Buongiorno Signora presidente!
Good afternoon Madam Chair, honourable Members and to all of you observing in the room, or watching online. It is a pleasure to be with you yet again, this time for the last time.
Madam Chair, I want to use the time this afternoon to provide a short update on a number of topics the SRB has been working on, since I last came here in July, and I’d also like to take a look at the progress made on resolution more generally. Officially, I am also here to present the 2023 work programme for the SRB recently published, and will be happy to answer any questions you may have.
Over the past eight years, we have built up the SRB to become Europe’s respected resolution authority.
We’ve had many successes, even if we still have work to do. If I may, I’d like focus on four areas this afternoon.
The first is on the resolution planning cycle and resolvability assessment;
The second is a word on the building up of the Single Resolution Fund;
The third is on past resolution cases and;
The fourth is a look at further reforms required to strengthen the resolution framework in Europe.
[1. RPC / RA]
Onto my first subject now. In terms of the resolution planning cycle, we are well on track. The annual cycle is established and updating the plans becomes almost a routine. Now that resolution plans are largely in place, the focus will turn to preparing for any potential crises to be able to implement even complex resolution strategies. In short, the banks but also the National authorities and of course the SRB need to work further to become crisis-ready. This means a lot more testing, deep-dives and potentially on-site inspections to identify and fix weaknesses.
The resolvability assessment published during the summer showed good advances by the banks, but clearly some efforts are needed to reach the 2023 finishing line that we have given the banks through our so-called “Expectations for Banks”.
Incidentally, on the resolution plans, one of the criticisms levelled against the SRB over the years has been a lack of transparency. Why don’t we publish our plans? Why don’t we provide the same level of information on bank specific resolvability as our counterparts in Switzerland, in the UK or the US? The SRB has to follow EU law – laws made by the co-legislators. Perhaps there is need for change, but this is not something the SRB can do – it is the EU’s lawmakers that have to take a decision on such matters. This might be a topic to be considered, indeed.
2023 will be a decisive and transitional year. It marks the end of the MREL build-up phase, it is the end of the phasing in of the Expectations for Banks in terms of becoming resolvable, and it is also the end of the build-up period for the Single Resolution Fund, which is my next point.
[2. SRF build-up in 2023]
The Single Resolution Fund was to be built up over eight years, and amount to one per cent of covered deposits. We are approaching the target.
The SRB has been issuing requests for payment of the SRF levy each year and 2023 will be the last of these ‘build-up’ years, which will be welcome news for the banks, for sure.
Thereafter the fund will have to be adjusted to keep up with potential growth of deposits to stay at the level of at least 1% of covered deposits, and of course in case the fund was used in a resolution and needs to be replenished.
The SRF is a substantial amount of money and, while it is important to be on standby in the event of a crisis, we also need to think what role it might be able to play in a European deposit protection scheme, perhaps even as a facilitator into something like to European Deposit Insurance Fund, akin to the US FDIC.
However, the backstop to the Single Resolution Fund is still missing. Let’s hope that Pierre Gramegna, the new ESM Managing Director can soon declare ‘mission accomplished’ to the ESM Treaty changes.
[3. BPE rulings and Sberbank]
My third point is on Banco Popular and Sberbank. The landmark rulings from the First Instance Court this year were of particular importance. Banco Popular was Spain’s 6th largest bank and the SRB managed to resolve it successfully, under what was then the still untested resolution framework. Our actions were fully vindicated, which is something I always felt would happen, but now it has been confirmed. This leaves the SRB in good stead for future resolution cases and should also give the co-legislators some comfort. Sberbank was our second resolution case and it, too, was a success for financial stability, at the same time protecting depositors.
[4. CMDI and further reforms required]
Moving onto my fourth point, CMDI and further reforms. First to the CMDI review.
The SRB supports measures to enhance and support the framework, and look forward to the Commission’s proposal. We can see that there is support for a wider use of the public interest assessment to cover small and medium-sized banks, and for the broadened application of resolution tools in crisis management at European and national level. Importantly, where we expand the scope of banks covered by resolution, we also need to make sure that there are effective funding options for resolutions decisions that support the existing European framework in the Banking Union and enable the market exit of those banks. Let me stress, we talk about market exit, not resurrection or life-support.
After all, resolution is not a free lunch. It needs MREL to be in place, burden-sharing by shareholders and creditors and sufficient additional funding, if needed for an effective outcome. This, in turn, means we need a control mechanism at the European level for using any external funding. Therefore my plea that decision making should stay European, ensuring we don’t undermine the current framework, and in particular if we use the Single Resolution Fund. More - not less - Europe is needed.
The use of Deposit Guarantee Scheme Funds in resolution is currently a theoretical possibility, but to make it a really feasible source of external funding, the SRB supports removing the DGS’ super priority and instead adopting a general preference for depositors with a fully harmonised least cost test for access to DGS funds; including, but also limited to relevant quantifiable costs. Alternative measures for use by the DGSs themselves should be harmonised as we see divergent approaches across the EU.
I here frequently heard the claim that these reforms - in particular when changing from super priority to depositor priority – would weaken depositors’ confidence in the protection they can rely on. I find this hard to understand as the FDIC works on this basis for decades and the trust in their protection is outstanding in the US, despite many crises.
The moratorium tool also needs attention. Some of you may be are familiar with Sven Giegold’s resolution weekend graphic. If we are to allow every actor in the resolution process, the time they are legally entitled to, for examination of the various steps of the resolution scheme, we would run out of weekend before Monday and even the existing slightly less than two days of moratorium may not suffice to solve that problem.
Adding the SRF and the backstop in a resolution case would mean even more time pressure, as this would involve the endorsement of state-aid by DG Competition, i.e. the Commission, and thereafter the endorsement of the resolution scheme by the Commission. This would require a very, very long weekend, so really this is something that has to be reviewed.
My last point on areas for improvement is on the practical aspects of the implementation of the Single Point of Entry strategies. We have to ensure that a bank operating across a number of countries with a Single Point of Entry resolution strategy, will really be resolved as a group and that there are appropriate arrangements that ensure the resolution entity will look after its subsidiaries.
I am pleased that Paschal Donohue looks set to continue at the helm as Euro group Chair.
He, and his team, have done much to push the financial stability agenda forward.
I want to conclude.
As you know, this will be my last time to come before you. I want to say thanks to you, Madam Chair, and all the honourable members, both past and present, for your welcome on each occasion, and for your support and cooperation.
So, in a time of division and uncertainty, it is essential that we continue that spirit of cooperation, in order to drive the financial stability agenda forward.
You, together with the Council and the Commission, have tasked the SRB with delivering a banking resolution system for Europe to promote financial stability and protect the taxpayer. We have delivered on that fundamental goal so far. It has been my pleasure over these past eight years to report to you, the democratic representatives of the people the SRB tries to protect.
Next time round my successor Dominique Laboureix will come before you to give you an update on the work of the SRB. With his experience, and this committee’s continued support, I have no doubt that the future of banking resolution, and the resulting financial stability, is in safe hands.