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Design of the bail in tool- balance between harmonisation and flexibility (Article 38)
The EBF would like to reinforce its full support for a common approach to bail-in which is wholly harmonised and consistent across the Single Market. Any significant flexibility for Resolution Authorities to exclude eligible liabilities will drastically distort clarity and predictability in resolution situations, especially on a cross-border basis. It will be impossible for investors to estimate ex-ante what the impact of bail-in will be, which will force them to factor for the worst case scenario. This will further increase bank funding costs, which are already expected to substantially rise due to the overall financial reform package.
Financing (Articles 92 and 93)
The EBF is very concerned over the recent arbitrary increase of the resolution fund to 0.8 per cent of covered deposits. EBF Members are of the strong conviction that the target level of the fund should be set taking into account the strengthened prudential framework, the crisis prevention role of RRPs and accompanying far-reaching powers of supervisory authorities, the early intervention regime and broad loss absorbing capacity of bail-in. Together all these measures will reduce the probability of a bank failing and the loss absorbency available if one does. In EBF's view the purpose of the resolution fund should only be to cover frictional or administrative costs encountered during the resolution process. The target for the fund should also be set following an evaluation of the potential economic impact that may arise from further diverting needed financing from the wider economy into a resolution fund.
Instead shareholders and creditors of an institution should absorb losses, in order to provide the resolved bank with sufficient capital in parallel with liquidity provision by central banks to the resolved entity on a fully secured basis. Also, more emphasis should be given to ex-post financing, payment commitments which are fully backed by collateral of low risk assets unencumbered by any third party rights and alternative financing arrangements. A thorough economic impact assessment and affordability study should be conducted to assess the most appropriate size of the fund.
Minimum requirements for own funds and eligible liabilities (Article 39)
EBF continues to believe that MREL should be set as part of the resolution planning process on a bank by bank basis (its level depending crucially on business models and the resolvability assessment). This ensures it is tailored to the circumstances and risks faced by individual businesses and respect the diversity of business and funding structures across the EU. In other words, EBF disagrees that it is either necessary or appropriate to set a minimum ‘one size fits all’ requirement in the Directive, which given eligibility requirements requires onerous access to unsecured wholesale funding markets and is particularly severe on banks with higher lending but lower risk, while EBF supports the introduction of common methodologies to set it.
Another concern in this regard relates to the MREL requirements for the subsidiary level. Although it is the understanding of the EBF that all intragroup loans can be used to meet the bail-in requirements, EBF has very serious concerns about the impact of the requirements on the risk of trapped liquidity. There is no guarantee that intragroup loans are allowed by local authorities to be up streamed to the consolidated level. This should be addressed and dealt with in the Directive.