WORKING PAPER SERIES No 2014/10 THE NEW EU DIRECTIVE (2014/49/EU) ON DEPOSIT GUARANTEE SCHEMES. by Professor Christos Vl. Gortsos

Transcription

1 WORKING PAPER SERIES No 2014/10 THE NEW EU DIRECTIVE (2014/49/EU) ON DEPOSIT GUARANTEE SCHEMES by Professor Christos Vl. Gortsos

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3 WORKING PAPER SERIES No 10 / THE NEW EU DIRECTIVE (2014/49/EU) ON DEPOSIT GUARANTEE SCHEMES Christos Vl. Gortsos Professor of International Economic Law, Panteion University of Athens, Visiting Professor, Europa-Institut, Universität des Saarlandes, Law Faculty, National and Kapodistrian University of Athens, and University of Piraeus This paper can be downloaded without charge from 3

4 , 2014 Address Panteion University of Social and Political Sciences Department of International and European Studies 136 Sygrou Ave. GR-17671, Athens Greece Internet Contact Coordinator, Design, Dr. Ziakou Sophia All rights reserved 4

5 The new EU Directive (2014/49/EU) on deposit guarantee schemes* Christos Vl. Gortsos Abstract This paper aims at a systematic and comprehensive presentation and analysis of the provisions of the new Directive of the European Parliament and of the Council of 16 April 2014 (2014/49/EU) on deposit guarantee schemes. The Directive is part of the new European banking law, which has been shaped since 2008 in order to effectively address: (i) problems that were identified during the recent ( ) international financial crisis, and (ii) the need for a further Europeanisation of the bank safety net, as a result of the current and ongoing euro area fiscal and debt crisis, with a view to establishing a European Banking Union. * It was prepared for the EFDI International Conference DGSs in a New Regulatory Environment held in Bucharest (22-24 September 2014), and is updated until the end of September Christos Gortsos is Professor of International Economic Law at Panteion University of Athens, and visiting Professor at the Law School of the National and Kaposistrian University of Athens, the University of Piraeus, and the European Institute of Saarland University. He is teaching and writing in international and European monetary and financial law, as well as economic analysis of law. Since 2005, he is a member of the Monetary Committee of the International Law Association (MoComILA), since 2010 member of the Management Committee of, since 2012 member of the European Group of Public Law (EGPL), and since 2013 member of the Academic Board of the Hellenic Foundation for European and Foreign Policy (ELIAMEP). Apart from his academic career, Professor Gortsos, member of the Athens Bar Association, is since July 2000 the Secretary General of the Hellenic Bank Association. 5

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7 TABLE OF CONTENTS Tables included in the text...9 List of Abbreviations..10 Introduction.13 A. The Directive in the context of the European Banking Union The political agenda Legislative actions the new institutional and regulatory framework The uncompleted agenda Final remarks: European banking law in the era of the European Banking Union 28 B. General aspects of the Directive Subject matter of the Directive Field of application of the Directive Timetable for implementation and transposition into national legislation - Reports of the Commission and the EBA by Introduction, official recognition and internal functioning of DGSs..51 C. Credit institutions as members of DGSs and related issues Terms and conditions of credit institutions membership in DGSs cooperation requirements Depositor information.68 D. Arrangements for the financing of DGSs General overview DGSs funds: the available financial means Sources of DGSs financing

8 E. Repayment of covered deposits Extent of coverage Protection of covered deposits in the case of a credit institution s resolution: the provisions of the BRRD Determination of the repayable amount Repayment procedure ( payout ) Claims and related issues 119 F. Concluding remarks Elements of continuity Elements of change new elements Final considerations 125 Primary sources..127 A. International Law 127 B. EU Law Treaties Regulations Directives of the European Parliament and of the Council Legal acts of the ECB Other (in chronological order) Secondary sources.133 Appendix Tables Directive 2014/49/EU.149 8

9 Tables included in the text Table 1 p. 31 The key legal sources of the three main pillars of the European Banking Union Table 2 p. 32 Addressees of and date by which the main provisions of the key legal sources pertaining to the European Banking Union are applicable Table 3 p. 33 Legal acts of the ECB on the Single Supervisory Mechanism Table 4 p European Banking Law before and after the European Banking Union: Elements of continuity and change Table 5 p. 47 Articles of Directive 2014/49/EU applicable from 4 July 2015 without transposition Table 6 p. 48 Annex II - Part B of Directive 2014/49/EU Deadlines for transposition (referred to in Article 21) Table 7 p Credit institutions excluded from the field of application of the CRD IV Table 8 p ANNEX I of Directive 2014/49/EU: Depositor information template Table 9 p. 96 Definition of deposits Table 10 p Non-eligible deposits Table 11 p. 120 Ranking of liabilities in insolvency hierarchy under Article 108 of the BBRD Table 12 p. 137 Definition of the various categories of authorities mentioned in Directive 2014/49/EU Table 13 p. 138 Competences of the Commission Table 14 p. 139 Competences of the EBA Table 15 p Annex III of Directive 2014/49/EU: Correlation Table Table 16 p Other EU legal acts referred to in Directive 2014/49/EU (with the exception of Regulation 1093/2010 on EBA) Table 17 p Compliance of EU legislation with the BCBS-IADI (2009) Core Principles 9

10 List of Abbreviations BCBS Basel Committee on Banking Supervision BRRD Bank Recovery and Resolution Directive (2014/59/EU) CEBS Committee of European Banking Supervisors CESR Committee of European Securities Regulators CEIOPS Committee of European Insurance and Occupational Pensions Supervisors CRD I Capital Requirements Directive no. I (2006/48/EU and 2006/49/EC) CRD II Capital Requirements Directive no. II (2009/111/EC) CRD III Capital Requirements Directive no. III (2010/76/EU) CRD IV Capital Requirements Directive no. IV (2013/36/EU) CRR Capital Requirements Regulation (575/2013) DGS deposit guarantee scheme DRI Direct Recapitalisation Instrument EBA European Banking Authority EBU European Banking Union ECAI External Credit Assessment Institution ECB European Central Bank ECOFIN Economic and Financial Affairs Council EEA European Economic Area EFDI European Forum of Deposit Insurers EFTA European Free Trade Association ESFS European System of Financial Supervision EFTA European Free Trade Association EIOPA European Insurance and Occupational Pensions Authority ELA Emergency Liquidity Assistance EMU Economic and Monetary Union ESA EFTA Surveillance Authority ESAs European Supervisory Authorities ESM European Stability Mechanism ESMA European Securities and Markets Authority 10

11 ESRB EU FDIC FSB IADI MIFID I MIFID II MSMEs OJ SRF SRM SSM TEU TFEU European Systemic Risk Board European Union Federal Deposit Insurance Corporation Financial Stability Board International Association of Deposit Insurers Markets in Financial Instruments Directive no. I (2004/39/EC) Markets in Financial Instruments Directive no. II (2014/65/EU) micro, small and medium-sized enterprises Official Journal of the European Union Single Resolution Fund Single Resolution Mechanism Single Supervisory Mechanism Treaty on European Union Treaty on the Functioning of the European Union 11

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13 Introduction This study was prepared for the EFDI International Conference DGSs in a New Regulatory Environment held in Bucharest (22-24 September 2014), and is updated until the end of September It aims at a systematic and comprehensive presentation and analysis of the provisions of the new Directive of the European Parliament and of the Council of 16 April 2014 (2014/49/EU) on deposit guarantee schemes. The Directive is part of the new European banking law, which has been shaped since 2008 in order to effectively address: problems that were identified during the recent ( ) international financial crisis, and the need for a further Europeanisation of the bank safety net, as a result of the current and ongoing euro area fiscal and debt crisis, with a view to establishing a European Banking Union. The Paper is structured in five (5) Sections: (1) Section A views the position of the Directive within the context of the legal framework of the European Banking Union and, more generally, of the legal acts constituting the sources of European Banking Law. (2) Section B analyses the general aspects of the Directive. It is divided in four (4) sub-sections, which deal with: its subject matter, its scope of application, the timetable for its implementation and transposition into the Member States national legislations, and the rules concerning the introduction, official recognition and internal functioning of national (and cross-border) deposit guarantee schemes. (3) Section C, structured in two (2) sub-sections, focuses on the Directive s provisions regarding the position of credit institutions as members of DGSs, and in particular: the terms and conditions of credit institutions membership in DGSs, as well as the cooperation requirements for DGSs, and the main rules on depositor information by credit institutions. (4) Section D examines the arrangements for the financing of DGSs, with a detailed presentation, in two (2) sub-sections, of the provisions pertaining to: the DGSs funds, called available financial means and the different uses of these means, and the sources of DGSs financing and the rules on the calculation of credit institutions contributions to DGSs. 13

14 (5) Section E details the rules on the repayment of covered deposits. This Section examines in five (5) sub-sections: the extent of deposit coverage (eligible and non-eligible deposits, coverage level), the provisions of the Bank Recovery and Resolution Directive on the protection of covered deposits in the case of a credit institution s resolution, the determination of the repayable amount (with reference to joint accounts and the set-off of deposits with liabilities), the repayment procedure, and depositors and DGSs claims arising in the context of deposit guarantee. (6) Finally, Section F contains the concluding remarks, outlining the elements of continuity and change in relation to Directive 94/19/EC and including an assessment of the new provisions. The author wishes to thank Lecturer Dr. Christina Livada, Georgia Karageorgi, Nikos Moussas, his doctoral students Nikos Maragopoulos and Dimitri Vololinis, Dr. Anna Vasila and Irini Parasyri for valuable comments and suggestions. Warm thanks also to PhD candidate Katerina Lagaria for the outstanding editing of the text. Agia Marina, September

15 Section A: The Directive in the context of the European Banking Union 1. The political agenda 1.1 The decisions of June 2012 The creation of a European Banking Union (hereinafter the EBU ) was a very ambitious political initiative, which was tabled at the Euro Area Summit of 29 June 2012, amidst the current fiscal crisis in the euro area, which became manifest in The main rationale behind this initiative is summarised in the following sentence of the Summit s Statement: We affirm that it is imperative to break the vicious circle between banks and sovereigns. 2 The European Summit which was held concurrently on June decided to invite the President of the European Council to develop, in close collaboration with the President of the European Commission (hereinafter the Commission ), the President of the Eurogroup and the President of the European Central Bank (hereinafter the ECB ), a specific and time-bound road map for the achievement of a genuine Economic and Monetary Union 3 (hereinafter the EMU ) in accordance with a relevant Report, 4 submitted a few days earlier (on 26 June) by the President of the European Council. One of the four (4) elements of this Report was the creation of the EBU The outline of the reform agenda (a) Under this political agenda, the creation of the EBU 6 should result in the establishment of a Europeanised bank safety net 7 consisting of: 1 For an evaluation of this crisis, see Eichengreen, Feldmann, Liebman, von Hagen and Wyplosz (2011), pp , and Stephanou (2012). 2 Euro Area Summit Statement, 29 June 2012, first paragraph, first sentence, available at: 3 European Council Conclusions, 28/29 June 2012, EUCO 76/12, paragraph 4(b), available at: 4 Van Rompuy Report (2012): Towards a Genuine Economic and Monetary Union, EUCO 120/12. The final relevant Report was submitted in December Ibid., Section II.1. The other three (3) elements are the establishment of: an intergrated budgetary framework ( European Fiscal Union ), an intergrated economic policy framework ( European Economic Union ), and a democratic legitimacy and accountability framework ( European Political Union ). 6 For arguments for or against establishing a European Banking Union, see indicatively Carmassi, Di Noia and Micossi (2012), Pisani-Ferry, Sapir, Véron and Wolff (2012), Constâncio (2012), Herring (2013), and Pisani-Ferry and Wolff (2012). 15

16 16 a Single Supervisory Mechanism exclusively for the banking sector (that is, not for the insurance and securities sectors, the other two sectors of the financial system) and mainly for credit institutions legally incorporated in euro area Member States, a Single Resolution Mechanism for unviable credit institutions (also mainly incorporated in euro area Member States), and a Single Resolution Fund to cover any resulting funding gaps, provided that a decision is made on the resolution of such credit institutions, a single deposit guarantee scheme, and a single rulebook ( einheitliches Regelwerk, recueil réglementaire unique ) containing substantive rules on all the previous aspects, aiming at a total harmonisation approach, as part of the single market for financial services, applicable across EU Member States. The term euro area Member States denotes Member States whose currency is the euro (Treaty on the Functioning of the European Union (hereinafter the TFEU ), Article 136). 8 On the other hand, the term single rulebook is commonly used, from a stricto sensu perspective, to refer to the total harmonisation of rules pertaining to the micro- and macro-prudential regulation and the micro-prudential supervision of credit institutions. In June 2009, the European Council called for the establishment of a European single rulebook applicable to all financial institutions in the Single Market, i.e. a single set of harmonised prudential rules. From a lato sensu perspective, however, the single rulebook should also refer to the total harmonisation of rules pertaining to the resolution of credit institutions and the operation of deposit guarantee schemes. In the author s opinion, the term total harmonisation denotes a combination of full (in terms of scope) and maximum (in terms of level) harmonisation. (b) The EBU initiative is broader than an initiative aimed at the mere establishment of a pan-european banking (or even financial) supervisory authority, which was also not in place. It should be recalled that the launch on 1 January 1999 of the EMU did not bring about any changes to the regime on the authorisation and micro-prudential supervision of credit institutions incorporated in euro area Member States. Contrary to the definition and implementation of the single monetary and foreign exchange policy, for which competences became supranational, the ECB has not shifted into a supervisory authority for the EU financial system or at least one of its sectors, but rather relevant competences have remained with Member States. 9 Competence for both the authorisation and micro-prudential supervision of EU credit institutions still lies exclusively (until 4 November 2014) with the authorities designated as 7 For an overview of the components of the bank safety net, aimed at contributing to the stability of the banking system, see Gortsos (2012), pp (with further references). 8 OJ C 83, , pp For a summary of the different proposals with regard to the creation of one or more supranational financial supervisory authorities in the EU, see Lastra (2006), pp , and Hadjiemmanuil (2006), pp

17 such by the Member States. This was provided explicitly in Article 105, para. 5 of the Treaty establishing the European Community 10 (carried over verbatim in Article 3.3 of the Statute of the European System of Central Banks (the ESCB ) and of the ECB, 11 and then also in Article 127, para. 5 TFEU), stipulating that: the ESCB shall contribute to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial systemˮ. 12 (b) At the political level, the prospect of establishing pan-european financial supervisory authorities was put forward, for the first time, in 2009 by the de Larosière Report, 13 in the wake of the recent ( ) international financial crisis. 14 It is, however, noteworthy that, even in this narrower field, the Report concluded that: the micro-prudential supervision of financial firms should remain a responsibility of national authorities, and in any case, it should not be assigned to the ECB. 15 On the contrary, the Report proposed the creation of a European System of Financial Supervisors. 16 Its by-product was, indeed, the creation of the European System of Financial Supervision (hereinafter the ESFS ), which entered into operation on 1 January 2011 and consists of two elements: OJ C C 325, , pp. 33 f. 11 Protocol No 4 TEU and TFEU (OJ C 83, , pp ). 12 These provisions were in force since the launch of Stage III of the EMU (Article 116, para. 3, second indent TEC, with a reference to the provisions of Article 105, para. 5). For a historical background of their content, see Smits (1997), p , Andenas, Gormley, Hadjiemmanuil and Harden (1997), pp , Lastra (2006), p , Louis (2009), p (with specific reference to the powers of the ESCB during the recent ( ) international financial crisis), and Lastra and Louis (2013), pp The High-Level Group on Financial Supervision in the EU, Chaired by Jacques de Larosière, Report, Brussels, 25 February This Report is available at: barroso/president/pdf/statement_ _en.pdf. 14 On this crisis, see indicatively Lastra and Wood (2010), and Gortsos (2012), pp , with extensive further references. 15 De Larosière Report (2009), paragraph 146. This Report (Chapter III, Section V Reviewing and possibly strengthening the European System of Financial Supervision ) also includes a proposal on the eventuality of moving towards a system which would rely only on two Authorities, mainly following a functional approach in relation to the institutional set-up of the financial system s micro-prudential supervision (currently in use in the Netherlands and, as of April 2013, in the United Kingdom). As regards this approach, as well as its alternatives, i.e. the sectoral approach and the full integration approach for supervisory authorities of the financial system, see Lastra (2006), pp , Group of Thirty (2008), Seelig and Novoa (2009), and Central Bank Governance Group (2011). 16 For an analysis of this Report, see Gortsos (2010). 17 On the EFSF, see Louis (2010), Gortsos (2011, with particular emphasis on the role of the European Banking Authority), and Wymeersch (2012). 17

18 (i) The first element comprises the three European Supervisory Authorities (the ESAs ), which were established by Regulations of the European Parliament and of the Council of 24 November 2010: the European Banking Authority (hereinafter the ΕΒA ) under Regulation (EU) No 1093/2010 establishing a European Supervisory Authority (European Banking Authority)(...), 18 the European Insurance and Occupational Pensions Authority ( EIOPA ) under Regulation (EU) No 1094/2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority)(...), 19 and the European Securities and Markets Authority ( ESMA ) under Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority)(...). 20 The three Authorities, which are mainly regulatory authorities with some especially designated supervisory powers, succeeded and replaced the three Lamfalussy Committees (CEBS, CESR and CEIOPS), 21 thus maintaining the sectoral approach with regard to European institutional arrangements concerning the financial system s micro-prudential supervision. 22 Nevertheless, financial supervision remained, in principle, national. EBA plays a very important role in the context of European legislation on deposit guarantee schemes. Accordingly, it will be examined in more detail below in Sections B-E of this study, as appropriate. (ii) In addition, the European Systemic Risk Board (the ESRB ) was established under Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board. 23 Accordingly, the macro-prudential oversight of the European financial system was the first and unique until 2014 component of the europeanised bank safety net (see below under 2). Each Member State also designated an authority entrusted with the conduct of macro-prudential policy in national legislation, as set out in Recommendation B, paragraph 1, of the Recommendation of the European Systemic Risk Board of 22 December 2011 on the macroprudential mandate of national authorities (ESRB/2011/3) OJ L 331, , pp OJ L 331, , pp OJ L 331, , pp On these Committees, see indicatively Lastra (2006), pp As regards the reasons that led to this approach being adopted (although there were proposals for the unification of Authorities), see Louis (2010), p. 154 (point 7.10). 23 OJ L 331, , pp In connection to the operation of the ESRB specific tasks have been conferred on the ECB under Council Regulation (EU) No 1096/2010 of 17 November 2010 conferring specific tasks upon the European Central Bank concerning the functioning of the European Systemic Risk Board (OJ L 331, , pp ). 24 OJ C 41, , pp. 1-4.

19 2. Legislative actions the new institutional and regulatory framework 2.1 Introductory remarks The most significant institutional and regulatory developments towards establishing the EBU took place in the course of 2013 and Taking into account the normal response time of European institutions, these legislative measures were taken, based on proposals by the Commission, in an exceptionally short timeframe (also bearing in mind the major importance of the areas of decision-making). With the exception of the creation of a single deposit guarantee scheme (which has been put on hold), all the other components of the EBU have been put in place. The Regulations and Directives, as well as the Intergovernmental Agreement mentioned below, have already entered into force. Certain of those legal acts are also in effect, while the provisions of others will become applicable gradually from November 2014 onwards until 1 January 2016 (see below Table 2) Authorisation, prudential supervision and prudential regulation of credit institutions The Single Supervisory Mechanism ( SSM ) (a) In the field of the establishment of a European supervisory authority for the banking sector, within fourteen (14) months from the submission of the European Commission s proposal, the Council adopted Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the (micro-) prudential supervision of credit institutions 26 (hereinafter the SSM Regulation ). 27 This Regulation establishes a Single Supervisory Mechanism (the SSM ) for credit institutions, which will become operative on 4 November The legal basis for this Council Regulation is paragraph 6 of Article 127 TFEU according to which: The Council, acting by means of regulations in accordance with a special legislative procedure, may unanimously, and after consulting the European Parliament and the European Central Bank, confer specific tasks upon the European Central Bank concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the exception of insurance undertakingsˮ For a general overview and a first assessment of the legal sources of the EBU, as of 2013, see Binder (2013), Ferran and Babis (2013), Lastra (2013), and Gortsos (2013). 26 OJ L 287, , pp In all the legal acts pertaining to the EBU, Council means the ECOFIN Council. 28 Regulation 1024/2013, Article 33, paragraph 2, first sub-paragraph. 29 This Article, which contains an enabling clause, was activated for the first time in 2010 as the legal basis for the above-mentioned Council Regulation (EU) No 1096/2010 conferring specific tasks upon the ECB concerning the functioning of the ESRB. For more details on its historical background, see Smits (1997), pp , Andenas, Gormley, Hadjiemmanuil and Harden (1997), pp , Louis (2009), pp , and Lastra and Louis (2013), pp

20 The adoption of the above-mentioned Regulation is a major leap towards the creation of the EBU, always in the context of specific political compromises. 30 The regulatory framework set out therein includes four (4) key components: (i) The conferral on the ECB of specific tasks, laid down exhaustively in Articles 4 and 5 of the Regulation, concerning, mainly, the micro-prudential supervision of systemically important credit institutions incorporated in euro area Member States under the provisions of paragraph 4 of Article 6 thereof. Member States with a derogation (i.e. whose currency is not the euro) may apply for participation of their credit institutions under the close cooperation procedure governed by Article 7. (ii) The establishment of the SSM, consisting of the ECB and the national supervisory authorities (not necessarily national central banks) of the participating Member States, in relation to the discharge of the specific tasks conferred on the ECB, and the imposition of rules on cooperation within the SSM according to Article 6 of the Regulation. (iii) The inclusion of the SSM within the ESFS, without, in principle, touching upon the existing tasks of the EBA (Article 3). In this respect, Regulation (EU) No 1024/2013 has been complemented by Regulation (EU) No 1022/2013 of the European Parliament and of the Council of 22 October 2013 amending Regulation (EU) No 1093/2010 establishing the European Supervisory Authority (European Banking Authority) as regards the conferral of specific tasks on the European Central Bank pursuant to Council Regulation (EU) No 1024/2013, 31 which governs the relationship between the ECB (mainly as a supervisory authority) and EBA (mainly as a regulatory authority). (iv) The creation of Chinese walls within the ECB, in order to ensure the effective separation of its monetary and other tasks from its supervisory tasks, in accordance with the detailed provisions of Article 25 of the Regulation. Specific rules govern the investigatory and supervisory powers of the ECB (Articles 9-18) and its new organisation (Articles 19-31). (b) The institutional framework pertaining to the SSM is further specified in several legal acts of the ECB, containing provisions on the detailed operational arrangements for the implementation of the tasks conferred upon it by Regulation 1024/2013 (for an overview of these acts, see below Table 3). 32 Among them, the most important is Regulation (EU) No 468/2014 of the European Central Bank of 16 April 2014 establishing the framework for cooperation within the SSM between the European Central Bank and national competent authorities and with national designated authorities ( SSM Framework Regulation ) (ECB/2014/17), 33 which is further specifying certain provisions of the SSM Regulation The most notable compromise was that the direct supervision of the ECB will apply only to a subset of credit institutions incorporated in euro area Member States (mainly the systemically important) and not to the entire range of credit institutions, as proposed by the Commission. 31 OJ L 287, , pp All these legal acts, published in the Official Journal of the European Union (hereinafter the Official Journal or OJ ), are included in the primary sources of reference listed at the end of this study. 33 OJ L 141, , pp

21 (c) Finally, an Interinstitutional Agreement between the European Parliament and the ECB was signed in October 2013 on the practical modalities of the exercise of democratic accountability and oversight over the exercise of the tasks conferred on the ECB within the framework of the Single Supervisory Mechanism. 34 This further specifies the accountability requirements imposed, under Article 20 of the SSM Regulation, on the ECB and the national competent authorities vis-à-vis the European Parliament The single rulebook On 26 June 2013, the following two legal acts of the European Parliament and of the Council were published in the Official Journal of the European Union (the OJ ): Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 ( Capital Requirements Regulation or CRR ), 35 and Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (...) ( Capital Requirements Directive IV 36 or CRD IV ). 37 These two legal acts, adopted under Article 114 and Article 53, paragraph 1, TFEU, 38 respectively, and in force since 1 January 2014, set the framework governing (mainly) the following aspects: 34 OJ L 320, , pp OJ L 176, , pp In fact, this is a misnomer for the Directive, which mainly addresses several other prudential aspects, rather than merely capital requirements. 37 OJ L 176, , pp The acronym CRD IV implies that there were three (3) previous CRDs. Indeed: (a) Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (OJ L 177, , pp ) and Directive 2006/49/EC (of the same institutions and of the same date) on the capital adequacy of investment firms and credit institutions (OJ L 177, , pp ) constituted the CRD I. In 2007, certain Articles of Directive 2006/48/EC on procedural rules, as well as the evaluation criteria for the prudential assessment of acquisitions and increase of holdings in the financial sector were amended by Directive 2007/44/EC of the European Parliament and of the Council of 5 September 2007 (OJ L 247, , pp. 1-16). (b) As a regulatory response to the recent international financial crisis ( ), certain Articles of both Directives 2006/48/EC and 2006/49/EC were amended by two Directives of the European Parliament and of the Council: Directive 2009/111/EC of 16 September 2009 on banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management (...) (OJ L 302, , pp ), the CRD II, and Directive 2010/76/EU of 24 November 2010 amending Directives 2006/48/EC and 2006/49/EC as regards capital requirements for the trading book and for re-securitisations, and the supervisory review of remuneration policies (OJ L 329, , p. 3 35), the CRD III. 21

22 credit institutions access to activity (granting and withdrawal of authorisation, as well as the exercise of the freedom of establishment and the freedom to provide services in the single market), credit institutions micro-prudential supervision, and the rules on the micro- and macro-prudential regulation of credit institutions, 39 which is reflecting to a large extent the framework of the Basel Committee on Banking Supervision of 2010 (following the recent ( ) international financial crisis), as in force, in this field (the Basel III regulatory framework ). 40 The CRR and the CRD IV, whose provisions apply also to investment firms, 41 are of particular importance for this study, since Directive 2014/49/EU makes repeated references to Articles thereof (especially of the CRR in terms of definitions). These will be discussed below in Sections B - E, as appropriate. 2.3 Resolution of credit institutions The Single Resolution Mechanism ( SRM ) and the Single Resolution Fund ( SRF ) (a) As regards the creation of a European Single Resolution Mechanism (hereinafter the SRM ) for non-viable credit institutions (and certain investment firms) and a European Single Resolution Fund (hereinafter the SRF ) to fill in any funding gaps that might result from a resolution, the following legal acts were adopted in 2014: Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund (...) (the SRM Regulation ), 42 and For more details on this Article, which forms, inter alia, the legal basis of Directive 2014/49/EU, see below in Section B, under On the differences between these two aspects of prudential regulation, see Gortsos (2012), pp , with extensive further references. 40 This framework consists of two Reports of the Basel Committee on Banking Supervision: Basel III: A global regulatory framework for more resilient banks and banking systems, and Basel III: International framework for liquidity risk measurement, standards and monitoring. For a detailed overview of the rules included therein, as in force in 2011, see Gortsos (2012), pp On the definition of the term investment firms in EU financial law, see below Section E, under OJ L 225, , pp

23 the Intergovernmental Agreement No 8457/14 by twenty-six (26) EU Member States on the transfer and mutualisation of contributions to the Single Resolution Fund. 43 (b) The SRM Regulation, adopted under Article 114 TFEU and (with some exceptions) applicable from 1 January 2016, 44 is aimed at ensuring the orderly resolution of failing credit institutions at EU level without recourse to taxpayers money for their recapitalisation. Its adoption was a necessary complement to the SSM Regulation, as it would be a paradox, if credit institutions were directly supervised (by the ECB) at European level, but, in the event of a need for resolution (upon proposal of the ECB), the relevant decision were to be made at national level. The SRM consists of: 45 the Single Resolution Board, established under Article 42 of the Regulation, the Council and the Commission, and the national resolution authorities. (c) For its part, the Intergovernmental Agreement, which will become applicable for its Contracting Parties also from 1 January 2016, 46 complements and supports the SRM Regulation, 47 which establishes the SRF. 48 The main commitment made by the Contracting Parties to the Agreement is the transfer of contributions raised at national level in accordance with the SRM Regulation and the Bank Recovery and Resolution Directive (see just below under 2.3.2) to the SRF. 49 The fund will be built up over eight (8) years, reaching a target level of at least 1% of the amount of covered deposits of all credit institutions authorised in all the participating Member States (about 55 billion euros). 50 The SRF will be fully financed by credit institutions contributions The single rulebook (a) Concurrently, in April 2014 the European Parliament and the Council adopted Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms (...) (the Bank Recovery and Resolution Directive or BRRD ). 51 According to recital 5 of this Directive: 43 The only Member States which are not Contracting Parties are Sweden and the United Kingdom. 44 Regulation (EU) No 806/2014, Article Ibid., Article 1, second sub-paragraph, first sentence. 46 Intergovernmental Agreement, Article 12, paragraph Regulation (EU) No 806/2014, Article 1, second sub-paragraph, second sentence. 48 Ibid., Articles Intergovernmental Agreement, Article 1, paragraph 1, point (a), and Article Ibid., Article 1, paragraph 1, point (b), with reference to Article 68 of the SRM Regulation. On the definition of the term covered deposits, see below in Section E, under OJ L 173, , pp

24 A regime is (...) needed to provide authorities with a credible set of tools to intervene sufficiently early and quickly in an unsound or failing institution so as to ensure the continuity of the institution s critical financial and economic functions, while minimising the impact of an institution s failure on the economy and financial system. The regime should ensure that shareholders bear losses first and that creditors bear losses after shareholders, provided that no creditor incurs greater losses than it would have incurred if the institution had been wound up under normal insolvency proceedings in accordance with the no creditor worse off principle as specified in this Directive. New powers should enable authorities, for example, to maintain uninterrupted access to deposits and payment transactions, sell viable portions of the institution where appropriate, and apportion losses in a manner that is fair and predictable. Those objectives should help avoid destabilising financial markets and minimise the costs for taxpayers. It is worth pointing out that it is the first time that harmonised rules have been adopted at EU level in this field, as opposed to the fields of authorisation, micro-prudential supervision and micro-prudential regulation of credit institutions (macro-prudential regulation under the CRR and the CRD IV is another innovative element), as well as deposit guarantee schemes, for which a regulatory framework has been in place since the late 1980s and mid-1990s, respectively. Recital 4 states in this respect the following: There is currently no harmonisation of the procedures for resolving institutions at Union level. Some Member States apply to institutions the same procedures that they apply to other insolvent enterprises, which in certain cases have been adapted for institutions. There are considerable substantial and procedural differences between the laws, regulations and administrative provisions which govern the insolvency of institutions in the Member States. In addition, the financial crisis has exposed the fact that general corporate insolvency procedures may not always be appropriate for institutions as they may not always ensure sufficient speed of intervention, the continuation of the critical functions of institutions and the preservation of financial stability. (b) This Directive, also adopted under Article 114 TFEU and (with some exceptions) applicable from 1 January 2015, 52 contains provisions on three (3) main aspects: preparatory measures, including recovery and resolution planning (also called living wills 53 ) and intra-group financial support agreements (Articles 4-26), early intervention measures, including the appointment of a special administrator (Articles 27-30), and resolution tools and powers (Articles 31-86). 54 The BRRD divides all these measures into two categories: crisis prevention and crisis management measures Directive 2014/59/EU, Article See on this Avgouleas, Goodhart and Schoenmaker (2009). 54 On the discussion with regard to the resolution of credit institutions in general, see Claessens, Herring, and Schoenmaker (2010).

25 (i) Under Article 2, paragraph 1, point 101, crisis prevention measure is defined as: the exercise of powers to direct removal of deficiencies or impediments to recoverability under Article 6, paragraph 6, the exercise of powers to address or remove impediments to resolvability under Article 17 or 18, the application of an early intervention measure under Article 27, the appointment of a temporary administrator under Article 29, or the exercise of the write-down or conversion powers under Article 59. (ii) Under Article 2, paragraph 1, point (101), crisis management measure is defined as meaning: a resolution action, or the appointment of a special manager under Article 35 or a person under either Article 51, paragraph 2, or under Article 72, paragraph 1. The BRRD is also of particular importance for this study, since several of its provisions apply to deposit guarantee schemes. The relevant Articles will be discussed below in the following Sections, as appropriate. 2.4 Deposit guarantee schemes A Single Deposit Guarantee Scheme The prospect of establishing a European deposit guarantee scheme, as the third main component of the EBU, has only been discussed in terms of principles and high-level politics. Accordingly, no specific regulatory proposals have been tabled by the European Commission on this field, which is currently characterised by inaction. Deposit guarantee schemes remain national, even though the merger of DGSs or the establishment of crossborder DGSs is not ruled out (see below in Section B, under 4.2.2) The single rulebook On the other hand, Directive 2014/49/EU of the European Parliament and of the Council on deposit guarantee schemes, repealing Directive 94/19/EC of the same EU institutions, has been adopted in April 2014 as part of the single rulebook. This Directive is the subject of the present study. 25

26 3. The uncompleted agenda 3.1 Introductory remarks The political decisions made on the above-mentioned three main pillars (building blocks) of the EBU were bold, and, with the exception of the establishment of a single deposit guarantee scheme, the relevant legislative work was completed by mid Nevertheless, the full Europeanisation of the bank safety net requires, in the author s opinion, three (3) further elements, which: are either pending (see below, under 3.2), or have not yet been discussed (under 3.3 and 3.4). 3.2 Direct recapitalisation of credit institutions by the ESM (a) The first issue is whether the recapitalisation of credit institutions faced with insolvency (albeit viable according to the evaluation of supervisory authorities) could be assigned directly to the European Stability Mechanism (the ESM ), 55 thus curbing the public debt of Member States in which such credit institutions are incorporated. This prospect was explicitly albeit ambiguously mentioned in the above-mentioned 29 June 2012 Euro Area Summit Statement: When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalise banks directly. 56 In addition, according to the Joint Statement of the Ministers of Finance of Germany, the Netherlands and Finland of 25 September 2012: Direct bank recapitalisation by the ESM should take place based on an approach that adheres to the basic order of first using private capital, then national public capital and only as a last resort the ESM. (b) Under the applicable regime, the ESM may provide financial assistance to euro area Member States for the purpose of bank recapitalisation, albeit indirectly: a loan is provided by the ESM to the Government of the requesting euro area Member State under a Financial Institution Recapitalisation Facility, and the funds are earmarked for the recapitalisation of one or more ailing credit institutions. However, such assistance increases the country s public debt The ESM, based on an Intergovernmental Treaty signed by the eighteen (18) euro area Member States, has replaced the European Financial Stability Facility ( EFSF ), which is fully operative since October Its current legal basis is (the new) Article 136, paragraph 3, TFEU. For more details on both facilities, see indicatively Stephanou (2012), pp Euro Area Summit Statement, 29 June 2012, first paragraph, fourth sentence. The underlying premise is to avoid the risk of spill-over effects of unsound national supervisory practices on the European level and, consequently, on the taxpayers of other Member States. 57 The most notable example was the case of the recapitalisation of the Spanish banking system. For more details, see Eurostat (2012), Eurostat (2014), and European Stability Mechanism (2013), p. 25.

27 (c) On 10 June 2014, the euro area Member States reached a preliminary agreement on a new instrument, the ESM Direct Recapitalisation Instrument (the DRI ). The DRI will enter into operation, when the necessary national procedures have been completed and the ESM Board of Governors takes a unanimous decision to its creation. It will be available mainly to systemically relevant credit institutions that are unable to: meet the capital requirements established by the ECB in its capacity as single supervisor within the SSM, and obtain sufficient capital from private sources, if a bail-in would not be sufficient to meet the anticipated capital shortfall. A burden-sharing scheme will determine the contributions of the requesting ESM Member and the ESM The ECB as lender of last resort Another issue not discussed officially as yet is the prospect of the ECB becoming a single lender of last resort in the euro area for solvent credit institutions with temporary liquidity shortage. 59 Currently, and due to the lack of a solid legal basis for the ECB, this function is considered to be a task for the national central banks - members of the Eurosystem. Indeed, Emergency Liquidity Assistance (the ELA ) is provided, according to the Governing Council of the ECB: 60 by the national central banks of the Member States whose currency is the euro, to individual solvent credit institutions facing temporary liquidity problems, 61 and against collateral that is not eligible for the ECB s monetary policy operations. 62 The Governing Council of the ECB is allowed to prohibit this, if it is deemed in conflict with the objectives and tasks of the ECB, according to Article 14.4 of the Statute of the ESCB and of the ECB. 63 During the current euro area fiscal crisis, the ELA has been activated with regard to several Irish and Greek credit institutions, and also as recently as August 2014 a Portuguese credit institution. 58 See on this European Stability Mechanism (2014): FAQ on the preliminary agreement on the future ESM direct bank recapitalisation instrument, June, available at: eu/pdf/faqpreliminarydrijune2014.pdf. 59 For an overview of the functions of the lender of last resort in the banking system and the related extensive literarure, see the various contributions in Goodhart (2000), Gortsos (2012), pp , and the various contributions in Bank for International Settlements (2014). 60 See on this European Central Bank (2013). 61 The ECB remains responsible for providing liquidity to the Eurozone s banking system as a whole through its monetary policy operations. 62 For an overview and critical assessment of the ELA, see Papadia (2014). 63 On this Article, see Smits (1997), pp

28 3.4 Winding-up of credit institutions (a) Credit institutions winding-up proceedings in the EU fall within Member State competence. Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding-up of credit institutions, 64 which governs both the reorganisation and the winding-up of credit institutions, did not even provide for a minimum harmonisation of national reorganisation measures and winding-up proceedings. Under Article 2, point (9), of that Directive, the term winding-up proceedings is defined as collective proceedings opened and monitored by the administrative or judicial authorities of a Member State with the aim of realising assets under the supervision of those authorities, including where the proceedings are terminated by a composition or other, similar measure. The Directive mainly introduced the principle of mutual recognition, according to which (as applied to winding-up proceedings) the administrative or judicial authorities of the home Member State, which are responsible for winding-up, are solely competent to decide on the opening of winding-up proceedings concerning a credit institution, including its branches established in other Member States. 65 Such a decision of the home Member State s administrative or judicial authority is recognised, without further formality, within the territory of all other Member States and enters into effect therein when the decision is also effective in the Member State in which the proceedings are opened. 66 (b) The discussions on the creation of the EBU did not touch upon the prospect of changing this regime. Accordingly, credit institutions winding-up proceedings will remain national, at least in the foreseeable future, also activating the repayment procedure of national deposit guarantee schemes, since in the vast majority of cases, the repayment procedure of deposit guarantee schemes is being activated by the winding-up of a credit institution. With regard to the provisions of EU law on this, see below in Section E, under Final remarks: European banking law in the era of the European Banking Union 4.1 The sources of European banking law All the legal acts mentioned above (under 2 and 3), including Directive 94/19/EC on deposit guarantee schemes, which will remain in force until it is repealed on 4 July 2015 (see below Section B, under 1.1), along with: the legal acts of the ECB on the SSM (see above under 2.2.1), the delegated and implementing acts of the Commission, as provided for in the above-mentioned legislative acts, and the relevant Guidelines and Recommendations adopted and to be adopted by the EBA, 64 OJ C 125, , pp Directive 2001/24/EC, Article 9, paragraph 1, first sentence. 66 Ibid., Article 9, paragraph 1, second sentence. On the provisions of this Directive, see indicatively Wessels (2006).