17 October 2013

Commissioner Almunia: Competition among financial markets operators

Almunia said that safeguarding competition in the financial sector remained a top priority. He clarified how the new State aid rules fitted in with the overall framework of the Banking Union, and how they would help with the transition.

Banking Union

Now we are at a turning point in terms of building up the Banking Union. A lot of progress has been made during the last months. In particular, the Bank Recovery and Resolution Directive – to be adopted soon – offers a set of instruments that can tackle potential banking crises at three stages: preventive, early intervention, and resolution. Hopefully, a Single Resolution Mechanism for the euro area will accompany next year the Single Supervisor finally endorsed this week by the ECOFIN.

One of the key tools at the disposal of the resolution authorities will be bail-in. Under the draft Directive, a bank under resolution can be recapitalised via the imposition of losses or the conversion into capital on shareholders and unsecured creditors, including junior and senior bondholders and some categories of depositors. This tool is a powerful private backstop. It would reduce the need for public backstops. Or, at least, it will help to reduce their size. More importantly, the introduction of bail-ins would help break the vicious circle between banks and sovereigns in which failing banks can undermine the financial stability of whole countries and ultimately erode their credibility vis-à-vis the markets.

To accompany the changes that will take us to the Banking Union, we have reformed the special State aid rules for banks in distress we have used over the past five years. I would like to clarify how the new State aid rules, in force since August first, fit in the overall framework of the Banking Union and will help to manage the transition. The new rules introduce three main changes:

• First, there will be no bail-out before a larger share of the burden will be borne by the banks. The burden-sharing requirements apply to all state aid granted to banks, not only in resolution scenarios. It can also help to ensure a smooth passage to the future bail-in regime under the BRRD, and it facilitates the transition towards the functioning of the Single Resolution Mechanism.
• Secondly, no State aid in the form of recapitalization or impaired-asset relief will be approved before the burden sharing takes place and the restructuring plan is approved by the Commission.
• The third main change that the new rules introduce is a cap on executive pay for all aided banks.

Full speech

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