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I am very pleased to be taking part in this event together with Anneli. Both the Single Supervisory Mechanism, or SSM, and the Single Resolution Mechanism, or SRM, work hand in glove when it comes to ensuring financial stability.
In particular at the SRB, we work on ensuring every bank has a proper end of life plan in place, so that if the worst should happen, and your bank should fail, then we can manage that failure and safeguard financial stability, at no cost to the taxpayer.
We have just heard Anneli give a very good insight into the supervisory side of the things in the Banking Union – certainly some food for thought and discussion in a few minutes time.
Now, I want to focus on the resolution side of the Banking Union;
Then we will have the possibility to open up the floor for further discussions as Mario mentioned.
[1. Achievements to date]
In less than a decade, we have made significant steps with the first pillar of the Banking Union. The SSM established high supervisory standards right across the Banking Union, and enhanced banks’ resilience.
We also have the second pillar, the SRM, which is composed of my own organisation - the SRB - and all of the resolution authorities at national level in the twenty one countries of the Banking Union. In Spain, the FROB and Banco de España are part of the SRM and I am pleased to see some of the Banco de España and FROB colleagues here this afternoon. The Single Resolution Mechanism has led to banks becoming not only more resolvable, but also more resilient. I think we have seen that in action over the past few months of market turmoil, at least so far.
The Single Resolution Mechanism was designed to deal with bank failures as efficiently as possible. The Sberbank and Banco Popular cases showed that, the SRB - in cooperation with other authorities - could devise a solution that successfully achieved all resolution objectives, including the protection of the taxpayer. That is exactly what happened here in Spain six years ago, when this country’s sixth largest bank was successfully resolved. There, three important things happened:
However, despite successes to date, there is still more to do – we must remain on our guard. That brings me to my second area of focus this afternoon.
[2. Challenges for resolution and a word on CMDI]
So what is needed in order to improve the European resolution framework that covers the twenty seven EU countries? What is missing to really make that framework work better?
Let me start firstly by eliminating two elements. I think we do not need to introduce a system for full coverage of deposits nor do we need a systemic risk exception. These are big topics of conversation over the Atlantic, but I am confident that we have the right balance on depositor protection, combined with all the other factors, to maintain stability.
In addition, the third thing we do not need, is any further calls for clarification of the stacking order in terms of what is bail-in-able. The stacking order is very clear as it is today in the EU, as recalled by our common press release issued by the SRB together with the ECB and the EBA, just after the Credit Suisse collapse. And we need to keep the AT1 instruments in this stacking order, as they provide for a useful funding for banks.
Instead of spending too much time on these, let’s look at the other important things that are actually required for the resolution framework to function better.
One of the things that will help our banking resolution in Europe is the European Commission’s Crisis Management and Deposit Insurance review.