REGULATORY SCRUTINY BOARD OPINION Crisis management and depositor insurance

EUROPEAN COMMISSION
17.1.2023
SEC(2023) 230
REGULATORY SCRUTINY BOARD OPINION
{COM(2023) 226-228}
{SWD(2023) 225-226}
Crisis management and depositor insurance
Offentligt
KOM (2023) 0226 - SEK-dokument
Europaudvalget 2023
________________________________
This opinion concerns a draft impact assessment which may differ from the final version.
Commission européenne, B-1049 Bruxelles - Belgium. Office: BERL 02/352. E-mail: regulatory-scrutiny-board@ec.europa.eu
EUROPEAN COMMISSION
Regulatory Scrutiny Board
Brussels,
RSB/
Opinion
Title: Impact assessment / Crisis management and depositor insurance
Overall 2nd
opinion: POSITIVE
(A) Policy context
The EU bank crisis management and deposit insurance (CMDI) framework lays down the
rules for handling bank failures and protection of depositors following the 2008 financial
crisis. It is designed to ensure that bank failures can be managed in an orderly manner. The
framework came into force in 2015 and in the same year, the Commission proposed the
European Deposit Insurance Scheme (EDIS), which would mutualise national deposit
guarantee funds at the European level. This constitutes the third pillar of the Banking
Union (in addition to the Single Supervisory Mechanism and the Single Resolution
Mechanism). However, the EDIS proposal remains un-adopted. In June 2022, the
Eurogroup invited the Commission to table a legislative proposal to strengthen the CMDI
framework. The current report presents an impact assessment including an evaluation of
the CMDI to support its revision.
(B) Summary of findings
The Board notes the significant changes and clarifications made to the report.
The Board gives a positive opinion. The Board also considers that the report should
further improve with respect to the following aspect:
(1) The report does not clearly address the One In: One Out requirements.
(C) What to improve
(1) The report should address the One In: One Out requirements. If quantitative estimates
cannot be produced, or if these are negligible, or the proposal is considered to have no
One In: One Out implications, this should be explained.
(2) While the report presents general views of large and small banks on the policy options,
Annex 2 still does not provide a general overview of differentiated stakeholder views.
Annex 2 should consider responses by type of stakeholder.
2
The Board notes the estimated costs and benefits of the preferred option(s) in this
initiative, as summarised in the attached quantification tables.
Some more technical comments have been sent directly to the author DG.
(D) Conclusion
The DG must take these recommendations into account before launching the
interservice consultation.
Full title Crisis management and depositor insturance
Reference number PLAN/2020/8120-8122
Submitted to RSB on 9 December 2022
Date of RSB meeting Written procedure
3
ANNEX: Quantification tables extracted from the draft impact assessment report
The following tables contain information on the costs and benefits of the initiative on
which the Board has given its opinion, as presented above.
If the draft report has been revised in line with the Board’s recommendations, the content
of these tables may be different from those in the final version of the impact assessment
report, as published by the Commission.
I. Overview of Benefits (total for all provisions) – Retained Options
Description Amount Comments
Direct benefits
Enhanced legal
certainty,
harmonisation and
simplification of
certain rules
leading to
convergence and
level playing field.
No available amount ex ante. Strengthening the
single rulebook and harmonising crisis
management rules will unify the regulatory
environment and increase the level playing
field, possibly fostering more integration in the
single market, which could be monitored in the
future.
By harmonising the application of the PIA, the
depositor preference in the hierarchy of claims,
the least cost test to access DGS funding for
various interventions, the retained option would
enhance legal clarity and achieve a significant
simplification of rules.
Resolution authorities
would be the main
recipients of these benefits,
especially when working on
cross-border banking
groups, mainly due to
increased standardisation,
simplification and
streamlining of rules.
Additional legal clarity
would reduce the risk of
legal challenge for
authorities related to the
planning, formulation of
requirements to banks and
execution of the preferred
strategy.
Market participants would
also benefit from
standardisation, as they
would be in a better position
to assess risks related to
banks.
Depositors would also be
the recipients of these
benefits, as the
harmonisation of depositor
preference in the hierarchy
of claims would ensure their
fair their treatment across
Member States.
Reduced recourse
to taxpayer money.
No amount available ex ante. Taxpayer money
would be more protected when handling failing
banks by using resolution or alternative
measures more consistently, mainly because
shareholders, creditors and, if needed, the
resolution fund/ DGS would bear losses and
support executing the resolution strategy.
Estimating the amount of taxpayer funds
savings that would be enabled by these reform
would be bank-specific. As an indication based
Taxpayers would be the
main recipients of this
benefit. A more efficient use
of DGS funds would reduce
the risk of DGS liquidity
shortfall and the need of
public intervention as a
backstop to the DGS.
4
on the past, when considering the examples of
failing banks between 2015 and 2022, taxpayer
exposures to such contingent liabilities reached
EUR 58.2 bn (out of which EUR 28.1 bn were
used for liquidity support). However, future
uses of taxpayer money cannot be gauged on
past cases.
Strengthened
depositor
confidence through
continued access to
accounts, greater
protection of
eligible deposits
(also non-covered)
and avoidance of
bank runs.
No amount available ex ante. Alternative use of
DGS for paying out covered deposits under
insolvency would limit the disruption caused by
blocked deposit accounts. It would be
confidence enhancing and less prone to
contagion/bank run. Moreover, non-covered
deposits (above EUR 100 000) in the EU
(amounts not reported to EBA) would also be
more protected from bail-in under transfer
strategies as per the retained option, while they
are not protected under a payout scenario (only
covered deposits are protected in that case).
This prospect would potentially deter depositors
from running on the bank.
In a payout event, where depositors must be
reimbursed within seven days, interrupted
access to accounts, social benefits and credit
facilities for even a short period in prevalently
cashless societies, using or operating with credit
and debit cards and electronic systems, could
impact the overall economy. The failure of
smaller and medium-sized banks can also create
substitutability issues because of challenges for
a high number of depositors and banks to
simultaneously open new accounts to receive
their reimbursement.
Covered and non-covered
eligible depositors are the
main recipients of these
benefits because their
deposits would be less likely
to be bailed-in. More
generally, depositor
confidence in the banking
sector would be
strengthened by limiting
DGS payout events and
facilitating the use of DGS
funds for measures
preserving their continued
access to their accounts (e.g.
resolution or alternative
measures in insolvency).
More efficient use
of DGS funds in
managing banks in
crises.
No amount available ex ante. The cost of a DGS
intervention measure either in resolution or
under alternative measures in insolvency would
be cheaper than the cost of paying out covered
depositors under a piecemeal liquidation. A
payout of covered depositors is usually cash
consuming as the DGS would be required to
reimburse the amount of covered deposits to all
eligible covered depositors before recovering
(part of) this amount during the insolvency
proceedings. Moreover, the least cost test
ensures that the DGS contributions under
resolution or alternative measures in insolvency
are always lower than those in a payout event.
Therefore, facilitating other measures than
payout would better preserve the financial
means of the DGS, reducing the amounts of
losses that may arise through the DGS
intervention.
Banks contributing to the
DGS funds and DGS
authorities are the main
recipients of this benefit.
By preserving DGS
available financial means,
banks would be called on to
contribute less to replenish
the spent funds.
Additionally, DGS
authorities would benefit
from a more efficient usage
of DGS available financial
means.
5
However, it is very challenging to provide an
amount corresponding to the cost reduction for
the DGS as this would be bank-specific.
More credible and
proportionate
access to RF/SRF
for smaller and
medium-sized
banks.
No amount available ex ante. A more credible
and proportionate access to RF/SRF for smaller
and medium-sized banks would lead to a wider
application of resolution tools (transfer of
deposit book), preserving more value, in
particular when compared to a piecemeal
liquidation or a procedure under non
harmonised national insolvency rules. The use
of the industry-funded safety net would replace
in many cases the bail-in of non-covered
depositors.
However, estimating the amount of the RF/SRF
that would be required is not possible ex ante
because it would depend on a case by case
analysis and the specific circumstances of each
bank at the moment of failure (e.g. level of
losses at the point of failure, the financial
fundamentals of the bank, the composition of its
liabilities, all of which feed into the results of
the valuation exercise).
Non-covered depositors
would be the main
recipients of this benefit.
They would not see their
deposits wiped out in case
their bank would be failing
and resolved under a
transfer strategy. Rather, the
DGS and the RF/SRF which
are industry-funded safety
nets would step in to
facilitate the resolution of
that respective bank.
Franchise value of
a failing bank
preserved when
facilitating transfer
strategies.
No amount available ex ante. The transfer of the
(whole or partial) business would preserve the
franchise value to a greater extent than under a
piecemeal liquidation approach. It would avoid
the destruction of the business brand, preserving
the commercial relationships with the clients
and consequently better maintaining the
profitability of, and the return on the assets.
Transfer strategies could be applied in
resolution. Where resolution is discarded
(negative PIA), alternative measures in
insolvency maintain an incentive to maximise
the franchise value, thereby minimising the cost
for the DGS. However, an amount reflecting the
preservation of value cannot be estimated.
Doing so would be fully case-dependant and
specific to the circumstances of each bank at the
moment of failure.
Stakeholders in a failing
bank, the other banks
contributing to safety nets,
as well as taxpayers are the
main recipients of this
benefit.
6
Indirect benefits
Better aligned
incentives to apply
resolution tools and
benefit from funding
solutions to execute
the strategy.
No amount available. Improving the
incentives to apply an improved and more
standardised framework would lead to less
circumvention in application and more level
playing field at EU level.
However, this cannot be quantified, as it
would be the sum of the benefits stemming
from the protection of taxpayers and
depositors, more efficient use of DGS funds
and more legal certainty in using tools for the
banks, resolution authorities and markets.
Taxpayers, depositors,
resolution authorities, banks
and markets would all be
recipients of this benefit.
Preservation of
Europe’s diversity in
banking business
models.
No amount available. Fixing the tools and the
funding to deal with smaller/medium-sized
banks which are predominantly deposit taking
would preserve such traditional business
models across the EU, on the condition that
they remain viable.
The society at large is the
recipient of this benefit.
Administrative cost savings related to the ‘one in, one out’ approach*
n/a n/a n/a
(1) Estimates are gross values relative to the baseline for the preferred option as a whole (i.e. the impact of individual
actions/obligations of the preferred option are aggregated together); (2) Please indicate which stakeholder group is the
main recipient of the benefit in the comment section;(3) For reductions in regulatory costs, please describe details as to
how the saving arises (e.g. reductions in adjustment costs, administrative costs, regulatory charges, enforcement costs,
etc.); (4) Cost savings related to the ’one in, one out’ approach are detailed in Tool #58 and #59 of the ‘better
regulation’ toolbox. * if relevant.
7
Table 5: Overview of costs
II. Overview of costs – Retained options
Citizens/Consumers
/Businesses
Banks Administrations
One-off Recurrent One-off Recurrent One-off Recurrent
Expandin
g the
scope of
resolution
through
clarified
PIA
Direct
adjustment
costs
n/a n/a More banks
coming into
the scope of
resolution
would
require
investing in
projects
enhancing
their
resolvabilit
y (e.g. IT
systems,
timely data
reporting,
legal
structure,
review
contracts in
view of
implementi
ng
resolution
stays,
valuation
capabilities,
liquidity
monitoring,
etc.). As
resolution
authorities
continue to
retain
discretion
in their
decision to
place banks
in
resolution
vs
insolvency,
the number
of banks
that would
Raise
MREL
eligible
instruments
in case of
shortfalls
against the
set targets.
This cost
cannot be
estimated
upfront
because it
depends on
the features
of the
bank1
, its
potential
bank-
specific
MREL
target, the
outstanding
stock of
eligible
instruments
already held
and market
conditions.
Applying
resolution
tools
presumably
more often,
due to the
expansion
of the
resolution
scope,
depending
on the
occurrence
of failure
events.
This cost
cannot be
estimated
upfront, as
resolution
authorities
continue to
retain
discretion
in their
decision to
apply
resolution
vs
insolvency.
Preparing
more
resolution
plans,
conducting
more
resolvability
assessments
and setting
MREL
requirement
s for more
banks as
part of
yearly
resolution
planning
cycles. The
number of
banks which
would enter
the
resolution
scope and
therefore
this cost
cannot be
estimated
upfront, as
resolution
authorities
continue to
retain
discretion in
their
decision to
apply
resolution vs
insolvency.
1
E.g. rating, creditworthiness, financial fundamentals (such as quality of assets, capitalisation, etc.).
8
II. Overview of costs – Retained options
Citizens/Consumers
/Businesses
Banks Administrations
One-off Recurrent One-off Recurrent One-off Recurrent
enter the
scope of
resolution
cannot be
estimated.
Moreover,
the
additional
costs that
each bank
may incur
to become
more
resolvable
depends on
the specific
situation of
each bank
(efficacy of
managemen
t
information
systems,
valuation
capabilities,
etc.)
Direct
administrativ
e costs
n/a n/a n/a n/a n/a n/a
Direct
regulatory
fees and
charges
n/a n/a n/a n/a n/a n/a
Direct
enforcement
costs
n/a n/a n/a n/a n/a n/a
Indirect costs Additional
costs for
banks may
be passed
on to
clients.
However,
such costs
should be
limited.
9
II. Overview of costs – Retained options
Citizens/Consumers
/Businesses
Banks Administrations
One-off Recurrent One-off Recurrent One-off Recurrent
Facilitatin
g the use
of funds
in
resolution
and
alternativ
e
insolvency
measures
Direct
adjustment
costs
Facilitating
the use of
DGS funds
may
increase the
costs for the
banking
sector due
to
additional
contribution
s to
replenish
the DGS
upon
depletion.
No
quantificati
on
available, as
an estimate
would
strongly
depend on
the amount
of funds the
DGS would
use which
reflects the
losses in
case of a
failure.
However,
this cost
would be
compensate
d through
more
efficient use
of DGS in
resolution
compared to
payout in
insolvency.
More
complex
processes
and
additional
tasks for
resolution
authorities
when DGS
can
contribute
towards the
minimum
8% TLOF
bail-in
condition to
access the
RF/SRF.
Direct
administrativ
e costs
n/a n/a n/a n/a n/a n/a
Direct n/a n/a n/a n/a n/a n/a
10
II. Overview of costs – Retained options
Citizens/Consumers
/Businesses
Banks Administrations
One-off Recurrent One-off Recurrent One-off Recurrent
regulatory
fees and
charges
Direct
enforcement
costs
n/a n/a n/a n/a n/a n/a
Indirect costs Costs by
small/medi
um-sized
banks
which have
already
raised
MREL
instruments
and can
access
RF/SRF
without
DGS
contributio
n.
Costs related to the ‘one in, one out’ approach
Direct
adjustment
costs
n/a n/a n/a n/a
Indirect
adjustment
costs
n/a n/a n/a n/a
Administrati
ve costs (for
offsetting)
n/a n/a n/a n/a
(1) Estimates (gross values) to be provided with respect to the baseline; (2) costs are provided for each identifiable
action/obligation of the preferred option otherwise for all retained options when no preferred option is specified; (3) If
relevant and available, please present information on costs according to the standard typology of costs (adjustment
costs, administrative costs, regulatory charges, enforcement costs, indirect costs;); (4) Administrative costs for offsetting
as explained in Tool #58 and #59 of the ‘better regulation’ toolbox. The total adjustment costs should equal the sum of
the adjustment costs presented in the upper part of the table (whenever they are quantifiable and/or can be monetised).
Measures taken with a view to compensate adjustment costs to the greatest extent possible are presented in the section of
the impact assessment report presenting the preferred option.
11
EUROPEAN COMMISSION
Regulatory Scrutiny Board
Brussels,
RSB/
Opinion
Title: Impact assessment / Crisis Management and Deposit Insurance
Overall opinion: NEGATIVE
(A) Policy context
The EU bank crisis management and deposit insurance (CMDI) framework lays down the
rules for handling bank failures and protection of depositors following the 2008 financial
crisis. It is designed to ensure that bank failures can be managed in an orderly manner
through cross-border resolution and to mitigate moral hazard. The framework came into
force in 2015 and in the same year, the Commission proposed the European Deposit
Insurance Scheme (EDIS), which would mutualise national deposit guarantee funds at the
European level. This constitutes the third pillar of the Banking Union (in addition to the
Single Supervisory Mechanism and the Single Resolution Mechanism). However, the
EDIS proposal remains un-adopted. In June 2022, the Eurogroup invited the Commission
to table a legislative proposal to strengthen the CMDI framework. The current report
presents an impact assessment including an evaluation of the CMDI to support its revision.
(B) Summary of findings
The Board notes the additional information provided in advance of the meeting and
commitments to make changes to the report.
However, the Board gives a negative opinion, because the report contains the
following significant shortcomings:
(1) The report does not clearly demonstrate the existence of a problem that the
current legal framework is insufficient to tackle. It does not explain why Member
States overwhelmingly prefer national solutions to bank failures rather than the
EU framework and why this is a problem.
(2) The report does not clearly demonstrate the need to facilitate the use of the EU
resolution framework for small and medium-sized national banks rather than
only banks with cross-border operations. It does not sufficiently explain how the
initiative respects the principle of subsidiarity.
(3) The report does not clearly demonstrate its coherence with the EDIS proposal.
(4) The report is not sufficiently stand alone or accessible to the non-expert reader. It
does not clearly present the different views of all stakeholder groups.
12
(C) What to improve
(1) The report needs to better identify and explain the substantive problem and
shortcomings in the current framework it seeks to address and substantiate it with robust
evidence. In doing this, it should draw on the conclusions of the evaluation that the EU
resolution framework is sparsely used. It should examine exactly why this is a problem and
what the drivers behind it are by clearly setting out the disincentives for Member States
(and banks) to practical bank resolution using the EU framework. It should explain why the
current arrangements and incentives have failed and why Member States have shown a
strong preference for resolution outside of the EU framework. It should demonstrate why
this poses a risk to the wider financial stability of the EU. It should show why the current
arrangements would not be fit for purpose in a large scale financial crisis scenario. Finally,
it should better explain the international experience in handling bank failures and the
lessons that can be drawn from these.
(2) While the resolution framework is designed to cover all banks in the EU, in practice its
use has been limited. The report should recall and better explain that all banks are covered
by the existing framework and demonstrate, with evidence, the need to facilitate the
practical use of the EU resolution framework for smaller and mid-sized banks. It should
demonstrate how this is consistent with the principle of subsidiarity. This should include
evidence to demonstrate the clear cross-border nature of the problem including by
providing evidence on the composition of the banking sector in different Member States
and the differing scale and geographical spread of the potential recipients. It should provide
evidence of the risk of EU-wide contagion in the internal market and for public finances if
the current arrangements persist. Finally, it should better set out the division of roles
between the EU state aid framework (and its upcoming revision) and the resolution
framework and how coherence will be ensured between the two.
(3) The report should better explain the links between the EBA advice and the options set
out in the report. It should clarify the envisaged bridging facility, its scope and limitations,
and its envisaged impacts. It should explain that EDIS under the most comprehensive
option 4 is different from the 2015 EDIS proposal. It should better articulate how the
analytical and policy coherence between option 3 (which does not include EDIS and for
which a further legislative proposal is envisaged) and the pending 2015 EDIS proposal will
be ensured. In view of this specific context and the results of the presented analysis the
report should reflect whether analytically it is not more useful to leave the choice of the
preferred option open.
(4) The report should be revised to make it self-standing and accessible to the non-
specialist reader. While technical language is necessary in certain parts for experts
practitioners, and in particular in annexes, it is important that the main narrative remains
clear for political decision makers.
(5) The report should better integrate the views of all stakeholders in the main report, by
better distinguishing between the views of different groups on all key aspects.
Some more technical comments have been sent directly to the author DG.
13
(D) Conclusion
The DG must revise the report in accordance with the Board’s findings and resubmit
it for a final RSB opinion.
Full title
Crisis Management and Deposit Insurance
Reference number PLAN/2020/8120-8122
Submitted to RSB on 28 September 2022
Date of RSB meeting 26 October 2022
Electronically signed on 17/01/2023 14:43 (UTC+01) in accordance with Article 11 of Commission Decision (EU) 2021/2121