14 June 2023

Parliament's IPOL: A revised public interest test for bank resolution, how much will it matter?

Initial thoughts based on Banking Union scrutiny work
There is a consensus among Parliament, Council and Commission that resolution should apply more often, including among smaller and medium-sized banks. To achieve this, the Commission has now proposed a number of changes to the criteria and process of the public interest assessment. This briefing reviews, against the background of the Single Resolution Board’s past practice, what impact the proposed changes might have. The proposed changes modify in particular the comparison between resolution and insolvency, while in the past, resolution was denied because it was not considered necessary. In practice, going forward, the public interest test may matter less if the SRB succeeds in making use of new possibilities to prevent and better prepare for resolution.
The European Commission has been preparing a reform of the bank crisis management and deposit insurance (CMDI) framework since November 2020. The proposal had been delayed relative to the original planning, which the European Parliament regretted in its 2022 Banking Union report. The Parliament, see also Box 1, hoped the proposal could help overcome hurdles to the completion of the Banking Union. The ECON Committee has commissioned contributions from its banking expert panel as to how a reform of the crisis management framework could support completion of the banking union. Please see Box 2 for an overview of these contributions.
Box 1 - European Parliament’s annual Banking Union report 2022
Extracts concerning CMDI reform and in particular the scope of application of the resolution framework:
42. Points out the need to address the loopholes identified in the crisis management framework; asks that the public interest assessment be further specified and harmonised in a way that ensures a consistent and predictable application of resolution strategies; calls for greater harmonisation of the treatment of small and medium-size banks (...);
43. Regrets that the Commission failed to propose the legislative initiative on the CMDI framework within the timeframe it committed itself to in the 2021 Commission Work Programme; takes note of the Commission’s proposal reviewing the CMDI framework; underlines the need for an ambitious and comprehensive review of the CMDI framework to make it more consistent, credible and effective; (...); considers that the CMDI review is a necessary step that may help to overcome hurdles to the establishment of an EDIS, in view of completing the BU; (...)...

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