[Check against delivery]
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.
Today, I am officially here with you to present the Annual Report, published last month. It details the work of the SRB during 2021, and the progress made in building resolvability, in order to promote financial stability. However, I will not dwell on the report in detail, although I would be happy to answer your questions, if you have any.
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 March.
I will first take a look at some past resolution cases: including the recent court case on Banco Popular, and as well as mentioning the Sberbank case, which I touched on already in March;
Second, I want to take a look the resolvability assessment 2021. This morning we published a summarised version of our first heat-map exercise and;
Third, I will reflect on the outcome of last month’s Eurogroup and my expectations for the next steps.
[BPE / Sberbank]
Honourable members, when it comes to Banco Popular, we had recent landmark rulings from the First Instance Court. Just to remind you, Banco Popular was Spain’s 6th largest bank. The SRB managed to resolve it successfully, under what was the new resolution framework. The result back in 2017?
- Depositors were protected.
- Financial stability was protected.
- The taxpayer was protected.
- And businesses across Spain continued to access credit lines, enabling these businesses to continue to function as normal.
Instead of ‘too big to fail’, we successfully resolved the bank, avoiding a bail-out. But of course, there were investors, who had taken a risk when investing, who were not happy with their losses, hence some of them took legal action against the SRB and the European Commission, and indeed also this house, the ECB and the Council.
Now, the Court, in these recent landmark judgments dismissed the appeals against the resolution decision, in their entirety. The ruling confirmed the legality of the SRB’s decision to resolve Banco Popular and of the resolution legal framework. Our actions have been fully vindicated, which is something I very much welcome. The judgment also gives clarity for future resolution cases, including that of Sberbank AG.
For Sberbank, we have published the redacted resolution decisions and are now waiting for the valuations that compare the resolution decision with the outcome of hypothetical insolvency.
I will spare you the lessons learnt, expect perhaps, that the case highlighted the need, once again, for a harmonisation of EU insolvency laws to make a European resolution decision truly European.
[Resolvability Assessment & Heatmap]
We have come a long way since 2017, and I have often spoken about the SRB’s ‘journey’ when it comes to resolution. Part of our resolution journey is taking stock of the road travelled so far, and what is still left to do, in order to reach the destination of fully resolvable banks. It is to the resolvability assessment document I turn to now.
This morning, we published the Resolvability Assessment 2021, containing a heat-map, showing aggregated information about the progress being made, and where there is still room for improvement.
I am pleased to report overall satisfactory progress, in particular in those many areas where policies have been phased-in over recent years. So, good work in many areas, which is welcome in these uncertain times.
However, we see the need for further efforts, especially in the following areas:
(i) liquidity in resolution – this is a topic to be addressed this year and probably into next year also;
(ii) management information systems, which is a never-ending, but important issue and
(iii) business reorganisation and separation plans in case of a resolution.
These gaps will have to be closed in the near term and these are 2022 and 2023 priorities.
As regards the MREL, the assessment shows that banks are overall on track meeting the 2024 deadline, despite some outliers that are monitored carefully to achieve compliance.
Regarding the preferred resolution strategy as well the decision on SPE and MPE strategies, they are a key element of our work going forward. Resolution strategies and tools must be operationalised and as I mentioned last time, more work is needed to be sure the chosen strategy can really be implemented swiftly.
Let me stop here on this, my second topic today, and say that we remain committed to ensuring banks are resolvable by 2024.
[Outcome of Eurogroup]
Moving onto the Eurogroup of last month now - I pay tribute to the work of President Paschal Donohoe. He has done his utmost to advance the cause of financial stability, since he took up the role just two years ago, and I know that this committee has worked tirelessly too, under your leadership, madam chair, to improve and strengthen the Banking Union.
Good progress was made in the area of crisis management at the Eurogroup meeting. It is true, that progress was not made on all of the areas I would have liked – EDIS is still not in sight. Nevertheless, good progress was made and I assume that we are all looking forward to the proposals of the Commission.
So, what are the positive outcomes, as I see it, from the Eurogroup? There are some truly important aspects mentioned in the Eurogroup statement.
The first thing, is that I am pleased about the decision to expand the scope of resolution. This expansion should be accompanied by an enhanced set of funding options for the resolution authority, to ensure that we have all the tools necessary for the resolution of those small and medium-sized banks that will come under the scope of resolution.
The second positive outcome, was the agreement to strengthen national DGSs. If we are to avoid a run on banks in a time of crisis, then depositors must feel secure. Europeans, who work hard for their money, must always be reassured that their deposits and savings in banks are safe. It is therefore important to reinforce the deposit guarantee system across the Banking Union, to provide this reassurance to depositors. Now, while it is important to strengthen national schemes, I would caution against any renationalisation of resolution tools which would cause a risk of fragmentation.
The third positive is on harmonising insolvency procedures – to some extent at least. As Europe’s central resolution authority, we are often faced with challenges in applying some of the existing framework, because applying the rules in the same way across the Banking Union, can lead to very different outcomes, depending on the insolvency law of the country concerned. In the case of Sberbank for example, we were dealing with different legal frameworks simultaneously, creating quite some challenges. It is important to highlight that this would be amplified for a larger banking group operating in say half a dozen or more Banking Union countries and beyond. Harmonisation is really important if we are serious about being able to resolve large banks over just a few days, let alone have a sound NCWO assessment. The Sberbank case served as a reminder of the need to get on with the job of harmonisation, not least to enable the consistent management of bank failures right across the EU.
However, there are other areas which would still require further work.
The moratorium tool needs to be improved. It is a vital tool, but under the current set-up, timing is a real issue. 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 may 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 Comp and thereafter the endorsement of the resolution scheme by the Commission. This would require an ultra-long weekend, so really this is something that must be looked at.
My last point on areas for improvement is on the practical aspects of the implementation of the Single Point of Entry strategies, including identification of the legal and practical obstacles to the transferability of funds from the point of entry to the subsidiaries. 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 “take care” of its subsidiaries.
So, we must take what was concluded at the Eurogroup and move forward. My job, and the job of this house, is now to work, to try to implement the progress achieved, in the most efficient, effective way possible to further strengthen financial stability and prevent the need to bail-out banks, as happened in 2008.
I want to conclude.
We are all aware of the political context in which we meet today.
Regarding the impact of the Russian war in Ukraine on the banking sector at least, we would concur with the assessment of supervisors in the SSM, that first-round effects are contained and second round effects are on the whole manageable so far, yet in view of the macroeconomic uncertainty, continued, close monitoring is necessary.
So, in a time of division and uncertainty, it is essential that we come together, in the spirit of cooperation, in order to drive the financial stability agenda forward.
We’ll continue to work with this committee in order to make that happen, and I want to thank you for your continued support.