Bail-in rules in EU banking union and financial stability
Stefano Micossi 05 June 2014
The European banking union is in pressing need of a unified banking resolution mechanism, but public bail-in has become increasingly unpopular. This column details new legislation towards a single resolution mechanism in the EU that minimises public exposure. The shareholders of an insolvent bank will be the first to take the hit, followed by creditors, before the public. This has the advantage also of mitigating moral hazard.
The Council and the European Parliament have adopted a directive (BRRD)1 and a regulation (SRR)2 establishing uniform rules for bank resolution in the EU. These include rules for the bail-in of shareholders and creditors when a bank is in need of public support.
EU institutions EU policies
bank resolution, European banking union, bail-in, Single Resolution Mechanism
How to save bank resolution in the European banking union
Jeffrey N. Gordon, Georg Ringe 30 April 2014
The European Parliament recently adopted the Single Resolution Mechanism. Though supposed to be a pillar of the European banking union, it is fraught with difficulties. This column makes a proposal for a new organisational structure that can deal with bank failure more effectively. European banks should be required to self-insure against failure. Further, the ECB should be the only financially credible player to provide liquidity for the resolution procedure. These proposals would strengthen the current banking union project, and can overcome certain political difficulties.
A few days ago, the European Parliament adopted the Single Resolution Mechanism (SRM), the second pillar of the emerging ‘banking union’ for Europe. Yet, the project is fraught with difficulties and initial enthusiasm is long gone. Although the prevailing view holds that an effective banking union requires three pillars – supervision, resolution, and deposit guarantee – the current political situation suggests that they are unlikely to be achieved.
EU institutions EU policies
European banking union, Single Resolution Mechanism
Europe takes an important step towards a European banking union
Nicolas Véron 19 December 2012
European leaders pieced together an historic compromise last week on a European banking union. This column argues that the agreement, which centred on banking supervision, is only the first step on the long and winding road towards a banking union. But the fact that this step is now essentially confirmed is almost unqualified good news.
The political agreement reached early on 13-14 December by Europe’s finance ministers and heads of state and government makes it highly likely that legislation establishing a Single Supervisory Mechanism (SSM) with the ECB at its centre will be enacted in March 2013. This is a big European success, high up on what was the range of possible outcomes (Council of the European Union, 2012; European Council, 2012).
Key features of the agreement include:
European banking union, Single Supervisory Mechanism