOLUTION MECHANISM 18
SRM: Simple, efficient, European Single Resolution Fund manages ECB National Supervisors supervise COM/CON notify Single Resolution Board ba i ls in contribute instructs Owners / creditors National Resolution Authorities s m ai l /c es resolve ld ar sh ho Failed bank All banks 19
SRM REGULATION (806/2014) Article 16 of the SRM Regulation regulates the following legislative process: (a) he ECB signals when a significant bank or crossborder group in a participating Member State is failing or likely to fail; (b) he Single Resolution Board (SRB) determines that there is no reasonable prospect of a timely private sector rescue and also that a resolution action is in the public interest; and, (c) he SRB with the help of the relevant national resolution authorities, prepares and adopts the resolution scheme. 20
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BRRD (59/2014) • RESOLUTION • PRECAUTIONARY RECAPITALISATION 22
RESOLUTION REQUISITES 1. Institution failing or likely to fail; 2. No reasonable prospect of other actions preventing failure; and 3. Resolution action in public interest • Breach of authorisation requirements sufficient to withdraw authorisation, including because losses depleting all or substantially all own funds*; • Assets less than liabilities*; • Unable to pay debts as fall due*; or • Requires extraordinary public financial support 23
RESOLUTION TOOLS Sale of business Bail in Bridge institution Asset separation 24
BAIL IN • Consists in: • Purpose: 1. Write down the claims of shareholders and creditors 2. Convert debt into equity • to recapitalise an institution which meets the conditions for resolution • to convert to equity or reduce the principal amount of claims 25
Bail in may be applied to all liabilities other than: • • • covered deposits secured liabilities arising through holding client assets liabilities to unrelated institutions (<7 days original maturity) liabilities arising from designated systems with residual maturity <7 days • liabilities to employees (except for bonuses), critical trade creditors, preferred tax and social security claims 26
PRECAUTIONARY RECAPITALISATION • • Precautionary recapitalisation is an innovative legal tool regulated by BRRD. It allows Member States to support with public money those banks that, although not insolvent, need an increase of capital according to the results of stress tests in the so-called adverse scenario. BUT: the use of such a tool is allowed only in order to remedy a serious disturbance in the economy of a Member State and preserve financial stability • ECB “[a] precautionary recapitalisation describes the injection of own funds into a solvent bank by the state when this is necessary to remedy a serious disturbance in the economy of a Member State and preserve financial stability. It is an exceptional measure that is conditional on final approval under the European Union State aid framework. It does not trigger the resolution of the bank”. 27
PRECAUTIONARY RECAPITALISATION • The most critical aspect of such a new legal tool is the meaning of the expression “serious disturbance in the economy”. • The use of such expression lies in art 107(1) that establishes the general prohibition of State aid (unless it is justified by the existence of a serious disturbance in the economy (Art 107 (3) (b)) • No qualitative or quantitative thresholds are provided ► the financial crisis was unanimously seen as an example of this situation and as such the provision of State aid was extraordinarily declared compatible with the Treaty, albeit subject to certain conditions. • The absence of a legal definition of “serious disturbance” leaves the authorities with a fair degree of flexibility in determining the need, or lack thereof, to provide extraordinary public financial support 28
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III PILLAR EUROPEAN DEPOSIT GUARANTEE SCHEME 30
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DGSD 49/2014 • NATIONAL DGSs set up and officially recognised in 1 EU country must cover the depositors at branches of their members in other EU countries. • The directive maintains the deposit protection of € 100, 000, and includes a gradual reduction of the repayment times of deposit guarantees. • It also restates the principle of resolving bank failures with the use of funds provided by financial institutions, and not by taxpayers 32
COMMISSION PROPOSAL 2015 33
Gradual approach for EDIS 2024 2020 - 2023 2017 - 2019 Phase 1: Re. Insurance Phase 2: Co Insurance Phase 3: Full Insurance
Re-Insurance (3 years) q Risks remain largely national. This reduces moral hazard and addresses legacy. q EDIS would only provide liquidity and, eventually cover excess loss, if the national DGS has exhausted its own resources and complies with DGSD obligations (e. g. capitalisation). q There are other caps and safeguards to protect EDIS. 35
Co-Insurance (4 years) q Co-Insurance is a further development of reinsurance. q Main difference: The national DGS would not have to be exhausted before it can access EDIS. q EDIS will cover some amount from the first euro that the national DGS pays out to its depositors. Risk is therefore partially mutualised. q The degree of available EDIS cover would increase over four years till it is fully mutualised. 36
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IV. ELA as the missing pillar in the Banking Union (based upon the Single Rulebook) Establishment of the Single Supervisory Mechanism (SSM) Regulation of 15 October 2013 Start – 4 Nov 2014 Banking supervision SSM ECB / European Stability Mechanism (ESM) Direct recapitalisation National competent authorities Resolution* Regulation of 15 July 2014 Single Resolution Mechanism Regulation & IGA Commission, SRB/SRF & national resolution authorities Deposit guarantee European Deposit Insurance Scheme Proposal published Nov 2015 LOLR (the missing pillar) Fiscal backstop Fiscal union? 38
III. ELA in the current legal framework National competence, i. e. competence of NCBs Legal framework: § Art. 14. 4 ESCB Statute: national law § ELA Agreement May 2017: procedural requirements for cooperation between NCBs and ECB (Governing Council) Why role of Governing Council? Art. 14. 4: Governing Council has to decide whether ELA interferes with objectives and tasks of the ESCB
CHALLENGES • Completing the third pillar and, eventually, the fourth pillar • Increasing the harmonisation and cooperation in the banking system (political aspects) • Fostering cross-border banking services 40
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