ABBL

General comments

The Luxembourg Bankers’ Association (the ABBL) welcomes the opportunity to comment the Commission Communication on a EU framework for cross-border crisis management in the banking sector.

The ABBL considers that it is crucial to strengthen and to integrate the current framework for cross-border crisis management in order to significantly reduce the moral hazard and to ensure financial stability. We call therefore for an ambitious reform of the framework, which should not be jeopardized by, among others, political or legal hurdles.

The reform should guarantee that the bankruptcy of a cross-border bank, be it systemically important or not, will always be possible without any undue burden for the taxpayers and for the social welfare.

Early intervention by supervisors

The ABBL agrees that the early intervention indicators and the powers of supervisors should be harmonized. The thresholds may be qualitative or quantitative, and the decision to trigger an early intervention should be agreed jointly within the college of supervisors coordinated by the consolidating Supervisor.

The ABBL thinks that the political and technical feasibility of intra-group asset transfers is subject to two fundamental conditions:

• The existence of an integrated framework at EU level for resolution and insolvency, i.e. a 28th regime where the group is considered as a single entity, i.e. all creditors of the group are treated equally on a pan-European level and all assets of the group are available for all debtors in whatever EU country they may be established.

• The agreement on a burden sharing mechanism

In the absence of such arrangements, the incentives for ring fencing of national assets - especially after an asset transfer - are likely to remain high. In that respect, introducing a limited concept of group interest would not fully address the issue of ring fencing of national assets.

The intra-group transfer of assets should be submitted to the following safeguards:

• In order to avoid any competitive distortion, the depositors of the group’s legal entities must stand on an equal footing, i.e. the depositors of a subsidiary must have the same level of protection as those of the parent company and vice-versa.

• The asset transfers should not endanger the solvency of the transferor entity

• The asset transfers should be agreed jointly within the college of supervisors

Potential disagreements related to the above-mentioned joint decisions should be addressed by the European Banking Authority in the framework of the article 11 of the Commission proposal of a regulation establishing a European Banking Authority.

Bank resolution and insolvency

As mentioned previously, the ABBL supports an ambitious reform of the current framework with the following components:
 

• Introducing a 28th regime

The 28th regime would carve out, in specific circumstances, the national insolvency regimes. Under the regime, the group would be treated as a single entity and the substantive consolidation, i.e. the pooling of assets and liabilities of the group’s legal entities, should be made possible.

For the sake of neutrality and independence, a single EU administrator appointed by EU authorities should drive the whole process.

• Private sector financing

The ABBL is open to a discussion on private sector solutions minimizing the cost of an insolvency to be born by the taxpayers.

For example, the contribution of national Deposit guarantee schemes to proportionally finance resolution measures could be endorsed by the ABBL with the following safeguards: the contributors to the national Deposit guarantee scheme should agree to do so, after having obtained clear evidence on the solvency situation of the ailing bank, and a high level of depositors’ protection should be maintained.

The ABBL is also ready to participate to the debate on the creation of a EU resolution fund.

• Agreeing on a ex-ante burden sharing mechanism

Any mechanism defining ex-ante the respective contributions of each member state involved in the resolution, based on a predetermined closed formula, is not appropriate due to the specific nature of each banking group and of each crisis.

The priority should be to agree on the common principles and on a non-limitative list of criteria to be considered when it comes to allocate the burden among the member states.

ABBL contact person: Gilles Pierre (pierre [at] abbl [dot] lu)