2021 SRB Press Briefing - Chair’s opening remarks
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Good morning to each of you and thank you for taking the time to connect. The Vice-Chair as well as the Board members are connected, too, and we all are happy to have this opportunity to talk with you.
Our last press briefing was in July 2020 and, at that time, I certainly thought we would be able to meet again in person this year. For now, as things are so uncertain, we decided to go ahead with an online event, to provide you with timely information. Unfortunately, it means that you have to make your own breakfast this year! Whenever conditions allow, we would love to invite you back to the SRB premises. However, the online sphere has its advantages – we have journalists connected today who are not normally in Brussels, so you are also especially welcome.
We rely very much on you to tell our story, the story of the work of the SRB. Our mission is to protect taxpayers’ money from any future bailouts and promote financial stability. We do this by working with each bank to make it resolvable. Funnily enough, we see that the better a bank is prepared for resolution; the less likely it is they will go into resolution.
[Upcoming in 2021]
For the SRB, in the coming years, our focus will continue to be on building resolvability. We published our multi-annual programme for the years ‘21 to ‘23 at the end of last year. Our continued and primary mission is to focus on making all banks under our remit resolvable. This relates to operational resolvability, as well as the necessary build-up of MREL, a key tool in resolution.
We must keep up the momentum on increasing MREL, especially in light of the new rules and deadlines in the BRRD2. 2020 was a transition year in terms of BRRD2 application. Our 2021 MREL policy, an expansion of the current policy, will be published in time for the new resolution planning cycle. We will keep you well informed on that.
In recent months, there has been a lot of discussion about expanding the so called “Public Interest Assessment”, which is a key element for deciding whether a bank will be resolved or go into insolvency. The SRB will soon publish an updated framework that complements the existing idiosyncratic assessment with a scenario reflecting systemic stress, or to put it into simple terms “a rainy day scenario”.
Another area of focus for the next few years will see the SRB fully operationalise the use of all resolution tools, and their combined use. In this regard, more work is needed on transfer tools. This is relevant for all banks, and not least for mid-sized banks heavily reliant on deposit funding, which may find it challenging to access markets and issue debt.
We must implement the existing resolution framework as effectively as possible. Our ‘Expectations for Banks’ document clearly shows the direction of travel for banks. On top of that, all banks under our remit have received bespoke work programmes for 2021. [The ‘Expectations for Banks’ document sets out the capabilities the SRB requires banks to demonstrate in order to show that they are resolvable. It describes best practice and sets benchmarks for assessing resolvability. It also provides clarity to the market on the actions that the SRB expects banks to take in order to demonstrate resolvability.]
In principle, banks are expected to have built up their capabilities on all aspects by the end of 2023. Where needed and on a bilateral basis, the SRB and banks may agree alternative phase-in dates. The Expectations are tailored to each individual bank and its resolution strategy, allowing for flexibility and proportionality.
In 2021, we will also continue to build up the Single Resolution Fund, as we will do every year up until 2023, when it will be fully funded. We are on target at present. Just to remind you, the SRF is a fund that can be called upon in the case of resolution. I am pleased that the backstop to the Single Resolution Fund will be in place from next year. The decision to implement the backstop effectively doubles the firepower of the fund, and this will provide confidence to the markets when it is needed most. I know that there is some talk at the moment about the amount of contributions etc. but I want to be clear: if you operate a bank in the European Union, you must factor in the regulatory costs into your business model. The other thing I would say on this, is that it is EU law, as laid down by the Commission and approved by both the Parliament and the Council, that states how much the Fund must be – 1% of total covered deposits by the end of 2023. It is the SRB’s job to implement that rule, and that is exactly what we have been doing.
There is much discussion at the moment about many of the aspects of the Banking Union – from how to deal with mid-sized banks to the home/host debate to the long-running debate over an European deposit insurance scheme.
The European Commission recently triggered a review of the Crisis Management and Deposit Insurance framework, as well as a public consultation. This will bring together much of the ongoing discussions.
For our part, as the European resolution authority, we don’t believe that these issues can be solved without completing the Banking Union. The Banking Union was designed as a house that stands on three pillars. While the first two were implemented swiftly and are functioning, the third pillar, a European Deposit Insurance System is still lagging. Let’s stay ambitious and complete the Banking Union.
Some of the areas where we would like to see progress are:
- on a harmonised insolvency procedure for banks, even if I am a realist and understand that this is some time off. Currently, with twenty-one plus different insolvency frameworks in the Banking Union, the analysis of the insolvency counterfactual for a bank in resolution, and particularly for cross-border banks, is a challenge, as well as the principle that no creditor should be treated worst in resolution than it would be treated in insolvency. Any progress at EU level in this sense would be helpful for all banks. Clearly, non-harmonised procedures will hamper the effective dealing with any failing bank and open up to various national options – which also means the framework is sometimes perceived as unpredictable.
- This is aggravated by the fact that national solutions might risk circumventing the Banking Union framework. In this context let me recall the need to align DG COMP’s “Banking Communication” with the resolution framework.
- On deposit insurance, too, the different rules across Banking Union countries are a cause for concern for us at the SRB. Discrepancies in depositor protection across Banking Union countries in terms of scope of protection, such as specific categories of depositors and payout processes result in inconsistencies in access to financial safety nets for EU depositors. Just to repeat it once more: The ultimate goal has to be a European framework for resolution, which we have in place, and liquidation, where we are not there yet – including, of course, the lack of a common European deposit scheme.
Of course, there are many more areas we would like to see addressed and these will be outlined in our official response to the Commission’s consultation.
This morning, I do not want to take up all of the time we have together, since I know you want to put your questions to me and my fellow board members. And of course, if you have any questions you think of later, or want clarification on, you have the Comms team’s details, so please do get in touch.