ECON Public Hearing on the Banking Package - Dominique Laboureix, Board Member of the Single Resolution Board
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Honourable Members of Parliament,
Let me start by thanking you for inviting me to take part in this session, which will discuss issues of great importance to the future operations of the SRB. I will only discuss resolution issues in my comments.
The SRB welcomes the European Commission’s revision of MREL and implementation of TLAC, and we’d like to begin by thanking the Commission for their hard work on this file. The European Commission’s proposal will give clarity around how the international TLAC standard will be applied in a European context.
On the Commission’s proposed implementation of the international TLAC-standard as Pillar 1 MREL, with additional MREL being a Pillar 2 requirement, it is important that we avoid any cliff effect between G-SIBs and other institutions which are systemic in Europe. We have previously highlighted the importance of treating D-SIBs of equal systemic importance to the Banking Union on a level footing to G-SIBs. In that context we welcome that the package on MREL very clearly sets out the importance of a level playing field between G-SIIs and other comparable institutions with systemic relevance within the Union.
We therefore have great sympathy for the EBA recommendation to extend the possibility of mandatory subordination to other systemic institutions with adequate transition periods and more generally we would support a Pillar 1 requirement for other systemic institutions. I believe it would be helpful for the European Parliament to consider this topic, too.
It is also important to give or at least maintain the existing flexibility, as well as enforceability, for resolution authorities to tailor the MREL level, quality and location to the resolution strategy and the resolvability of the institution.
For G-SIBs, the transition period for Pillar 1 MREL should be set to ensure the EU meets international requirements, i.e. in 2019 and 2022. For Pillar 2 MREL, resolution authorities will need the flexibility to set appropriate transition periods, with an adequate balance to avoid having an endless phase-in period given the risks of a prolonged transition should a bank be put in resolution.
On the creditor hierarchy, the SRB welcomes the decision to prioritise this file, and views that rapid progress would provide needed certainty around junior debt issuance. It is important that the proposal is sufficiently robust and no ambiguity be left in the proposal with respect to the treatment of successful national approaches.
On the moratorium tool, we view this as sitting at the interface of going- and gone-concern. The scope of the tool is a key consideration; too narrow a scope could make the tool less useful to the authorities and allow for significant liabilities leaving an institution even under a moratorium.
In general, the SRB has the preference to maintain the resolution moratorium, and we see the potential difficulties in returning a firm to the market after applying a supervisory moratorium, given it is very likely the firm will enter resolution if a supervisory moratorium is applied. If both moratorium tools are maintained, then it will be essential for the resolution authority and competent authority to co-operate effectively.
On stay powers, more generally, we view there as being a benefit to implementing an EU-wide harmonisation of the recognition of stays. The BRRD does not yet require contract language in this regard while banks should be required to include clauses that make their counterparties accept their home resolution regime.
Finally, the SRB is also supportive of the Intermediate Parent Undertaking proposal, and we recently prepared a joint position with the ECB.
If implemented properly, the Commission’s risk reduction package will make banks even sounder and benefit the economy as a whole, making taxpayers even better protected against bank failures. It is important not to weaken the resolution framework, but instead to take the opportunity provided by the Commission proposal to further strengthen the European framework
I look forward to any questions you may have.