Controversial plan to protect taxpayers’ money from bank bailouts: interview with Gilles Pierre (ABBL)

The European Commission’s recent proposal to amend the crisis management and deposit guarantee (CMDI) framework has sparked intense debate within the banking community. In an interview published in Delano, Gilles Pierre, Head of banking regulation and financial markets at the ABBL, highlighted the main concerns. Here are the key points.

The crucial role of banks in financial stability
Gilles Pierre highlights the crucial role of banks in the financial system, arguing that their collapse could trigger a domino effect, impacting the economy and, consequently, taxpayers.
The European authorities have put in place several regulatory efforts, including the Single Supervisory Mechanism (SSM) for major European banks, the Bank Recovery and Resolution Directive (BRRD) and harmonised deposit guarantee schemes. Despite these regulations, the European Commission has identified shortcomings, particularly with regard to the use of public funds for small bank failures

Minimising the impact on taxpayers

The CMDI proposal suggests a significant change: instead of relying on public funds, it aims to facilitate access to national deposit guarantee schemes (DGS) and/or the Single Resolution Fund (SRF). This change is intended to enable banks to absorb initial losses using their own capital, thereby minimising the impact on taxpayers.

The funds allocated to this initiative are substantial, with an estimated €55 billion for the DGS and €80 billion for the SRF by 2024, as part of the Banking Union. However, there are concerns about the potential consequences for deposit guarantee funds, particularly with the proposed changes to the hierarchy of creditors and the removal of the DGS’s super-preferential status.

Key points of the proposal
The article summarises the key points of the proposal, such as the extension of deposit protection to public entities and to new types of customer funds. It is important to note that there was no discussion on raising the €100,000 maximum limit of deposit protection.
This overview is a summary of the original article published in Delano on 23 January 2024.