|
|
The current review of the crisis management and deposit insurance (CMDI) framework aims to improve the way we resolve crisis situations. Implementing the CMDI proposal is an important move to further enhance the European crisis management framework, making it possible to deal more effectively with the failure of smaller and mid-sized banks. This is a welcome step in the right direction. The urgency of having a proper crisis management framework in place cannot be overstated, as we saw last year.
I would like to emphasise a few aspects of the proposed reform.
When a bank does not meet or is unlikely to meet its supervisory requirements, we are empowered to take supervisory and early intervention measures aimed at keeping it viable and preserving financial stability. The proposed legislative changes include important improvements to the existing supervisory early intervention framework. This will support us to swiftly adopt the necessary and most appropriate measure for any given situation.
One key aspect that should be a cornerstone when assessing the proposed reform, is the principle of optionality. From a supervisory perspective, we consider it crucial that all relevant stakeholders can deal effectively with banks in distressed conditions. Recognising that no bank crises is identical, the relevant authorities should be able to choose the most appropriate tool for the situation at hand from a range of options and be able to make effective use of it. This optionality should exist at each phase. Policymakers should have a proper toolkit before a bank is declared failing, and they should also have access to robust tools once a bank has been declared failing.
An important element of the toolkit, is precautionary recapitalisation. We are pleased to see that the European Commission’s proposal ensures that it remains available, subject to strict conditions. Though exceptional, precautionary recapitalisation is a useful part of the current crisis management framework, and its current conditionality appears appropriate. At the same time, the flexibility provided to relevant authorities to take the specific circumstances of each case into account should not be restricted.
Another notable development in the toolkit concerns the expanded role of deposit guarantee schemes (DGSs), traditionally seen as a safety net for depositors. The proposed changes call for DGS funds to be used for more than simply depositor payouts. For instance, instead of paying out covered depositors, DGS funds could contribute to facilitate transfers of assets and liabilities to an acquiring bank under what are known as “DGS alternative measures”. The “DGS preventive measures” represent another form of DGS tool. These could be used in the pre-resolution phase by helping banks to ensure or restore compliance with the prudential requirements while they are still going concerns. ...
more at SSM