Date: 27 June 2014
Re: Launch of banking union and implications for DNB organisation
Dear Chair,
Starting November 2014 the European banking union will be phased in. The first element to be
introduced will be the Single Supervisory Mechanism or SSM. Next, January 2015 will see the
introduction of the Bank Recovery and Resolution Directive or BRRD and the launch of the Single
Resolution Mechanism or SRM.1 The roll-out in the Netherlands of these elements of the European
banking union will have major consequences for the duties and responsibilities, and hence for the
organisation, of De Nederlandsche Bank (DNB). The organisational design and division of
responsibilities at DNB will be adjusted to reflect these changes. In this letter, I present an overview of
the adjustments, which will be submitted to your Chamber in bill form after this summer. Several of the
adjustments regard DNB's internal organisation and fall within the responsibility of DNB's Supervisory
Board (SB). I am enclosing a letter from the SB regarding these internal adjustments.
Introduction
With the launch of the SSM, a single supervisory authority, the European Central Bank (ECB) will take
over the (direct) prudential supervision of the largest banks in the European banking union from the
national supervisors. In the Netherlands, the ECB will assume responsibility for the (direct) prudential
supervision of the largest banks and exercise it together with DNB.2 The SSM framework the primary
responsibility for the (direct) prudential supervision of all other financial undertakings, including the
smaller banks, will be assigned to DNB.
The SRM will assign responsibilities and provide the procedure for the resolution of banks within the
European banking union. To this end, a Single Resolution Board (SRB) and a Single Resolution Fund
(SRF) will be created, with the latter being financed by the banking industry. Also, the SRM will
embody the implementation of a part of the BRRD for the Member States that join the European banking
union. Whereas the BRRD enacts a uniform framework setting minimum requirements regarding the
recovery and the resolution of banks in all EU Member States, the SRM provides that decision-making
on resolution regarding the largest banks and the multinational banks established in Member States that
have joined the banking union will, from 1 January 2016, be elevated to the European level, with a
single resolution authority, the SRB. The national resolution authorities to be designated under the
BRRD as of 1 January 2015, will be responsible for the execution of the SRB's decisions and for the
resolution of smaller, domestic banks.
The above developments have given myself (as announced in the Cabinet reaction to the
recommendations of the evaluation committee on the nationalisation of SNS REAAL3) and the SB and
Governing Board of DNB cause to reconsider, in joint dialogue, the current design of DNB's
organisation. This has led to a number of proposals for concrete adjustments to the organisation of DNB,
to be discussed below. Section 1 comments on the adjustments in the supervisory structure of DNB as
proposed by the SB. Next, Section 2 discusses my proposal to designate DNB as the national resolution
authority and the embedment of the resolution duties within the organisation of DNB.
§1. Adjustments in the supervisory structure of DNB
Adjustments in connection with SSM
1
The SRM is to be introduced in a number of phases. The Single Resolution Board, operational from 1 January 2015, will be
responsible for the drafting of resolution plans. As from 1 January 2016,
it will also be responsible for the resolution of banks, and the Single Resolution Fund will be created on the same date.
2 This includes direct prudential supervision of the following banks: ING Bank, Rabobank, ABN AMRO, SNS Bank,
Nederlandse Waterschapsbank, Bank Nederlandse Gemeenten, and Royal Bank of Scotland N.V.
3 Parliamentary Papers II, 2013/14, 33 532, nr. 34, p. 5.
The SB of DNB, in dialogue with the Governing Board, has addressed the questions what organisational
adjustments would be needed given the above developments. In the enclosed letter, the SB announces
the measures it intends to take in this context.
In the first place, the SB proposes, now that Ms Joanne Kellermann has declared that she will be
unavailable for reappointment, to reduce the size of the Governing Board to four members. The arrival
of the SSM and the SRM will involve the transfer of substantial decision-making powers to the ECB and
the SRB. For DNB, this will mean a shift of emphasis towards the performance of duties under the
responsibility of the ECB and the SRB. Also, it will have implications for the division of responsibilities
within the Governing Board. The resulting proposed design of the portfolio distribution within and size
reduction of the Governing Board envisions the creation of an effective and balanced apportionment
which, moreover, accomplished an optimum synergy between the several duties and aligns with DNB's
collegial governance model. I refer to the enclosed letter from the SB for details on the division of duties
within the Governing Board.
Furthermore, the arrival of the SSM requires a different set-up of DNB's supervision structure, to
improve the alignment with that of the ECB in the context of European banking supervision. In order to
achieve such improved alignment, DNB intends to rearrange and expand the existing five supervision
divisions into seven divisions. This intention was prompted by the set-up of supervision envisioned by
the ECB. To the extent possible, DNB wants its supervision to mirror that of the ECB, so that it may
fulfil its new role more effectively and efficiently. DNB will combine the new set-up of its supervisory
structure with a reduction of the span of control of its knowledge-intensive departments, to bring them
more into line with what is accepted practice in comparable organisations. The reorganisation will take
place on a cost-neutral basis.
Governance
The net reduction in size of the governing board and the new portfolio division have my wholehearted
support. I have also looked in this light at the position of the Prudential Supervision Council and its
Chairman. The Council is chaired by the Chairman for Prudential Supervision. Its function is to prepare
deliberations and decision-making on subjects in the line of DNB's duty to exercise supervision over
financial undertakings. The Prudential Supervision Council is composed of the Executive Directors of
Supervision and the Directors of supervision divisions.
I have decided to leave the position of the Chairman for Prudential Supervision and the Prudential
Supervision Council unchanged. This Council and its Chairman form an integral part of the
reinforcement of DNB's governance framework implemented in 2012. At the time, with a view to
providing a more visible delineation of the several responsibilities within the Governing Board of DNB,
one of the Executive Directors of Supervision was assigned primary responsibility for supervision
policy (the Chairman for Prudential Supervision). This move created a visible primary point of contact
for topics relating to DNB's supervisory duties and secured the independence of the President more
firmly by relieving him from primary accountability for matters relating to DNB's duties as prudential
supervisor.4
In its report to Parliament, the Evaluation Committee on the Nationalisation of SNS REAAL
recommended the restoration of the responsibility structure within the Governing Board of DNB where
the President bears final responsibility and is the primary accountable executive for both
macroprudential and microprudential supervision.5
I endorse the importance of securing the substantive coherence between the duties of DNB as a central
bank, relating to monetary policy and the payment system, and as a supervisor, relating to prudential
supervision. In the current model, that coherence is secured by the joint final responsibility of the
Governing Board, under the chairmanship of the President, for the supervision of the financial sector. In
addition, DNB's Articles of Association provide that supervisory matters that have a material impact on
4
5
Parliamentary Papers 2010/11, 32 782, nr. 3.
Parliamentary Papers 2013/14, 33 532, nr. 34.
financial stability, that are of importance for DNB's other duties or lay a direct claim on DNB's capital
must in any event be discussed in the plenary meeting of the Governing Board.
In order to further reinforce the responsibility structure and to take the above considerations on board,
DNB is preparing an amendment of its Articles of Association and its Rules of Procedure. The Rules of
Procedure currently provide that joint decision-making by Executive Directors of Supervision takes
place on a consensual basis, and that in the exceptional case where consensus cannot be reached, the
Chairman for Prudential Supervision, having consulted the Governing Board, casts the decisive vote.
The Rules of Procedure will be amended to provide that in such exceptional cases, decision-making will
fall to the Governing Board.
§2. Embedment of the resolution function
BRRD and SRM
Apart from the advent of the SSM, that of the BRRD and the SRM will also impact the organisation of
DNB. The BRRD requires that a national resolution authority be designated.
In the BRRD the resolution authority is defined as distinct from the supervisory authority and is given
several important duties, including:
• assessing the resolvability of an institution;
• imposing enforcement measures on an institution in the interest of its
resolvability;
• establishing whether an institution meets the resolution requirements, which includes deciding
whether the institution is 'failing or likely to fail';
• deciding on the employment of resolution tools, including that of the bail-in tool; and
• establishing the minimum required eligible assets (referred to as MREL) which
an institution must hold at all times.
Designation of DNB as resolution authority
The BRRD dictates close cooperation and exchange of information between the resolution authority and
the prudential supervisor. At the same time, the resolution authority must be highly independent and the
resolution duties must be segregated from supervisory duties, at least operationally and as regards
staffing.6 I have decided, with safeguards provided regarding the resolution authority's independence
and final authority, to embed the resolution duties within DNB. This decision is based on the following
considerations: availability of DNB's existing expertise;
• possibility of close and effective coordination and information exchange between
the supervisory function and the resolution function;
• the proposed variant is most cost-efficient because it permits the best possible use of DNB's existing
infrastructure/staff/support.
An important premiss is the prior removal of potential conflicts of interest between the resolution
function and the supervisory function. I will therefore take a number of measures so as to guarantee
independent decision-making on the execution of the resolution duties within DNB.
Independent decision-making
I propose to provide in the Bank Act 1998 that the new resolution duty is allocated to one of the
members of the Governing Board of DNB. Also, it will be provided that several specific other duties of
6
Section 3 of the BRRD requires that adequate structural arrangements are made to ensure operational independence and avoid
conflicts of interest between the functions of supervision or the other functions of the relevant authority and the functions of
resolution authorities pursuant to this Directive, without prejudice to the exchange of information and cooperation obligations.
In particular, Member States shall ensure that, within the competent authorities, national central banks, competent ministries or
other authorities there is operational independence between the resolution function and the supervisory or other functions of the
relevant authority.
DNB must not be combined with the resolution duty, with a view to possible conflicting interests. Thus
it will be made impossible for the Executive Director for resolution to be also the first responsible for
banking supervision, financial stability or DNB's monetary duties. The new portfolio division as
outlined in the letter from the SB satisfies these conditions.
Furthermore, I will provide a tight mandate for the Executive Director whose portfolio includes the
resolution duty in the Bank Act 1998. The point of departure for this mandate will be the least cost
principle. In other words, the execution of the resolution duty should, in principle, be achieved without
recourse to public finances. However, where recourse to public funds cannot be avoided, such funds can
only be furnished if they are necessary to fulfil the resolution objectives stated in the BRRD.7 In
addition, the resolution authority will be obliged to notify me whenever is has recourse to public funds
and that any such use of public funds will require my approval.
Also, I will provide in the Bank Act 1998 guarantees for the independent positioning of the resolution
function by legislating a special voting proportion in the Governing Board. Under this provision the vote
of the Executive Director for resolution will, in a majority of issues relating to the resolution duty, have
a weight equal to that of all other Governing Board members' votes combined. In the exceptional case of
a tied vote, the Executive Director for resolution will have overriding power and cast the deciding vote.
In a number of specific cases, however, the overriding power of the Executive Director
for resolution and the special voting proportion will not apply. These cases concern
seven decisions during the 'planning phase'.8 Concerning these decisions, which relate to
a principally healthy undertaking operating under a normal regime, I regard it as
important that the other, in particular the supervisory, disciplines within DNB should be
able to make a full contribution.
I will, however, subject two 'planning phase' decisions to the overriding power of the Executive Director
for resolution.9 This is because these decisions impact directly on the possibility to use the bail-in tool.
Regarding such decisions I am of the opinion that the resolution duty is of prevailing importance.
Notwithstanding the special voting proportion, decisions will still be formally taken by the Governing
Board of DNB as a collective body and subject to its joint responsibility. For completeness' sake, I note
that as a matter of principle, decision-making in the Governing Board of DNB takes place in collegial
harmony, and by consensus wherever possible. The overriding power of the Executive Director for
resolution will apply only in exceptional cases where consensus cannot be reached and where DNB's
resolution duty should prevail. The above arrangement guarantees that the knowledge and expertise
present within DNB are given due credit without prejudice against the independent positioning of the
resolution function as required under the BRRD.
Costs involved in the resolution duty
Fulfilment of the resolution duty is a new duty for DNB that will involve additional costs.
Thanks to synergy benefits, among other things, these costs come out lower than the costs
involved in creating a new resolution authority. On a structural basis, the budget of DNB will
increase by approximately €3.9 million. The necessary expansion of DNB's capacity is
estimated at 15 FTE, compared to 20 FTE for a newly created resolution authority. Further
7
Resolution objectives (Article 31 of the BRRD): i) to ensure the continuity of critical functions;
ii) to avoid significant adverse effects on financial stability, in particular by preventing contagion, including to market
infrastructures, and by maintaining market discipline;
iii) to protect public funds by minimising reliance on extraordinary public financial support; iv) to protect depositors and
investors; and v) to protect client funds and client assets.
8 The relevant articles of the BRRD are: Article 4 (possibility to impose simplified obligations on 'smaller' institutions); Article
10 (adoption a resolution plan); Article 12 (adoption of a group resolution plan); Article 15 (adoption of an assessment
regarding resolvability); Article 16 (adoption of an assessment regarding resolvability – group level); Article 17 (power to
address or remove impediments to resolvability); and Article 18 (power to address or remove impediments to resolvability –
group level).
9 Specifically they are decisions based on BRRD Articles 45 (determination of the minimum amount of bail-in capital an
undertaking must hold) and 54 (removal of procedural obstacles to bail-in).
savings are effected because the new authority may use the existing infrastructure and
premises of DNB. If and when the resolution of an undertaking becomes inevitable, DNB will
initially attempt to make the required additional staffing available from inside its own
organisation. If the available capacity within DNB proves insufficient and outsourcing is
required, I will be informed accordingly.
I intend to legislate for the costs of the resolution duty to be charged to the sector.
Supervisory Board
The SB of DNB currently oversees the general course of events within DNB and the policy pursued by
the Governing Board regarding the fulfilment of the several duties conferred on DNB pursuant to
Section 4(1) of the Bank Act 1998.10 The designation of DNB as resolution authority will constitute an
extension of these duties. By consequence, the SB will also oversee the policy of the Governing Board
regarding the resolution duty and that of the Executive Director for resolution regarding the fulfilment of
that duty.
As I announced in the Cabinet's reaction to the report of the Evaluation Committee on the nationalisation
of SNS REAAL, I have engaged DNB in a dialogue in order to explore ways to empower the SB, given
its supervisory function, to access confidential supervisory information regarding current individual
supervisory dossiers, to the extent that such individual dossiers are relevant to the stability of the
financial system.11 I have arrived at the conclusion that there are no legal impediments against the SB's
taking cognizance of confidential supervisory information regarding current individual supervisory
dossiers. The Governing Board of DNB is of the same opinion. The SB, in view of its supervisory
position, may take cognizance of confidential supervisory information regarding current individual
supervisory dossiers.
Liability of DNB for its actions as resolution authority
The BRRD offers Member States the possibility to limit the liability of the resolution authority, the
supervisor and their respective staff members for acts or omissions in the performance of their duties
under the BRRD. The Financial Supervision Act (Wft) already provides that DNB, the members of its
Governing Board, its SB and its staff are not liable for damage caused by an act or omission in the
performance of a duty imposed or exercise of a power conferred by law, unless such damage is caused to
a major extent by wilfully improper performance of duty or wilfully improper exercise of powers, or is
to a major extent attributable to gross negligence.
The designation of DNB as resolution authority will entail an extension of the duties imposed on DNB
under the Bank Act 1998 and the Wft. As a consequence, DNB, its Governing Board and SB and its staff
may also not be held liable for damage caused in the exercise of that duty, with the exception of damage
caused by intention or gross negligence.
Concluding remarks
As a result of the modifications announced in this letter, the organisation of DNB will be more and better
prepared for the changes owing to the introduction in the Netherlands of the several elements of the
European banking union. In order to implement the modifications, the Cabinet intends to propose
several bills to your Chamber in the coming period. The SSM, the BRRD and the SRM all require
adjustment of national legislation. Currently, two bills are being prepared.
In the first place, I am preparing a bill relating to the SSM. The SSM is provided for in a European
Regulation that has force of law in the Netherlands; the exercise of prudential banking supervision by
the ECB under the SSM does not require new Dutch legislation. However, the Financial Supervision Act
will have to be amended to bring it into line with the new division of powers under the SSM. I will
submit the relevant bill to your Chamber after the summer.
10
11
At all times, due regard will be taken to the provisions of the Treaty and the Statute of the European System of Central Banks.
Parliamentary Papers II, 2013/14, 33 532, nr. 34, p. 6.
For the transposition of the BRRD and the SRM Regulation, I am currently preparing a bill proposing to
amend the Financial Supervision Act, the Bank Act 1998 and several other Acts. It will provide for the
duties and powers of the resolution authority, including the application of the bail-in tool. I expect to
submit this bill to your Chamber in the autumn.
Yours faithfully,
The Minister of Finance,
J.R.V.A. Dijsselbloem