SRB Chair Dominique Laboureix's keynote speech at the Association of German Banks

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Crisis management and resolution. A better framework means a safer Europe.

Ladies and gentlemen, first, let me thank Heiner for inviting me to speak here today in front of such an esteemed audience.

I hope you all had a nice summer break!

On our side, even during summer, we, as per usual, continued to work with banks and other Banking Union institutions. 

Naturally, after the “sugar rush” of the end of the legislature, the work with law makers has slowed down in the summer, waiting for the new term to reach “full speed”. However, with key positions being filled, the work is quickly restarting. 

Before delving into the issues. I understand that there are some Members of the European Parliament in the room. I just want to congratulate you for your election and wish you all the success for this, certainly intense, legislative term.

I will discuss today our expectations or hopes depending on the level of optimism for this new legislature. Then, as many of you know, the Single Resolution Mechanism is working to implement its new strategy – Vision 2028. I would also like to inform you about how this important work is proceeding. 

Expectations for the new legislature

I will, of course, focus on our expectations on the files that are relevant for the Banking Union. 

The last parliamentary mandate ended with quite some suspense on the Banking Union files. In the first part of the year, lawmakers managed to advance on the crisis management and deposit insurance reform (CMDI for short) and reignited the debate on the European deposit insurance scheme (the famous EDIS). 

CMDI 

As you know, with the Council reaching an agreement on CMDI, colegislators are now ready to start trilogues on this file. Of course, we are not part of the negotiations. But, as usual, we stand ready to support the colegislators with our technical advice. 

We are still analysing the compromise text that was agreed in Council. As such, my view here can only be preliminary. 

This reform, even after the Parliament and Council amendments, indeed brings about many useful technical improvements that will have a direct impact on our work and will certainly help deliver a safer European Union financial sector. Just to name one, the harmonisation of preventive measures will certainly be very useful.

However, the Council position on CMDI, may not deliver on some of the original intentions of the reform, again from a technical perspective. CMDI’s objective, as laid out by the Eurogroup, was to broaden the application of resolution tools and thus protect the taxpayer and the real economy. 

The Council agreement, instead, substantially curtails the role of industry safety-nets through complex conditionality on accessing deposit guarantee funds and the Single Resolution Fund. Some 20 conditions need to be satisfied to be able to use the DGS bridge – a tall order during a resolution weekend. 

This lack of flexibility in resolution, especially when compared to liquidation, ultimately, may deliver a narrower application of resolution tools - the opposite of Commission’s original intentions. This is because, without the proper tools, Resolution Authorities will not be able to take successful resolution decisions and certain - smaller - ailing banks will need to be managed at national level outside resolution. This automatically means more risk for taxpayers, through liquidation aid that is explicitly forbidden in resolution.

In addition, the Council’s position proposed a 4-tiered creditor hierarchy. This is very technical but, in plain English, it means that banks’ money is still prioritised over other creditors’ money in a crisis. In fact, deposit guarantee schemes are rainy-day funds collected from banks (and not public money). In addition, this amendment makes the use of the DGS bridge pretty unlikely. 

Finally, the Council proposal provides more flexibility in using the DGS bridge outside the Banking Union, meaning resolution authorities would face fewer constraints for a Czech or a Swedish bank than for a German or Italian one.

Are we really aiming at a European Single Market when new European legislation provides for different conditions between Member States? 

As I said earlier, to be fair, the Council text also carries good elements. And, of course, the Parliament’s version, even if preferable from a technical standpoint,  is not perfect either. The provisions regarding the least-cost test are better in the Council version, for instance.

In a nutshell, the original intention of this proposal was to increase the firepower and agility of our resolution toolkit. We hope that the result of the trilogues will deliver exactly that result.

A last word on this. The SRB is a technical agency and, naturally, will implement what agreed by the Colegislators. We do not take political stances. It is then my duty to mention that, as things are today, the implementation of the texts we are seeing will not deliver on their initial objective of the package. 

ESM treaty review

Another ongoing negotiation, unfortunately, is the Common Backstop one. Italy remains the only country that has not ratified the revision of the ESM treaty that sets the framework of the ESM backstop. 

Of course, our Single Resolution Fund, standing at close to 80 billion euros, is a powerful liquidity tool. However, the March 23 turmoil has shown that the management of the liquidity of a bank in crisis is crucial. This is why the Single Resolution Fund needs to be backed up by adequate liquidity facilities, which will give confidence should we face a crisis. Nobody gains from holding this useful reform up.

EDIS

This leads me to those discussions that could be unlocked once CMDI and, possibly, the Common Backstop are settled:

The blueprint of the Banking Union includes a third pillar, together with single supervision and resolution. This third pillar, a European deposit insurance scheme, or EDIS, is still missing and this creates a relevant set of problems. 

Members States and European institutions have been discussing EDIS for a decade. And, sometimes, we risk forgetting what this is all about. To avoid this, let’s spend one minute discussing the past rather than the future.

Depositor protection is currently guaranteed by a European directive, the DGSD, that ensures harmonisation and minimum standards across the continent. However, weaknesses persist. The most important is the absence of a mechanism to deal with large local shocks. 

Dealing with large local shocks is - in extreme synthesis - EDIS’ “raison d'être”. In fact, no national DGS has sufficient resources to deal with such shocks without government support.

EDIS, by pooling resources from all the Banking Union banks, would have the firepower to deal with national shocks without having to rely on any government support. All Banking Union’s taxpayers would be more protected - as well as depositors. 

Let’s also not forget that the market for deposits is become more European. As an example, many Germans, through online platforms, have their savings in other Member States. 

Protecting deposits in Lithuania or Portugal means protecting German and Belgian deposits too. Since markets are integrating, resolution and insolvency tools should become less national too, even if they worked well in the past. 

Talking about market integration. How can we honestly say to European citizens that we achieved a single market in banking, or even a single currency, if a depositor in Member State A is less protected (from an economic standpoint rather than a legal one) than a depositor in Member State B, as there can be differences in the DGSs size and strength? We really cannot! 

The recent report on EDIS approved by the European Parliament’s ECON committee could be a clear signal to restart this debate. 

Flexibility is key

Ladies and gentleman, I want to be clear. We already have an excellent framework that has built resilience in our banking system. It served us well so far. We should nurture our success by keeping it future-proof.

All these reforms are simply additional tools for us, and other resolution authorities, to deal with bank crises. 

Bank crises, as we have seen in recent and less recent past, are all about flexibility. You need to have the right tools, in the right quantity at the right time. 

The fact that Europe has been spared major bank crises in the last decade is a testament to the importance of the Banking Union, the strength of our framework and the good work carried out so far. However, we should not be complacent and strive to learn from the crises abroad and develop our toolbox. 

Let’s not forget that having the same crisis management tools as our international peers is a key prerequisite for our domestic industry to be competitive. 

In fact, a stable financial system is a “must” for a competitive economy and a strong resolution framework is a must for a stable financial system. 

SRM Vision 2028

After discussing how the framework can be improved, let me tell you what the SRB is doing within the boundaries of our current framework. 

As many of you certainly know, at the beginning of the year we launched a new strategy, the SRM Vision 2028. We are making the SRB more crisis-ready, more transparent, more digital and more efficient – focussing on what really matters.

Now, I would like to give you a snapshot of some of the work we are doing to implement our new strategy.

Together with the NRAs, we are streamlining the resolution planning process and the resolution plans to make them more efficient and better focused on the most important issues. We aim to have a streamlined resolution plan by next year. This will allow us to allocate more resources to the most important topics using a risk-based approach. This bring a better focus on long-term projects, such as operationalising transfer tools and enhancing optionality in resolution - key areas for improvement after the recent turmoil.

Simplification goes hand-in-hand with testing to assess if banks’ capabilities to support resolution will work in practice. The SRB, together with the NRAs, is currently developing the policy framework. We will develop multi-annual testing plans spanning from 2026 to 2028. 

I mentioned that we want to become more transparent. As such, the industry will be consulted on these plans. Banks should receive these tailored multi-year testing plans in autumn 2025.

The SRB is also revising the resolvability assessment methodology – our SREP-like exercise. We aim to ensure a consistent ‘steady-state’ approach reflecting future testing exercises and lessons learned from past crisis cases. 

In addition, we are working on deploying the full array of the tools in our framework. This includes on-site inspections - a dedicated team has been set-up and related polices are being developed. We are also working on further developing our substantive impediments procedure policies. 

To deliver on these workstreams, smooth cooperation, within the SRM and between the SRM and the banks is crucial. 

Conclusions

Let me conclude. 

Even if the European economy has been spared by the latest financial crises and our framework proved to be strong, it is not time for complacency or back-pedalling. Much remains to be done. In fact, resolvability is neither a static condition nor a binary question. Becoming and remaining resolvable is an iterative process requiring continuous adaptation to rapidly changing market conditions and emerging risks.

Our strategy - over time - will increase trust in the crisis management framework, making the Banking Union even safer, more resilient and integrated. Trust, in my view, is what will break some of the issues that have been challenging the Banking Union since its inception – such as the “home / host” debate.

I think we should all work together to increase trust in the system. For the same reason, we should all push for our framework to be as comprehensive, flexible and up-to-date as possible.

Thank you very much.