The Relevance of the Resolution Tools Within the SRM

Transcription

1 The Relevance of the Resolution Tools Within the SRM EBI Working Paper no. 29/ EBI Annual Conference, 21 and 22 February 2018 Jens-Hinrich Binder University of Tübingen and EBI

2 Agenda I. (Why) Taking stock: The resolution toolbox and the first cases II. Resolution as a last resort: The relevance of the public interest test (Art. 18(1)(c) and (5) SRMR) III. The transfer tools: Sale of business and Bridge institution IV. The Bail-in V. Conclusions 2

3 I. (Why) taking stock: The resolution toolbox and the first cases Resolution = Restructuring and continuation of critical functions Resolution Tools Safeguards Sale of Business (Art. 24 SRMR Arts BRRD) as a whole or in part share deal / asset deal Bridge Institution (Art. 25 SRMR Arts BRRD) created by public authorities; interim solution for limited period Asset Separation (good bank/bad bank) (Art. 26 SRMR, Art. 42 BRRD) transfer of property to asset management vehicle Bail-in (Art. 27 SRMR, Arts BRRD) Write-down of cap. Instruments (Art. 21 SRMR, Arts BRRD) if: - institution has failed or is likely to fail (at least, proximity of insolvency) - no alternative measure, including bail-in, capable of preventing failure - resolution action is required to protect public interest (systemic stability) 3

4 I. (Why) taking stock: The resolution toolbox and the first cases The Single Resolution Mechanism ECB / SSM EU Commission Council Single Resolution Board Single Res. Fund National Resolution Auth. National Resolution Auth. National Resolution Auth. B B B B B B 4

5 I. (Why) taking stock: The resolution toolbox and the first cases The first cases Precautionary recapitalisation of Monte dei Paschi di Siena S.p.A. (February 2018) application of Art. 18(4), subpara. (1), (d)(iii) SRMR no resolution, but a bail-out bespoke legislation facilitating the recapitalisation under Italian law relevance for viability of SRM? Resolution of Banco Popular Español (June 2017) sale of business to Banco Santander S.A. write-down and conversion of capital instruments prior to the transfer 5

6 I. (Why) taking stock: The resolution toolbox and the first cases The first cases Banca Populare di Vicenza and Veneto Banca (June 2017) decision not to take resolution action, as public interest test had not been met resolution to be carried out in accordance with national law approval of State Aid granted to facilitate liquidation under Italian law, conditional on bail-in of shareholders and subordinated debtholders ABLV Bank, AS and ABLS Bank Luxembourg, S.A. (Feb. 2018) decision not to take resolution action, as public interest test had not been met referred to for liquidation under national laws lessons learnt? 6

7 I. (Why) taking stock: The resolution toolbox and the first cases Questions to be addressed Given the international background Basel Committee on Banking Supervision, Report and Recommendations of the Cross-border Bank Resolution Group (2010) Financial Stability Board, Key Attributes of Effective Resolution Regimes for Systemic Financial Institutions (2011/2014) where do we stand? What use has been made of the resolution tools? What will future practice look like? Are we truly in line with international best practice? Has TBTF been removed? 7

8 II. Resolution as a last resort: The relevance of the public interest test (Art. 18(1)(c) and (5) SRMR) Normative basis and case law The public interest test, according to Art. 18(5) SRMR a resolution action shall be treated as in the public interest if it is necessary for the achievement of, and is proportionate to one or more of the resolution objectives referred to in Article 14 and winding up of the entity under normal insolvency proceedings would not meet those resolution objectives to the same extent. Cases that did not meet the test: Banca Popolare di Vicenza Veneto Banca ABLV 8

9 II. Resolution as a last resort: The relevance of the public interest test (Art. 18(1)(c) and (5) SRMR) The rationale for restrictions and consequences Note the broader implications! resolution within SRM and access to Single Resolution Fund controversial mutualisation of risks as political backdrop the public interest test and the clean-up of legacy problems Infringement of creditor rights as the core justification lack of participation rights (cf. traditional insolvency regimes) uncertainty of economic outcomes (despite NCWO guarantee and right to compensation), given untested nature of resolution tools protracted litigation Consequences coordination problems with national insolvency laws / institutions need for further harmonisation 9

10 III. The transfer tools: Sale of business and Bridge institution Sale of business: It works (or could work), but Tested in Banco Popular Procedural and logistical viability of institutional setting Incentive compatible, given But: pricing on commercial terms (Art. 24(2)(b) SRMR in conjunction with Art. 38 BRRD) requirement to liquidate residual bank under general insolvency laws following partial transfer (Art. 22(5) SRMR) need for flexibility with regard to determination of commercial terms, given uncertainty in valuation dependent on availability of private-sector acquirer in the circumstances limited value in systemic crisis scenarios 10

11 III. The transfer tools: Sale of business and Bridge institution And how about Bridge institutions? Potentially helpful: But: designed to facilitate protection of critical functions precisely in cases where de facto conditions for application of Sale of business tool are not met witness operational restrictions resulting from narrow time limits (Art. 25(29(b) SRMR in conjunction with Art. 41(5) and (6) BRRD) a fundamental coordination problem: centralised decision over application of the tool versus decentralised administration (and funding) long-term marketability of problem assets may be questionable 11

12 IV. The Bail-in The complex reality The need for sustainable and sufficient buffer of bail-inable debt not held by retail investors (cf. Monte dei Paschi et al.) MREL / TLAC implementation still in process is a viable market in designated bail-inable debt realistic in view of uncertainty? lack of precedents, unpredictability of economic outcomes, litigation and pricing problems a vicious circle witness the Banco Popular litigation will it survive the first round of applications? 12

13 IV. The Bail-in The complex reality The fundamental valuation problem witness Banco Popular: a range between 1.3 bn and -8.2 bn just an ex post problem (for compensation) and any different from other resolution tools? yes and no no valuation requirement applies across the board (cf Art. 20 SRMR); problems can always be remedied through later compensation yes more directly related to the calibration of the tool in the case of a Bail-in; higher uncertainty with regard to outcomes; higher risk for SRF à reducing incentives to try it out Cross-border recognition and enforcement witness HETA case source of concerns particularly in Third Country scenarios 13

14 V. Conclusions So where do we stand? The reasons to be optimistic recent case law illustrate flexibility and of tools and procedures and the willingness and ability to make use of it Resolution as a viable last resort in cases where traditional insolvency regimes do not work? small institutions? residual coordination problems with national regimes and institutions in need of special resolution regimes? systemic crisis scenarios? the middle ground transfer tools Bail-in 14

15 Thank you for your attention! Professor Dr. Jens-Hinrich Binder, LL.M. (London) Eberhard-Karls-Universität Faculty of Law Chair in Private Law, Commercial Law, Corporate and Securities Law Geschwister-Scholl-Platz D Tübingen / Germany binder@jura.uni-tuebingen.de 15