IPOL
DIRECTORATE-GENERAL FOR INTERNAL POLICIES
EGOV
ECONOMIC GOVERNANCE SUPPORT UNIT
BRIEFING
Completing the Banking Union
Risk sharing initiatives and parallel risk reduction measures
The present briefing gives an overview of the state of play of the various workstreams on completing the Banking Union, covering both risk sharing
(European Deposit Insurance Scheme -EDIS) and risk reduction measures (see tables overleaf). It will be regularly updated.
Further to the Five Presidents' Report on the completion of the Economic and Monetary Union of 22 June 2015, the European Commission tabled on
24 November 2015 a Proposal on a European Deposit Insurance Scheme (EDIS) and published a Communication 'Towards the completion of the
Banking Union', which identifies a number of risk reduction measures presented as counterbalancing measures: 'If the costs associated with bank
failures and insolvencies are to be mutualised, it is essential that the risk of incurring such costs is contained to the maximum extent possible'. The
timing and sequencing of the risk reduction measures were however not specified for all measures in the Commission Communication, given the
complexity of the issues at stake.
On 17 June 2016, the Council adopted a roadmap to complete the Banking Union, calling on the Commission to table legislative proposals covering a
number of risk reduction measures by the end of 2016. The Council roadmap presents these de-risking measures as preconditions to resume political
negotiations on EDIS, while it stands ready to continue constructive work at technical level. Member States are divided not only on the scope and
sequencing of the accompanying de-risking measures but also on how far EDIS should go and what exact shape it should take in the steady state (i.e.
full common insurance, re-insurance etc...).
The European Parliament has also started its internal process. The rapporteur published her working document on EDIS on 16 June 2016. It stresses
the need for an impact assessment on EDIS from the European Commission as well as concrete steps in the area of risk reduction.
13 September 2016
Author: Aliénor Duvillet-Margerit, contact: egov@ep.europa.eu
PE 574.392
OVERVIEW OF THE MAIN POLICY INITIATIVES FOR RISK SHARING AND RISK REDUCTION
RISK SHARING
RISK REDUCTION
 EDIS (2024)
 COM proposal in November 2015 (no impact assessment)
 Three stages: re-insurance phase (2017), co-insurance phase
(2020), full insurance phase (2024);
 The Council adopted a roadmap to complete the Banking
Union on 17 June 2016 which conditions negotiations at
political level on EDIS to sufficient progress on de-risking
measures;
 Member States announced their intention to have recourse to
an intergovernmental agreement (IGA);
 The European Parliament’s rapporteur (MEP E. De Lange,
EPP) published her working document on EDIS on 16 June
2016, calling for an impact assessment from the European
Commission, concrete steps in the area of risk reduction and
more clarity on the calculation of the risk-based contributions.
 The Commission’s communication ‘Towards the completion
of the Banking Union’ of 24 November 2015 lists a number of
risk reduction measures (without necessarily specifying the
timing):
 Reduce national options and discretions (NODs)
 Review of the macro-prudential policy framework
 Harmonisation of national deposit guarantee schemes
 Availability of ‘bailinable’ debt: defining the level of minimum
requirement for own funds and eligible liabilities (MREL) and of
total loss absorbing capacity (TLAC)
 Consistent application of bail-in rules
 Reforming insolvency law
 Handling of non-performing loans (NPLs)
 Additional prudential measures: leverage, stable funding,
comparability of risk-weighted assets
 Treatment of sovereign risk
 Backstop to the Single Resolution Fund (2024 at the latest)
 On 8 December 2015, the Council agreed to the principle of
a permanent backstop to the SRF;
 On 17 June 2016, the Council roadmap mentioned the
intention of Member States to start working on the backstop
in September 2016 ‘if and when all participating Member
States have fully transposed the BRRD’;
 The backstop should be fully operational by the end of the
transition period in 2024 but ‘when the work is completed, it
may be decided, in line with the risk reduction measures (...)
that the backstop may become operational ahead of the end
of the transition’.
PE 574.392
 The Council roadmap to complete the Banking Union of 17
June 2016 invites the Commission to table legislation by the end
of 2016 on the following areas :
 TLAC/MREL
 Bank creditor hierarchy
 NODs
 Remaining Basel reforms (leverage ratio, net stable funding ratio)
 Insolvency law
 On the regulatory treatment of sovereign exposures, the
Council agreed to wait for the outcome of the Basel Committee.
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ZOOM-IN ON THE RISK REDUCTION MEASURES
DETAILED STATE OF PLAY
(NB: quotes in the first column in the table below are extracts from the Commission Communication of 24 November 2015:'Towards the completion of the Banking Union')
RISK REDUCTION MEASURE
BODIES INVOLVED
1. REDUCE NATIONAL
OPTIONS AND DISCRETIONS
'(...)There is a need to reduce
national options and discretions in
the application of prudential rules.
(...)The Commission will work with
Member States and in close
coordination with the the SSM to
propose regulatory measures with a
view to aligning, as necessary, the
use of national options and
discretions (...).'
SSM
COMMISSION
STATE OF PLAY
TIMELINE
The SSM has listed national options
and discretions and proposed a
common approach for those in its
remit
(See
ECB
Regulation
2016/445 of 14 March 2016 and
briefing PE 574.403 on national
options and discretions). The
Commission has started working on
national options and discretions that
would require amendments to CRD
IV/CRR.
SSM work almost completed
COM proposal by end 2016
3
The ECB Regulation on the exercise
of national options and discretions
(NODs) available in Union law has
been published on March 2016. It
will enter into force on 1/10/2016. In
March 2016, the ECB also published
a guide to give guidance to Joint
Supervisory Teams for the exercise
of
case-by-case
NODs.
An
addendum to the guide covering 8
additional NODs was published on
10 August 2016. A consolidated
version of the guide -including the
addendum and the approach for the
recognition of institutional protection
schemes (IPS) should be published
by the end of the year. The ECB
considers its work on NODs
completed. The Council roadmap to
complete the Banking Union of 17
June 2016 calls on the Commission
to table a legislative proposal on
NODs by end 2016.
PE 574.392
2. REVIEW OF THE MACROPRUDENTIAL POLICY
FRAMEWORK
'(...)The Commission will also
consider possible revisions to the
current [macro-prudential] regime,
while retaining the necessary
flexibility to respond to countryspecific circumstances (...).'
ESRB
EBA
ECB
SSM
NATIONAL MACRO-PRUDENTIAL
AUTHORITIES
COMMISSION
3. HARMONISATION OF
NATIONAL DEPOSIT
GUARANTEE SCHEMES
'(...)This harmonisation will be
essential for EDIS to operate
correctly in the full insurance stage.
Despite the further harmonisation
measures introduced by the 2014
DGS Directive, some important
differences remain between national
deposit guarantee schemes (...)'.
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COMMISSION
EBA
NATIONAL DGS
The legislation contains review
clauses (i.e. ESRB regulations,
CRDIV/CRR
macro-prudential
tools,
SSM
macro-prudential
competences). In 2014, the European
Parliament published an own
initiative report on the review of the
European System of Financial
Supervision, including the ESRB.
The Commission published a review
report on the ESRB. The ESRB and
the EBA published their opinions on
the macro-prudential toolset. The
five Presidents' report mentions the
necessity to strengthen macroprudential institutions, underlying
thereby the importance of macroprudential policy in the Euro Area
given the single monetary policy. On
1/08/2016,
the
European
Commission launched a public
consultation on the review of the
macro-prudential framework. The
public consultation is open until
24/10/2016.
Legislative proposal in 2017
National options exist in particular
on levies, lower target amount and
alternative measures. The EBA
adopted guidelines on contributions
and on payment commitments in
May 2015, and issued draft
guidelines
on
cooperation
agreements between DGS in July
2015.
Should be achieved by 2024
4
The review of the macro-prudential
framework is announced for 2017 in
the Capital Markets Union Action
plan published in September 2015
under the heading 'Enhance capacity
to preserve financial stability'.
The harmonisation of national
DGS is necessary for EDIS to
function in the full insurance
phase. Member States must ensure
that the available financial means
of a DGS shall at least reach a
target level of 0,8 % of the amount
of covered deposits of its members
by 3/07/2024.
4. MREL/TLAC
'(...)The availability of adequate
'bailinable' liabilities through the
proper implementation of the
minimum requirement for own funds
and eligible liabilities (MREL)
requirements is crucial (...) In
addition, the TLAC (Total Loss
Absorbing Capacity) requirement
has been developed at the
international level by the Financial
Stability Board. The Commission
will bring forward a legislative
proposal in 2016 so that TLAC can
be implemented by the agreed
deadline of 2019 (...)'
BASEL COMMITTEE
FINANCIAL STABILITY BOARD,
COMMISSION
EBA
SRB
5. OPERATIONALIZING THE
SINGLE RESOLUTION FUND
'(...)The operation of the SRF should
also
begin
smoothly,
with
contributions from all relevant
banks flowing into the SRF on a
timely and complete basis from 2016
(...)'
ECOFIN COUNCIL
ECONOMIC AND FINANCIAL
COMMITTEE
SRB
The EBA submitted the Draft
Regulatory Technical Standard on
MREL in the form of a formal
opinion on 09/02/2016. The
Commission now has to take its
decision. The Commission has
started the review of MREL, in
accordance with the BRRD and
holds technical discussions with
Member
States
on
the
implementation of TLAC.
Legislative proposal by end
2016
The SRF should be gradually
phased-in as of 1 January 2016. On
8/12/2015 the Council agreed on a
bridge financing arrangements in the
form of bilateral committments from
Member States. The contributions
for 2015 were transferred to the SRF.
Currently implementing an interim
investment strategy, the final
investment strategy for the SRF is
under development according to the
SRB’s 2015 Annual Report.
Phasing-in from 1/01/2016
until 31/12/2023
5
The SRB intends to set MREL for
significant groups by end 2016. The
Commission is holding technical
disscussions with Member States on
TLAC/MREL. The EBA is required
to prepare a report on the consistency
between MREL and international
standards (TLAC) by October 2016,
and has already published its interim
report on MREL on 19 July 2016. The
Council roadmap to complete the
Banking Union of 17 June 2016
invites the Commission to table a
legislative proposal on MREL/TLAC
by end 2016. As agreed in the
Financial Stability Board, TLAC will
apply as of 2019.
The contributions for 2016 were
transferred to the Fund by 30 June.
After an 8-year transitional period,
the SRF will be fully mutualised
(target size of approximately EUR 55
billion i.e. 1% of covered deposits, at
the end of 2023).
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6. CONSISTENT APPLICATION
OF BAIL-IN RULES
'(...) There must be a consistent
application of the bail-in rules
under BRRD (....) To the extent that
public funds or funding from the
SRF are used, the application of EU
State Aid and Fund Aid rules will be
essential. (...)'
COMMISSION
SRB
7. INSOLVENCY LAW
'(...) The Commission will consider
bringing
forward
proposals
enhancing legal certainty and
encouraging
the
timely
retsructuring of borrowers in
financial distress (...).'
COMMISSION
PE 574.392
The resolution of failing banks pre2016 was not handled by the SRB
but by national authorities. As the
bail-in requirements of the BRRD
were not yet in force, State aid rules
were the only burden sharing
requirements applicable,under the
control of the Commission.
As of 1 January 2016
The legislative initiative on business
insolvency is mentioned in the
Capital Markets Union Action plan,
under
the
heading
'Foster
convergence
of
insolvency
proceedings'. On 23 March 2016, the
Commission launched a public
consultation on 'an effective
insolvency framework within the
EU', which closed on 14 June 2016.
Legislative proposals by end
2016
6
The SRB is in charge of the consistent
application of the BRRD bail-in rules
(the SRB decisions should however
be endorsed by the Commission). The
EU State aid and Fund aid framework
continues to apply.
The Council roadmap to complete the
Banking Union of 17 June 2016
invites the Commission to table a
legislative proposal for minimum
harmonisation in the field of
insolvency law by end 2016.
As regards the hierarchy of creditors
in banks, the Council roadmap to
complete the Banking Union of 17
June 2016 invites the Commission to
table a legislative proposal on a
common approach to the bank
creditor hierarchy ‘to enhance legal
certainty in case of resolution’ by end
2016.
8. NON-PERFORMING LOANS
'(...) In the context of the European
semester the Commission will also
call for increased attention from
Member States to settle NPLs (...)'
SSM
COMMISSION
EBA
9. ADDITIONAL PRUDENTIAL
MEASURES: LEVERAGE,
STABLE FUNDING,
COMPARABILITY OF RISKWEIGHTED ASSETS (RWA)
'(...) measures to limit bank leverage,
to assure stable bank funding and to
improve the comparability of riskweighted assets [should be put in
place] (...). As a follow-up to the
outcome of the discussions within the
Basel Committee, the Commission
intends to make proposals for
amendments to the CRD IV/CRR
(...).'
BASEL COMMITTEE
COMMISSION EBA
The necessity to bring down the level
of NPLs was mentioned in the
country specific recommendations
(CSR) in 2015 ((Austria, Bulgaria,
Hungary, Croatia, Ireland, Italy,
Portugal and Slovenia) and in 2016
(IT, IE, PT, CY, HR and SI). It is
also mentioned in the 2016 CSR for
the euro area.
A comprehensive report published
by EBA on 22 July 2016, providing
updates on NPLs in the EU banking
sector,
shows
that
despite
improvements NPLs remain high,
with associated implications for the
economy and bank's profitability.
On 12/09/2016 the ECB launched a
public consultation on guidance to
banks on non-performing loans.
Leverage: work is ongoing in Basel.
The definition of the leverage ratio
(LR) under CRR has been amended
by a Delegated Act. Net Stable
Funding Ratio (NSFR): the EBA
published a report in December 2015
on the impact assessment and
calibration
of
the
NSFR
recommending its introduction in the
EU. RWA: Basel is developping
specific proposals to reduce
excessive variability in RWAs
accross jurisdictions and banks
7
European Semester (annual
cycle)
The
2016
country-specific
recommendations were adopted by
the Council on 12 July 2016. Specific
recommendations on NPLs were
made to IT, IE, PT, CY, HR, SI.
Legislative proposal by end
2016
LR: The report on appropriateness
and calibration of the LR was
published by the EBA on 3 August
2016. COM should report and
possibly table a legislative proposal
by end 2016. COM will have to
decide on the appropriateness of a
mandatory LR requirement. NSFR:
If appropriate, the Commission
should submit a legislative proposal
by end 2016 (Article 510 CRR). The
Council roadmap to complete the
Banking Union of 17 June 2016
invites the Commission to table a
legislative proposal ‘implementing
and finalising remaining Basel
reforms including the introduction of
a leverage ratio, possibly set higher
than 3 % for systemic banks, and the
introduction of a net stable funding
ratio’ by end 2016.
PE 574.392
10. TREATMENT OF
SOVEREIGN RISK
'(...)The Commission will come
forward with the necessary
proposals on the prudential
treatment of sovereigns, drawing on
quantitative
analysis
under
preparation in the Economic and
Financial Committee and the Basel
Committee (....)'
BASEL COMITTEE
ECONOMIC AND FINANCIAL
COMITTEE
ECOFIN COUNCIL
COMMISSION
Work is on-going in Basel. The
ESRB published a report on the
regulatory treatment of sovereign
exposures in March 2015. The
Economic and Financial Committee
is also working on the topic via a
dedicated high level working group
(HLWG) set up in 2015. The
informal April ECOFIN has hold a
first discussion on the topic and on
the various policy options available,
i.e. i) No change option; ii)
Enhancing pillar 2 and/or pillar 3
requirements; iii) Changing the riskweights for Sovereigns; iv) Imposing
concentration limits; v) Addressing
both credit and concentration risk
('hybrid' option mixing iii and iv).
Timeline not defined
The Basel committee should finalise
its document for public consultation
by end 2016.
The Commission has not announced
any date for a legislative proposal on
this topic. According to the Council
roadmap to complete the Banking
Union of 17 June 2016, the Council
agrees to wait for the outcome of the
Basel Committee.
DISCLAIMER: This document is drafted by the Economic Governance Support Unit (EGOV) of the European Parliament based on publicly available information and is provided for information purposes only. The opinions expressed in this
document are the sole responsibility of the authors and do not necessarily represent the official position of the European Parliament. Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged
and the publisher is given prior notice and sent a copy. © European Union, 2016
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