The Relevance of the Resolution Tools Within the SRM

Similar documents
1. Resolution of banks and investment firms

Proportionality at the resolution stage: Calibration of resolution measures and the public interest test

DRAFT REPORT. EN United in diversity EN. European Parliament 2017/2072(INI) on Banking Union Annual Report 2017 (2017/2072(INI))

Italy: liquidation of Veneto Banca and Banca Popolare di Vicenza

Recent Cases of EU Banking Resolution - Liquidation One Rule Does Not Fit All

Uneven progress in implementing cross-border bank resolution in the EU

Banking union: restoring financial stability in the Eurozone

The Day after Tomorrow: The Future of the Financial Intermediation

SRM and ARTICULATION with BRRD

Case Study of recent Bank Resolutions in Europe and related Litigation. Workshop on the Role of the Judiciary in Bank Resolution for Judges

Lost in TLAC Tobias H. Tröger Florence School of Banking and Finance Online Seminar January 18, 2017

SRB 2 nd Industry Dialogue January 12th, 2016

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

The Reform of Bank Creditor Hierarchy in the EU

Bank bail-in and bail-out from a civil society and public interest perspective

EU Financial System Perspectives

Treating the E.U. as a Single Jurisdiction for the Implementation of TLAC (EBA Report on MREL, December 2016)

Resolution Industry Briefing. February 2018

The Lender of Last Resort in the Euro Area: Where Do We Stand?

5FINANCIAL MARKETS: GAPS IN REGULATION, GROWING RISKS

Italian Banks - Accelerating the Sales of NPL to Improve Asset Quality

Minimum Requirement for Own Funds and Eligible Liabilities (MREL) SRB Policy for 2017 and Next Steps. Published on 20 December 2017.

Introduction Post crisis Bank resolution principles with a focus on the BRRD in the EU

Cross Border Recognition of Bail-in and Overview on Recent Bail-in Case Studies. FinSAC Workshop on Bail-in and MREL

APPLICATION OF THE MINIMUM REQUIREMENT FOR OWN FUNDS AND ELIGIBLE LIABILITIES (MREL) Bank Resolution and Recovery Directive 2014/59/EU

The function of the single resolution mechanism (SRM) as central institution for bank resolution in the EU

Testing the EU Framework for the Recovery and Resolution of Banks: the Italian Experience

6921/1/18 REV 1 CS/VS/AR/CE/mf 1 DGG 1B

BAIL IN and RESOLUTION FINANCING in BRRD

Hearing on Decree Law 237/2016 Urgent measures for the protection of savings in the banking sector

Process and next steps

Delegations will find below a revised Presidency compromise text on the abovementioned proposal.

Developments and Challenges in EU Financial Market Regulation

Are CCPs the new Too Big To Fail?

The provision of critical functions at global, national or regional level

Resolution. An evolving journey in Europe. KPMG International November kpmg.com/ecb

Single Resolution Mechanism Resolution planning process

EUROPEAN COMMISSION. State Aid SA (2017/N) Italy Additional liquidity support to Banca Popolare di Vicenza

Conference on Nordic-Baltic financial linkages and challenges (IMF, Eesti Pank, Sveriges Riksbank)

The European Banking. Union. Supervision and Resolution. Giuseppe Boccuzzi Director General, Interbank Deposit Protection Fund, Itäly

Response to the Commission s Communication on An EU Cross-border Crisis Management Framework in the Banking Sector

Consultation paper. Application of the minimum requirement for own funds and eligible liabilities. REPORT Distribution: Open

Single Resolution Fund

How to ensure enough Loss Absorbing Capacity: From TLAC to MREL

Single Resolution Mechanism

EUROPEAN UNION. Brussels, 25 April 2014 (OR. en) 2012/0150 (COD) PE-CONS 14/14 EF 16 ECOFIN 42 DRS 10 CODEC 120

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

2018 SRB Policy for the second wave of resolution plans

Bail-in or bailout? State aid to banks under the Single Resolution Mechanism

2018 EX-ANTE CONTRIBUTIONS TO THE SINGLE RESOLUTION FUND (SRF)

Draft Technical Standards on criteria for MREL. 19 January 2015

Review of the Regulatory Framework Risk Reduction Package

11173/17 PK/vc 1 DGG1B

11 January SRB Press breakfast. 9h30 11h00 (-1 Athens Room) Elke König. Thank you for joining us today and a very warm welcome to the

Banking Resolution Spanish experience. Future implications of BRRD.

Implementing Financial Sector Resolution

Public support and the use of the Resolution Fund under BRRD

Total Loss-absorbing Capacity (TLAC) Term Sheet

Recent developments and open questions in the European banking industry

Total Loss-Absorbing Capacity the thinking behind the FSB Term Sheet

Hearing with Mrs Elke König, Chair of the Single Resolution Board

Asia Credit Research. The Spanish Resolution: Different Symptoms call for Different Remedies

ABI response to the FSB consultation on the adequacy of loss-absorbing capacity of global systemically important banks in resolution.

Draft Technical Standards on valuation for resolution. 16 January 2015

***I REPORT. EN United in diversity EN. European Parliament A8-0216/

EBF Response to FSB consultation on Principles on Bail-In Execution

Council of the European Union Brussels, 27 November 2017 (OR. en)

Valuation Reports in the Context of Banking Resolution: What are the Challenges?

TLAC and MREL: From design to implementation

Decision memorandum Application of the minimum requirement for own funds and eligible liabilities

Final Guidelines. on the treatment of shareholders in bail-in or the write-down and conversion of capital instruments EBA/GL/2017/04 11/07/2017

June 2018 The Bank of England s approach to setting a minimum requirement for own funds and eligible liabilities (MREL)

Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

State aid rules in the context of BRRD

Italian Banking Sector Outlook 2018

WORKING PAPER SERIES No 2016/16

The Law, Economics and Practice of EU Banking Resolution

Elke König Keynote Speech (Sveriges Riksbank, De Nederlandsche Bank, and Deutsche Bundesbank) Stockholm 15 June :30-18:15

Indonesian Deposit Insurance Corporation International Seminar

DBRS Assigns Critical Obligations Ratings to 33 European Banking Groups

Banking Union Scrutiny IN-DEPTH ANALYSIS. Requested by the ECON committee. Economic Governance Support Unit. External authors:

TOO-BIG-TO-FAIL (TBTF) IN THE EU

4 Bank failing or likely to fail

QUANTITATIVE UPDATE OF THE EBA MREL REPORT (DECEMBER 2016 DATA)

Changes to the previous compromise text (doc /13) are highlighted in bold and underlined. Deletions are marked with [ ].

THE SINGLE RESOLUTION FUND

7 TH SRB BANKING INDUSTRY DIALOGUE MEETING SRB MREL POLICY

Safe to Fail? Client Alert December 5, 2014

The Bank Recovery and Resolution Regime in the EU

EP Hearing. Elke König, Chair of the Single Resolution Board. 4 December 2017

Comprehensive Assessment Final results press conference. Sunday 26 October 2014

EUROPEAN CENTRAL BANK

Final Guidelines. on the treatment of shareholders in bail-in or the write-down and conversion of capital instruments. EBA/GL/2017/04 05 April 2017

Re: Adequacy of loss-absorbing capacity of global systemically important banks in resolution - FSB Consultative Document

ECB-PUBLIC OPINION OF THE EUROPEAN CENTRAL BANK. of 8 March 2017

The new bank resolution scheme: The end of bail-out?

The below new definitions are inserted into the TOB at Annex 1, Part 1, definitions:

Delegations will find hereby the above mentioned Opinion of the European Central Bank.

Intesa Sanpaolo response to the European Commission

June 2018 The Bank of England s approach to setting a minimum requirement for own funds and eligible liabilities (MREL)

Transcription:

The Relevance of the Resolution Tools Within the SRM EBI Working Paper no. 29/2018 https://ssrn.com/abstract=3274520 EBI Annual Conference, 21 and 22 February 2018 Jens-Hinrich Binder University of Tübingen and EBI

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

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. 38-39 BRRD) as a whole or in part share deal / asset deal Bridge Institution (Art. 25 SRMR Arts. 40-41 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. 43-55 BRRD) Write-down of cap. Instruments (Art. 21 SRMR, Arts. 59-62 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

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

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

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

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

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

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

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

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

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

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

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

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-72074 Tübingen / Germany E-mail: binder@jura.uni-tuebingen.de 15