Lessons learnt from first bank crisis cases in the Banking Union ( )

Transcription

1 Lessons earnt from first bank crisis cases in the Banking Union ( ) Banking Union: experience so far and future prospects Wopertinger Conference 2018 Mauro Grande, Singe Resoution Board (SRB)

2 TABLE OF CONTENTS SRM 1. Mission and objectives 2. Resoution objectives and main tasks 3. Progress in banks` resovabiity CRISIS CASES 1. Overview 2. Precautionary recapitaisation 3. Pre-BRRD egacy 4. Resoution 5. Liquidation CONCLUSIONS 2

3 SRM (1): Mission & objectives The mission of the SRB is to ensure an ordery resoution of faiing banks with minimum impact on the rea economy and the pubic finances of the participating Member States of the Banking Union. Member States in the Eurozone Member States not in the Eurozone PT IE ES UK FR NL BE LU DK DE IT SE PL CS SK AT HU SI HR FI LT EE LV RO EL BG Main objectives of the Singe Resoution Mechanism (SRM) Contribution to severing the negative feedback oop between bank and sovereign risks through effective and cost-efficient handing of bank faiures Aiming at going beyond what aready pursued through the BRRD framework (e.g. identification of resoution objectives and toos, definition of powers/responsibiities of resoution authorities, promotion of cross-border cooperation via resoution coeges, etc.) Centraisation of decision-making on resoution with the setting up of the Singe Resoution Board (SRB) and the Singe Resoution Mechanism (SRM) and adoption of speedy decision-making processes Need for aignment with the organisation of banking supervision (SSM) in the Banking Union MT CY 3

4 SRM (2): Resoution objectives and main tasks RESOLUTION OBJECTIVES Ensure continuity of critica functions in case a bank must be resoved Safeguard financia stabiity at Member State or higher eve: protecting pubic and market confidence Protect taxpayers from potentia future bai-outs Protect depositors, investors, cient funds and cient assets Safeguards of private interests incude Pari passu principe No Creditor Worse Off principe ELABORATE & ENACT RESOLUTION SCHEMES RESOLUTION PLANS MAIN TASKS ASSESSMENT OF RESOLVABILITY & OBSTACLE REMOVAL PUBLIC INTEREST RESOLUTION FUND MREL 4

5 SRM (3): Progress in banks` resovabiity RESOLUTION PLANNING IS AN ONGOING PROCESS (Re-)Draft Resoution Pan Remove obstaces Determine possibiity to iquidate RESOLUTION PLANNING If not, decide on resoution strategy Singe or mutipe pointof-entry Progress to ensure bank resovabiity in the Banking Union is being made but sti some way to go Resoution pans: not compete yet but we advanced for many banks MREL: banks buiding up oss-absorbing capacity (first SRB binding decisions on consoidated MREL taken in H1 2018) Resovabiity assessment: process to identify and remove impediments under way Singe Resoution Fund: being graduay buit up (currenty 24 bn) and features of financia backstop being discussed at the EU eve BRRD2: changing reguatory andscape for bank resoution ( MREL) Identify obstaces Key toos to ensure banks` resoution readiness MREL Remova of impediments to resovabiity 5

6 CRISIS CASES (1): Overview In the Banking Union so far: o four cases of bank faiure (Banco Popuar Españo, Banca Popoare Vicenza, Veneto Banca, ABLV) eading to different outcomes (resoution vs iquidation) o two cases of bank facing difficuties (pre-resoution) requiring injection of pubic funds (Monte dei Paschi di Siena, Cyprus Cooperative Bank) A cases taking pace in a transitiona phase of impementation of the new resoution framework posing chaenges to the resoution authorities Overa, a bank faiures were handed in a way accompishing the pubic objectives set by the resoution framework Each experience provides specific essons mainy in terms of possibe gaps in the design of the resoution framework and to a esser extent of impementation of crisis management 6

7 CRISIS CASES PRE-RESOLUTION (2): Precautionary recapitaisation Source of crisis Capita depetion, ong-standing high eve of NPLs Monte dei Paschi di Siena SRB Decision No SRB invovement Precautionary recapitaisation Injection of own funds into a sovent bank by the State when necessary to remedy a serious disturbance in the economy of a Member State and preserve financia stabiity Ony to address a capita shortfa under the adverse scenario of a stress test estimated by the ECB at EUR 8.8bn Conditions for approva under the European Union State aid framework: (i) bank viabiity; (ii) burden sharing for equity and subordinated hoders; and (iii) restructuring pan approved by the European Commission (DG COMP) Lessons earnt Precautionary recapitaisation is one of the few forms of injection of pubic funds in a bank aid down in the EU framework which does not trigger FOLTF First experience provided opportunity to test and review impementation in particuar the effectiveness of the set conditions and procedures: o focus on sovency and FOLTF, features of stress-test and interpay with Asset Quaity Review 7

8 CRISIS CASES PRE-RESOLUTION (3): Pre-BRRD egacy Source of faiure Capita depetion, ong-standing high eve of NPLs Cyprus Cooperative Bank SRB Decision No SRB decision What happened? Restructuring process initiated in 2014 on the basis of the appicabe nationa ega framework, before entry into force of BRRD Cypriot authorities opened sae-process in March 2018 and provided State aid to mitigate the effects of possibe iquidation European Commission (DG COMP) approved State aid under condition of partia sae of business to Heenic bank and winding-down of the remaining entity Lessons earnt Unwinding of banks foreseen by a restructuring process started before the entry into force of BRRD and SRMR remains governed by nationa aw and managed by nationa authorities Accordingy, if Member States consider pubic support necessary to mitigate the effects of iquidation, this does not trigger FOLTF and the EU State aid rues (2013 Banking Communication) are the ony appicabe framework The appication of the new resoution framework to banks/banking sectors sti afficted by past (pre-brrd) egacy asset probems is chaenging 8

9 CRISIS CASES (4): Resoution Banco Popuar Españo Source of faiure Liquidity SRB Decision Positive Pubic Interest Assessment (PIA): resoution Sae of business too: sae to Banco Santander for EUR 1, after write-down of equity and AT1 instruments, and conversion of T2 instruments into shares Lessons earnt Importance of iquidity pre (quick escaation, possibe roe of moratorium) and post-resoution (capabiity and imits of Singe Resoution Fund in the absence of a private buyer) Economic vauation (Vauation 2): need for fu cooperation from the faiing bank Need for smooth cooperation and information exchange with reevant stakehoders (in particuar the ECB/SSM) Discosure of resoution decisions by resoution authorities shoud refect a right baance between different egitimate interests Resoution decisions entai a high degree of itigation risk 9

10 CRISIS CASES (5): Liquidation Veneto banks (Itay) ABLV (Latvia) Source of faiure Insovency, ong-standing high-eve of NPLs (Veneto Banca, Banco Popoare di Vicenza); Liquidity (ABLV) SRB Decision Negative Pubic Interest Assessment (PIA): iquidation under nationa insovency proceedings What happened? Veneto banks ECB decares that the two banks were FOLTF due to persisting breaches of capita requirements and ack of credibe options to restore the banks capita position Liquidation under nationa insovency proceedings with pubic support (e.g. iquidation aid). Transfer of part of assets and iabiities to Intesa Sanpaoo and NPLs to a State-owned asset management company ABLV ECB decared that ABLV LV and ABLV LU were FOLTF due to insufficient avaiabe funds to match the stressed outfows Bank and subsidiary to be wound up under aw of LV and LU respectivey Lessons earnt Veneto banks Negative PIA: critica functions and risks for financia stabiity can evove in time due to banks` deeveraging State aid is possibe in iquidation but not in resoution. ABLV Liquidity crises can escaate extremey quicky due to reputationa risk Need for insovency aw harmonisation: nationa insovency regimes in LV/LU do not aow to trigger iquidation just based on FOLTF 10

11 CONCLUSIONS Overa the management of the first bank faiures in the Banking Union has shown the effectiveness of the new resoution framework despite the sti transitiona phase of impementation: o resoution objectives were met o pubic interest assessment was appied consistenty Appication of the new resoution framework to banks/banking sectors afficted by egacy probems is chaenging o huge amounts of outstanding NPLs o sow process to buid up MREL Experience highighted a few issues reating mainy to the design of the overa crisis management framework: o funding in resoution: need for carifying who provides iquidity in the post-resoution phase (roe of the ECB/NCBs and the Singe Resoution Fund) o insovency aw: need for harmonisation of nationa regimes for banks at the EU eve o state aid framework for the banking sector: need for review (in particuar iquidation aid) in ight of the new resoution framework o precautionary recapitaisation: review of impementation (conditions and procedures) 11

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