CHECK AGAINST DELIVERY
[Introduction]
Good afternoon,
After “supervision” and “regulation”, let’s go to crisis management!
This afternoon I’ll address several topics in my keynote speech, before joining the panel, for what I hope will be an interesting discussion.
First, what we have achieved so far;
Second, what remains to be done;
Third, I’ll give an indication of what the SRB is doing to better equip itself to handle any bumpy roads ahead in financial stability terms.
Fourth, I’ll share with you the SRB’s position on the European Commission’s Crisis Management and Deposit Insurance proposals;
[What we have achieved]
Onto my first point then: After 8 years, we have come a long way from the inception of the resolution framework and of the Banking Union. All parties involved have accomplished much. The resolution framework is strong and tested and banks are substantially more resolvable, and so safer, than before.
I won’t come back to the building of an effective supervision and a better resilience in the system, as it was addressed earlier. Instead, I will focus on the resolution side in two big areas.
Most banks are making good progress towards full resolvability – building their capabilities in a number of areas. For instance, we expect the vast majority of banks to reach their final MREL target in the coming months.
Another piece of good news is that the Single Resolution Fund is on track to reach 1% of covered deposits – marking the end of the SRF build-up phase. And of course, that means next year, you should see a change to the amount you are being asked to contribute – we have to keep the SRF at least 1% of covered deposits, but the build-up phase is now over, and so future contributions should be smaller, assuming the Fund is not used in a crisis case.
[What remains to be done]
Moving to my second point now, what remains to be done. The job on resolvability, yours and ours, is far from done. Banks are still expected to close the main remaining gaps, notably on liquidity and funding in resolution, separability and restructuring.
Many of you will have already seen our priority letters for next year. We are asking banks to complete the work already started in being able to provide correct and granular valuation and liquidity data at the right time – these will be our priorities for 2024.
Let me insist on liquidity. The recent crises have confirmed that liquidity, unsurprisingly, is a key element for a successful resolution. We are in fact asking the banks to be able to produce data on all available collateral, at all times. We are also working on our end to be able to deal with all the data the banks will produce.
Beyond the bank’s capabilities, the SRB’s liquidity toolbox is strong – I mentioned the SRF earlier - but not complete.
The ESM treaty revision would help, as it foresees that if the SRF is depleted, the European Stability Mechanism can lend the necessary funds to the SRF to finance a resolution, thus doubling the firepower of the fund. It is vital that all countries ratify the ESM treaty revision as soon as possible.
It is true that beyond the SRF and the ESM backstop, there could be a remaining tail risk for providing liquidity in resolution for very large banks. As we have seen in the Swiss crisis, two large liquidity lines that were put in place but were only partially drawn up and fully reimbursed in about three months – a negligible “cost” for such a key support, and, in reality, a true benefit.
Another key lesson learnt from the recent crises is that resolution authorities need to plan to have the flexibility in the choice of which resolution tool to use depending upon the situation. We will certainly work on back-up options for our resolution strategies – including transfer strategies for larger banks and the combination of tools - and of course we will need your input.
[Strategy / New phase]
I would like to give you a bit of visibility as to what is going to happen in the next months and years. This is my third point.
In the last months, the SRB has launched a strategic review to set the priority for the next five years. In that context, we consulted the industry, and I want to thank you for your feedback. The aim is to ensure that the SRB becomes even more efficient and effective in its work. This will be the basis of SRB’s work programmes for the years ahead, which are published annually.
This new Vision 2028 will better-equip the SRM to deal with the various challenges, to ensure banks can be resolved so as to protect financial stability at no cost to the taxpayer.
One cornerstone of this new strategy will be an increased transparency towards all stakeholders, banks included. We aim to consult the industry more in the future on relevant policy topics.
On the resolution planning work, the SRB is shifting from a phase of resolvability capacity building - ours and the banks’ - to a new phase where testing and operationalising all these capabilities will be our new focus.
We are planning to launch own on-site inspections. As you know, we are also already working hard on deep dives and they will become even more frequent in time. Since this is often a concern, I should reassure you that we are coordinating closely with the SSM and we will strive to avoid overlaps.
[CMDI]
We are working hard, with the tools at or disposal, to improve the framework and thus increasing the public trust in it.
However, although these tools are already very useful to handle a banking crisis, the framework could still be improved.
Let me move to my fourth and final point now. The Commission’s CMDI proposal.
The SRB, like the ECB, supports the expansion of resolution to smaller regional lenders in parallel with a more realistic possibility of using DGS in resolution. To allow for that, the SRB, like the ECB, supports the removal of the DGS super priority, the introduction of a single-tier depositor preference and the harmonisation of the LCT.
In fact, resolution has a number of advantages over liquidation. For instance, when a failing bank reopens after the resolution weekend, customers keep access to the full range of services. This is not necessarily the case in liquidation.
I want to be clear: with CMDI resolution will not be a free lunch for smaller banks. CMDI does not pick up the bill for failing banks. Banks “switching” to resolution because of CMDI would not have any preferential treatment.
CMDI would simply give us the right tool for the resolution of these smaller banks, if it is in the public interest. CMDI, in fact, allows for the use of Deposit Guarantee Schemes funds, and possibly of the Single Resolution Fund, to facilitate “market exits”, to fund the sale of the ailing bank to a solid acquirer. By doing so, CMDI also curtails the risk that some uncovered depositors would suffer losses and cause a run on banks.
One concern that we hear often is that this proposal will be expensive for the industry – through an increased need to fund national DGS and the Single Resolution Fund. However, these concerns may be overblown. Our estimations are reassuring. We found that, even if CMDI makes the possibility of using DGS (and the SRF) more plausible, such use in resolution would have limited impact on their finances – and, in turn, on the banks.
The impact in terms of costs is small because MREL will be required to absorb losses, and due to the relatively small size of the banks concerned.
CMDI would be a clear win, it would increase financial stability at a small cost for the industry whilst protecting depositors.
At the same time, while the CMDI represents a positive enhancement of the framework, it does not complete the Banking Union. A third pillar, EDIS, is still missing and also a broader harmonisation of insolvency for banks and so the Banking Union remains incomplete!
[Conclusion]
Ladies and gentlemen, I might stop there to allow us move to our panel discussion, and I understand there may also be questions from some of you.
With that – danke – thank you.
Contact our communications team
