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10 April 2010

EP draft report on cross-border crisis management in the banking sector


Rapporteur Elisa Ferreria (S&D/PT) favours a stability fund which is funded privately but managed publicly over a bank levy. Its pan European nature is the only way to overcome nationalistic behavior when a future crisis will hit, she argues.

Elisa Ferreira argues on her draft report argues that a robust, comprehensive approach is needed to create an effective preventive framework and safety net, safeguarding and reinforcing the internal market. The approach must have a multilayered nature combining in a coherent way:
 
·         an effective EU supervisory architecture with an European Systemic Risk Board and three sector authorities: Banking, Insurance and Occupational Pensions and Securities and Markets;
·         improved international regulations amongst other by revising capital requirements, redefining tier 1 and tier 2 capital, covering additional risks, introducing liquidity ratios, countercyclical buffers, leverage ratios, reforming accounting standards and rules on executive compensation, etc.;
·         an EU crisis management framework that can overcome the present limitations resulting from nationally based and often conflicting resolution and insolvency regimes.
 
 
Less than 50 banks (out of 12,000 in the EU) represent 70% of banking assets. The high risk they embody results from their size, complexity and interconnectedness with the rest of the system. Their problems send shock waves across sectors and countries.
 
While starting with the Systemic Banks may sound excessively ambitious, prioritizing them addresses the core of the issue and may serve as an embryonic platform to develop in the medium/long run a universal regime covering the whole banking system and eventually non-banking financial institutions.
 
Contingency/resolution mandatory plans, developed for each institution within the colleges of supervisors with input from the cross border stability groups, seem to be the ideal vehicle to developing consensus on diagnosis and solutions for cross border banks (systemic or not).
 
The choice for future crisis management of a Stability Fund (privately funded and publicly managed) instead of a bank levy is based on the belief that:
·         immediate availability of funds is a precondition for efficiency in intervention;
·         it is important to link in a transparent way industry contributions and the cost of cleaning its own pollution;
·         its pan European nature is the only way to overcome nationalistic behaviour when crisis hit.
 
Although the size of the fund requires further research, contributions must be risk based. The liquidity of the Fund must be managed conservatively while still being put to good use given the EU’s strategic agenda.
 
The proposed separation of the Stability Fund from the Deposit Guarantee Schemes emanates from the recognition of their different purposes and the fear that the comingling of funds could, in the worst case, jeopardize the payment to depositors.
 
 


© European Parliament

Documents associated with this article

Cross-border crisis manangement - en.pdf


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