Financial Stability
Navigating concerns : the ABBL’s view on the European Commission’s Crisis Management framework
Published on 05 February 2024
The ABBL advocates for a fair and effective approach to bank failures, warning against unsuitable resolutions and the mutualisation of losses across Europe. The association supports restructuring viable large banks while allowing smaller non-viable banks to exit the market, with shareholders and creditors bearing the costs where appropriate.
Summary
In a recent interview with Delano, Gilles Pierre, Head of Banking Regulation & Financial Markets at the ABBL, discussed the European Commission’s proposed Crisis Management and Deposit Insurance framework (CMDI). The framework, introduced in April 2023, aims to safeguard financial stability, protect depositors and taxpayers, and efficiently manage bank failures.
Mutualization Concerns
Gilles Pierre highlighted several shortcomings in the proposed framework, expressing concerns about its impact on the banking sector.
Mutualization concerns
One significant concern is the mutualization of losses across Europe without clear acknowledgment, as pointed out by Pierre during the interview held on 17 January 2024.
Presumed favorability of resolution
The proposal introduces a presumption that resolution is more favourable to the public interest than liquidation. Pierre emphasized the risk of unsuitable and repetitive resolutions negatively affecting healthy banks through increasing contributions to national deposit guarantee schemes and the Single Resolution Fund.
CMDI risks silently mutualizing losses across Europe, potentially impacting healthy banks. We must avoid an open bar scenario without guardrails for financial stability to work effectively.
Gilles Pierre
Head of Banking Regulation and Financial Markets at ABBL
ABBL’s stance
The ABBL advocates for more radical solutions for weak, non-systemic banks. Pierre suggested that large banks facing difficulties should be promptly restructured, while smaller banks should be closed if they cannot sustain profitability. He emphasized that shareholders and creditors should bear the cost of liquidation to avoid unfair competition and maintain a level playing field.
Looking ahead
In looking ahead, the article delves into the CMDI’s implementation timeline, casting doubt on the possibility of an agreement before the end of 2026. Simultaneously, as discussions unfold, the ABBL actively engages in advocating for a fair and level playing field across all banks and business models.
Antoine Kremer
Head of European Affairs at the ABBL, ALFI and ACA
Published on 05 February 2024