Securitisation and Regulation News

EU Parliament adopts resolution on annual Banking Union report

The EU Parliament has adopted a non-legislative resolution on its Banking Union annual report for 2017 that includes sections on supervision, resolution and deposit insurance and supervision.

On resolution, the report welcomes the first application of the new resolution regime in 2017 but sets out concern at the mismatch between the state aid rules and EU legislation related to the ability of deposit guarantee schemes (DGSs) to participate in resolution as provided for in the Bank Recovery and Resolution Directive (BRRD) and Deposit Guarantee Schemes Directive (DGSD). The Parliament calls on the EU Commission to review its interpretation of the state aid rules with reference to the DGSD to guarantee that preventative and alternative measures can be implemented. The report also calls on the Commission to undertake a review of the framework of bank insolvency, including the 2013 Banking Communication, following the 2017 resolution cases which identified potential arbitrage opportunities due to a discrepancy between the rules on state aid applying under the resolution regime and national insolvency law. Among other things, the report also calls on Member States to implement Directive (EU) 2017/2239 on the priority ranking of unsecured debt instruments to ensure new buffers can be built up. On deposit insurance, the report includes a reference to the incompleteness of the Banking Union without the European Deposit Insurance Scheme (EDIS), and also points out ongoing discussions regarding the appropriate legal basis for the establishment of a proposed European Deposit Insurance Fund.

On supervision, the report highlights, among other things, views on:

  • the importance of the cooperation between the European Banking Authority (EBA) as a regulatory authority and Single Supervisory Mechanism (SSM) as a supervisory authority and calls for concrete coordination between the EBA and European Central Bank (ECB) wherever possible to ensure the consistency of the single rulebook;
  • concerns relating to non-performing loans (NPLs) in certain jurisdictions, including a call for better coordination between EU institutions on the issue;
  • concerns relating to the risks stemming from the holding of Level III assets including derivatives, and welcoming the inclusion in the EBA's 2018 stress test procedures of specific risk management measures relating to Level 2 and Level 3 instruments;
  • risks associated with sovereign debt, and potential 'home bias' of certain financial institutions overly investing in their own governments bonds, while one of the objectives of the Banking Union was to break the bank-sovereign risk nexus;
  • addressing flaws identified in internal models in order to re-establish their credibility and achieve a level playing field across institutions;
  • maintaining financial stability by bringing fintechs into scope of rules where their operations are of the same kind as activities of other players in the financial system, while protecting consumers; and
  • the work by the EBA, European Securities and Markets Authority (ESMA) and SSM on supervisory convergence in the context of Brexit.

To the non-legislative resolution