Proceso para recuperación de Bancos por la CE
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The document outlines a European framework for bank recovery and resolution, highlighting the need for effective instruments to manage failing banks to safeguard public finances and maintain financial stability. It discusses a structured approach involving prevention, early intervention, and resolution, emphasizing the importance of a common EU framework to address cross-border banking issues. The framework introduces flexible resolution tools, including bail-in mechanisms, to ensure that losses are absorbed by shareholders and creditors before any public support is provided.
Proceso para recuperación de Bancos por la CE
- 1. A EUROPEAN FRAMEWORK FOR BANK RECOVERY AND RESOLUTION 06/06/2012
- 2. Lack of effective and credible instruments to restructure or resolve banks is a risk to public finances and financial stability • G20 commitment (Pittsburgh, September 2009) to "...create more powerful tools to hold large global firms to account for the risks they take" and "develop…frameworks for the effective resolution of financial groups to help mitigate the disruption of financial institution failures and reduce moral hazard in the future." • FSB "Key Attributes of Effective Resolution Regimes of Financial Institutions" endorsed by G20 in November 2011 • The last piece of the puzzle of G20 post-crisis measures • Developed via several rounds of consultations since 2009 06/06/2012 2
- 3. Single Market – Common Framework • EU banking sector is highly integrated. However systems to deal with bank crises are national. • Many national legal systems are inadequate for winding down banks in a manner which preserves financial stability and protects taxpayer-money. • Divergent national legislation is also ill-suited to dealing adequately with the cross-border dimension. EU framework required to ensure effectiveness and coherence in how Member States deal with failing banks and to strengthen the Single Market. 06/06/2012 3
- 4. Why a specific resolution regime? • ensure that banks can fail by mitigating fallout effects of their insolvency • maintain financial stability by ensuring the continuity of critical banking functions which are in the public interest • ensure losses borne by bank shareholders and creditors in a legally predictable way, together with comprehensive restructuring of the resolved bank • minimise costs for taxpayers from bank-rescues An alternative to: • insolvency which is often not apt to dealing with bank failures (e.g. Lehman) – too lengthy and detrimental for overall financial stability, and oriented towards maximising value of assets for creditors • blanket and ad hoc bail-outs 06/06/2012 4
- 5. A comprehensive and flexible framework • Comprehensive: three pillars of preparation and intervention • Prevention – banks and authorities to anticipate problems before they occur • Early intervention – authorities to act before problems compromise bank's viability • Resolution – authorities to restructure failing banks and preserve critical functions • Flexibility: A range of tools and powers for use by national resolution authorities, to be applied proportionately depending on different types and sizes of banks and in different types of crises. • Build on powers already used in various Member States and in third countries (e.g. US) to resolve bank crises 06/06/2012 5
- 6. Sequence – Progressive approach Prevention Early Intervention Resolution No: Normal Recovery Implementation insolvency - plans Special Mngmt Liquidation Fails Other measures Reasons Difficulties or of Public start likely interest to fail Resolution Yes: plans Resolution 06/06/2012 6
- 7. Prevention Recovery Plans: drawn up by the bank to restore long term viability in the event of a material deterioration of the bank's financial situation Resolution Plans: drawn up by authorities setting out options for resolving the institution and ensuring the continuity of critical functions. If authorities identify significant impediments to the resolvability of an institution, they can require appropriate measures such as restrictions on business activities and changes to legal or operational structures. • The plans shall: • Consider different scenarios of financial distress • Be updated regularly • Be drawn up at both group level and for the individual institutions within the group. • Not assume any public support beyond central bank liquidity assistance 06/06/2012 7
- 8. Early Intervention In cases where a bank breaches its prudential requirements and its solvency is deteriorating, powers of early intervention, consistent with shareholder rights and procedural obligations in company law, include: • the power to require the institution to implement the recovery plan • draw up an action program and a timetable for its implementation • require the management to convene, or convene directly, the shareholders' meeting, propose the agenda and the adoption of certain decisions • require the institution to draw up a plan for restructuring of debt with its creditors • the power to appoint a temporary special manager to restore the financial situation, stop mismanagement and avoid further decline e.g. by implementing the recovery plan or preparing the institution for resolution. 06/06/2012 8
- 9. Resolution – Striking a balance Achieving stability and effectiveness without compromising healthy competition in banking and rights of investors • Mitigate moral hazard and systemic threats • Empower authority to act in urgencies but only near insolvency when public interest at stake • Ensure legal certainty but with proportionality and flexibility • Minimise short-term economic effects and bolster long-term viability and sustainability • Fair market value together with no creditor worse off than in insolvency • Possible compensation via judicial review but no overturning of resolution action 06/06/2012 9
- 10. Resolution - Trigger • Balance: Financial stability requires the use of resolution powers before insolvency. Delaying intervention limits effective options and increases costs of resolution. But need to ensure that interference with the rights of stakeholders is justified. • Harmonised trigger: The resolution authority determines that the bank is failing or likely to fail because it is or will in the near future no longer be viable or solvent, there is no reasonable prospect that any alternative private sector or supervisory action would prevent the failure within reasonable timeframe, and resolution is necessary in the public interest to preserve financial stability. 06/06/2012 10
- 11. Resolution - Principles Minimise use of taxpayer resources. Alternative to bail out. Shareholders and creditors absorb losses before any public support Managers to be dismissed Safeguard essential functions No forbearance, action Market/fair value as a driver to all actions to be taken by the authorities (independent valuation), recognition of losses at the point of intervention Judicial redress no judicial review, no pre agreement by judicial bodies Right of compensation on the basis of liquidation value Stay of execution of enforcement of contracts 06/06/2012 11
- 12. Resolution – Four main tools 1. Sale of business – Total or partial sale to another entity on commercial terms, without requiring the consent of the shareholders or complying with procedural requirements that would otherwise apply. 2. Bridge bank – Transfer all or part of the business to a publicly controlled entity which must be licensed and operated as a commercial concern. The bridge bank is temporary and the aim should be to sell to the private sector when market conditions allow. 3. Asset separation/Bad bank – Only for assets whose liquidation could cause market disruption. The purpose is to transfer impaired or problematic assets to an asset management vehicle to allow for them to be managed over time. To minimise competitive distortions and moral hazard, this tool should only be used in conjunction with another resolution tool. 06/06/2012 12
- 13. 4. Bail In The bail-in tool will give resolution authorities the power to write down the claims of unsecured creditors of a failing institution and to convert debt claims to equity The tool can be used to recapitalise and restructure a failing institution, allowing authorities greater flexibility e.g. in relation to the failure of large, complex financial institutions The tool may also be used to facilitate the set-up of a new institution to harbour essential functions by capitalising it via converting the claims of transferred creditors to equity in the new bridge bank Bail-in is not a tool to recapitalise inefficient banks at the cost of debt-holders but to maintain essential functions 06/06/2012 13
- 14. Scope and features of Bail-in • To be effective, bail-in could apply to any liabilities of the institution except those backed by assets or collateral, guaranteed deposits, client assets, short-term debt (<1 month) or liabilities such as salaries or taxes • Would follow harmonised hierarchy of claims according to seniority (after equity, equity-like and convertible instruments, write-down would start with subordinated debt, and only then apply to senior debt) • All banks should hold sufficient capital and "bail-in-able" liabilities. To minimise impacts on their funding costs, banks can (and supervisors can require to) issue specific subordinated instruments, which are written down after capital, to fulfil the requirement. COM delegated acts to ensure consistency across similar banks. • Deposit Guarantee Scheme (DGS) to contribute alongside other unsecured non-preferred creditors for the amount of losses that it would have had to bear if the institution had been wound up under normal insolvency proceedings • Bail-in entry into force delayed until 2018 to allow banks, investors and authorities time to adapt (unless MS choose to apply it before) 06/06/2012 14
- 15. Hierarchy Pre-Crisis Crisis Equity Addit T 1 T2 Hierarchy Waterfall Minimum amount Special Sub Subordinated Senior Excluded 06/06/2012 15
- 16. Cross-border cooperation • Heightened cooperation between national authorities in all phases of preparation, recovery and resolution. • Resolution colleges will be established with clearly designated leadership and with the participation of the European Banking Authority (EBA). • The EBA will facilitate cooperation of authorities and mediate if necessary. • Support for foreign resolution actions subject to cooperation agreements with foreign resolution authorities if their resolution regimes are based on common FSB and G20 approaches. 06/06/2012 16
- 17. Funding • Arrangements for financing resolution actions (for short-term assistance to ensure successful outcome to resolution, never to bail-out inefficient banks) • Ex-ante contributions to be raised to equal 1% of covered deposits over 10 years • Synergy with Deposit Guarantee Scheme (DGS). Two options: • Use DGS solely for protecting covered depositors while a separate resolution fund supports other purposes. • Maximum synergy: use DGS for all purposes • DGS must respect all the funding requirements of resolution funds. • Safeguards to ensure the prevalence of depositor protection over other objectives • In case the DGS does not have enough to repay depositors at a later point, banks provide the necessary funds • In case the DGS is faced with competing liabilities at a given time, protection of covered deposits has priority. 06/06/2012 17
Editor's Notes
- #3: Lasttargeteddiscussion/consultation on bail-inTechnicallycomplexImportance of gettingitright
- #4: Paralleldeficiencies in governancee.g. for whenthingsgowrongEMU: monetaryunionwithouteffectivegovernance to backitupSingle financialmarket: cross-borderfinancialintegrationwithouteffectivecross-borderoversightBankingunionnecessary.Otherwiserisk of renationalisation. Damaging for growth.
- #10: - Need to carefullyconsidertrade-offs at stake.Greaterstabilityshouldnotcome at anycost. Bankingnotreduced to utility. Healthylending and credit-growth to continue. Allrisk-takingnotshutdown. Greatermarketdisciplinetogether with possiblepublic intervention to constrainexcessiverisk-taking. Butpublic intervention cannotbearbitrary.
- #14: Hierarchy (table on slide 15): 1. Equity; 2. AdditionalTier 1; 3. Tier 2; 4. Specialsubordinateddebt ("Tier 3"); 5. Subordinateddebt; 6. Senior