Europe: Progress in bank resolution and banking union

Transcription

1 Europe: Progress in bank resolution and banking union Shaping the New Framework for Global Financial Regulation LACEA & LAMES 2013 Annual Meetings Mexico City, 31 October 2013 Santiago Fernández de Lis

2 Index Section 1 Overall European regulatory initiatives Section 2 Banking resolution Section 3 Banking union Page 2

3 Section 1 Overall European regulatory initiatives ESRB Capital/ Leverage CRD IV Macroprudential Liquidity OTC derivatives EMIR MiFID II/ MiFIR Financial markets Systemic Risk CRAs regulation ESAs: EBA EIOPA ESMA Supervision SSM Bank Resolution Structural reforms Liikanen report Banking Union SRM DGSD BRRD Page 3

4 Section 1 CRD IV: Transposition of Basel III Capital requirements & capital buffers In line with Basel III: 4,5% CET1 + 2,5% conservation buffer Countercyclical buffer: up to 2,5% (under national authorities responsability) Systemic risk ( flexibility package ) Members States have discretionary powers in its implementation: Systemic risk buffer (financial sector): 1 3% SIFI Buffer (insititutions): G-SIFI (1-3,5%); Other-SIFI (0-2%) Leverage Minimum ratio of 3% (compliance since 01/2019, a year later than in US) Liquidity Pending LCR definition Reach 100% in 2018 (BIS: 2019). MS could request earlier implementation! Remunerations From 2015 bonuses capped to fix salary (1:1) May be doubled (with shareholders approval) Implementation date: 01/01/2014 Page 4

5 Index Section 1 Overall European regulatory initiatives Section 2 Banking resolution Section 3 Banking union Page 5

6 Section 2 Resolution: main elements Objetive Avoiding that bank resolution has a cost for taxpayers Based on FSB Key Attributes In Europe fixing bank resolution is not only about Too Big To Fail Tools Sale of business Asset separation Bridge institution Bail-in Main aspects under discussion (Trialogue) Bail-in Competition policies (State aid) Harmonized hierarchy of creditors Minimum internal loss-absorption State aid temporary rules Government stabilization tools No Creditor Worse Off liquidation principle Discretionary exclusion of certain liabilities Resolution fund Resolution fund/deposit guarantee schemes: joint or separate Target level of 0.8 % of covered deposits if separated (if joint 1.3%) Access to alternative financing arrangements (i.e. ESM) Page 6

7 Depositor preference Section 2 Resolution: creditor hierarchy and constrained discretion HIERARCHY LOSS ABSORPTION 8% of internal loss absorption Use of Resolution Fund (RF) Financing of RF Alternative financing sources 8% of total liabilities to be absorbed by shareholders & creditors before RF can be used After 8%: RF could be used to absorb losses or recapitalize the bank. This contribution is capped at 5% total liabilities. Ex-ante contributions of banks Ex-post contributions of banks If the two previous options are insufficient, alternative financing sources ( private or public) Under extraordinary circumstances, only after 5% of RF has been reached and all unsecured and non-preferred liabilities other than eligible deposits have been bailed in DGS (covered deposits) Households & SME Eligible deposits (> EUR 100,000) Senior Debt & Corporate deposits >EUR 100,000 Subordinated debt AT1 and AT2 CET1 More bail-in or eventually alternative financing sources (private, public/esm) Resolution Fund 5% liabilities Internal absorption 8 % liabilities (hierarchy order) RF could absorb losses Page 7

8 Index Section 1 Overall European regulatory initiatives Section 2 Banking resolution Section 3 Banking union Page 8

9 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Section 3 Eurozone needs a banking union To stop fragmentation and separate sovereign and banking risk European Banks: Average exposures to banks located in other EU members USD (dollars). Source: BIS Use of cross-border collateral in Eurosystem monetary policy operations (% total) Source: ECB 80% % % % 50% 40% % 30% 20% 10% 0% Core to core Core to periphery Distressed countries Non-distressed countries Re-nationalization of the financial system fuelled by (i) market-driven segmentation, (ii) rating agencies and (iii) regulation (mostly moral suasion)

10 Section 3 The banking union project Single Rulebook Capital Requirements Directive (CRD IV) Single Supervision Single Supervisory Mechanism: 1. European Central Bank 2. National supervisory authorities First of all, a comprehensive asset review (AQR) Single Resolution Single Resolution Mechanism: 1. Single Resolution Authority 2. Single Resolution Fund Single Deposit Guarantee Scheme Not in the roadmap yet Possibly requires a reform of the Treaty? Under implementation Under implementation Under negotiation To be negotiated Page 10

11 Section 3 Single Supervision On 12/09 the European Parliament approved the Single Supervision Mechanism legislative package and is expected to be fully operational in November 2014 Why? Restore confidence in the euro currency by stopping financial market fragmentation How? Two tier system: Mandate: Eurozone-wide financial stability Authority: ECB legally responsible for all banks in the eurozone ECB direct supervision (130 significant banks) Indirect supervision through national supervisors (the rest: 6,000 entities) Scope: Eurozone + open for no euro countries willing to join Governance: Separate Board inside the ECB Why the ECB? Prestige, independence, know-how + legally suitable Risk: Necessary separation between supervision and monetary policy Prerequisite? Deal with legacy issues Asset Quality Review (during 2014) Page 11

12 Section 3 Single Supervision: ECB Vs NSAs ECB National Supervisory Authorities Banking license Assess acquisitions and disposals of holdings in banks Ensure compliance with prudential ratios Set higher prudential requirements under Union law Set additional capital buffers (countercyclical buffer or other macroprudential tools) On-site investigation Ensure robustness of banks governance agreements Individual supervisory stress tests Early intervention powers Coordinate & defend common position of EU17 before EBA Participate in Supervisory Colleges and Crisis Management Groups Receive requests for provision of banking services Supervision of payment systems Assist ECB and day to day verification linked to supervision Consumer protection Fight against money laundering and terrorist financing Supervise 3rd country branches Page 12

13 Section 3 Banking union: Final remarks 1. The EZ needs a fully fledged banking union (SRM as a counterparty for the SSM) 2. Dealing with legacy problems is key: comprehensive assessment including (i) Supervisory Risk Assessment; (ii) Asset Quality Review and (iii) Stress Test. 3. Backstops: private, public (national), public with ESM support (but no direct recapitalization before SSM) 4. Bail in will contribute to separate the sovereign and banking risk 5. Negotiations on SRM are at stalemate. Fiscal union by backdoor? Reform of the Treaty? Uncertainty on the German stance 6. Keep making progress. Both authorities and the industry have to work on the design of the transition Page 13

14 Thanks!