Greens/EFA reaction to the CMDI package 

Few weeks after the collapse of three US regional banks and the rushed take-over of Credit Suisse by UBS, the Commission published today its proposal to review the EU banks crisis management and deposit insurance framework. This was a long awaited review, as the loopholes of our resolution framework are already well-known. 15 years after the great financial crisis, when a bank fails public money is still on the hook. It is now time that we fix our broken promises: the cost of a failing bank should be fully borne by the failing bank’s creditors and shareholders and ultimately the banking industry, not the people.

A credible and predictable resolution framework is pivotal to depositors’ confidence and finance stability. The broadening of the scope of resolution through the definition of the public interest assessment is a step in the right direction, as it would improve the treatment of a failure of a medium-sized bank and attempts to address some of the existing  inconsistencies with the 2013 Banking communication.

Yet, the Commission’s proposal does not go far enough. Notable loopholes in the resolution framework remain. Enabling national DGS to fill the gap of the 8% of loss absorbing capacity requirement will create a moral hazard, as it might shield the failing bank’s shareholders and creditors from bearing losses. In spite of the proposed improvements, important shortcomings remain. Reversing the burden for the ‘failing or likely to fail’ (FOLTF) decision would provide better legal protection for competent and resolution authorities while  the resolvability assessment of institutions should be further enhanced. Overall, the resolution framework would benefit from additional transparency, similar to US practice, by making resolution plans publicly accessible and publishing after each resolution planning cycle identified substantive impediments to resolvability including the actions to address them.

The proposal as it stands falls short to complete the Banking Union. EDIS is of course the elephant in the room. The Commission itself admits that its reform would be more effective if an European safety net would be set up. The lack of EDIS makes the Commission’s proposal unstable. National deposit insurance funds are granted additional responsibilities in resolution and are tasked to fill the gap for small medium sized banks that do not have sufficient loss absorbing capacity. At the same time, those safety nets’ position in the creditor hierarchy is downgraded. Concretely, deposit insurance schemes face higher risks of being depleted.

We need to improve our European safety nets now. First, a backstop for the Single Resolution Fund should already be in place, as agreed by Member States. More importantly, it is now time we restart the negotiations on an European Deposit Insurance Scheme.