11 October 2017

Commission calls for the completion of all parts of the Banking Union by 2018

The Banking Union must be completed if it is to deliver its full potential in making the Economic and Monetary Union (EMU) more stable and resilient to shocks, while limiting the need for public risk sharing. This is beneficial for the entire Single Market. Building on the significant progress already achieved, the Commission is publishing a Communication that sets out an ambitious yet realistic path to ensure agreement on all the outstanding elements of the Banking Union, based on existing commitments by the Council. This comes ahead of the December Euro Summit, in an inclusive format, where completion of the Banking Union will be part of discussions on further deepening the EMU. Together with the Capital Markets Union (CMU), a complete Banking Union will promote a stable and integrated financial system in the EU.

In his State of the Union address, President Juncker reiterated that the Banking Union can only function if risk reduction and risk sharing go hand in hand. The Commission has already proposed measures to further reduce risk and improve risk management in banks. Last November, the Commission already presented a comprehensive risk-reduction package with changes to the banking legislation. The Commission now urges the European Parliament and the Member States to progress quickly. While recognising the current trend of declining levels of non-performing loans (NPLs), the Commission is suggesting new measures to reduce non-performing loans and to help banks diversify their investments in sovereign bonds. On the risk-sharing side, the Commission is setting out some suggestions to facilitate progress in the European Parliament and the Council on steps towards a European Deposit Insurance Scheme (EDIS), guaranteeing citizens' deposits in the Banking Union at a central level, a vital missing element of the Banking Union. The Communication also maps out rapid steps towards a last resort common fiscal backstop, committed to by Member States already in 2013, ensuring the solidity of the system and making sure that the Single Resolution Fund (SRF) has sufficient resources even in case of several simultaneous major bank resolutions.

Key features of the Communication

• Quick agreement on the Banking Package - The Commission is calling on the European Parliament and the Member States to adopt as quickly as possible its proposals to reduce risks and strengthen the resilience of EU banks. The Commission presented this comprehensive package of reforms in November 2016. The proposals incorporate the remaining elements of the rules agreed within the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB). They aim to complete the post-crisis regulatory agenda by making sure the rules address remaining challenges to financial stability. At the same time, the reform will enable banks to continue to fund the real economy.
• Progress on the European Deposit Insurance Scheme - All depositors within the Banking Union should enjoy the same level of protection, independent of their geographical location. To facilitate the creation of a single European Deposit Insurance Scheme (EDIS) and encourage progress in the ongoing negotiations, the Commission is now suggesting some possible steps with regard to the phases and the timeline of EDIS.
• A fiscal backstop to the Banking Union - When the Single Resolution Mechanism (SRM) was set up, Member States agreed on the importance of a common backstop for the Single Resolution Fund (SRF) to protect financial stability. This is to ensure that, if needed, after private investors have borne losses via bail-in, if needed the fund has sufficient resources to deal with a major bank resolution, or several bank resolutions occurring in rapid succession. Any costs will be recouped from the banking sector so that fiscal neutrality in the medium term is ensured.
• Reducing non-performing loans - The Commission is already working on a comprehensive package of measures to reduce the level of existing NPLs and prevent the build-up of NPLs in the future, as agreed in the Council of 11 July 2017. The package, which is due to be adopted in the spring 2018, will include:
  • a blueprint for national asset management companies;
  • legislative measures to further develop secondary markets for NPLs and enhance the ability of creditors to recover value from secured loans;
  • a report exploring the possibility of a legislative proposal introducing statutory prudential backstops against under-provisioning of new NPLs; and
  • a way forward to foster the transparency on NPLs in Europe.
• Possible measures for Sovereign Bond-Backed Securities - In order to find pragmatic solutions to reduce the bank-sovereign loop, the Commission recalls the ongoing work of the European Systemic Risk Board on sovereign bond-backed securities (SBBS). The Commission will consider the outcome of this work with a view to putting forward in 2018 a proposal to enable the development of SBBS. SBBS could help banks diversify their holdings of sovereign bonds. They could also be a new source of high-quality collateral for use in cross-border financial transactions.
• Continuing to ensure high quality supervision - As mentioned in the Capital Markets Union Mid-term Review, the Commission will also propose in December 2017 that large investment firms carrying out bank-like activities be considered credit institutions and be subject to bank supervision. In the Banking Union they would be supervised in the framework of the Single Supervisory Mechanism (SSM), including by the European Central Bank. This will ensure that prudential rules are applied consistently and that both large investment firms and credit institutions are subject to the same high level standards of supervision.

Press release

Full information

Read-out of the College meeting and press conference by Vice-President Valdis DOMBROVSKIS on the Commission's Communication on the Completion of the Banking Union

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