10 February 2020

Financial Times: EU regulator call for clearer rules on rescuing banks

Europe needs clearer rules on how to deal with failing lenders to prevent the “perceived inequality” triggered by cases such as the €3.6bn rescue of Germany’s Nord LB, according to the head of the EU agency created to wind down banks.

The Single Resolution Board, headed by Elke König, was formed five years ago in the wake of the eurozone financial crisis to tackle a patchwork of national rules for bank bailouts and give investors more confidence. Regulators wanted to ensure consistent treatment of banks and creditors across the eurozone while allowing banks to be wound down with minimum risks to financial stability.

However the December rescue of NordLB is the latest in a stream of cases that have been handled outside the remit of the SRB, raising questions over whether the resolution framework is fit for purpose.

Only one bank — Spain’s Banco Popular — has been fully dealt with by the board.

Ms König acknowledged there was a “perceived inequality of treatment”. She said she would like more clarity about when national regulators could use national deposit-guarantee schemes to step in to rescue banks, as has happened with lenders in Italy as well as NordLB.

Such rules would set out a hierarchy of when using deposit schemes was the lowest-cost action and preferable to allowing banks to be wound down under the SRB’s regime.

That would remove the need for national judgment and eliminate questions on whether state aid decisions, which are overseen by the EU’s competition directorate, are aligned with the SRB’s treatment of failing banks.

NordLB’s rescue, led by the German state of Lower Saxony, was approved by the EU’s competition authority, which said it did not constitute state aid. The extra support meant the German bank was not classed as “failing” and therefore did not fall within the SRB’s remit.

Ms König said the EU also needed to get its capital markets union “really moving forward”. This would ensure that banks would be able to issue the debt that is supposed to become part of their resolution plans.

Full article on Financial Times (subscription required)

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