Progressing Towards Europe's Banking Union: The New Era for Medium-Sized Banks
Amendments in European Union Resolution Procedures
The European banking landscape is gearing up for a transformative shift. The future no longer holds limitations on European Union's (EU) resolution regime for the biggest banks. The controversial legislative package CMDI (Crisis Management and Deposit Insurance), agreed upon by the European Parliament and Council in June 2025, has cleared the path for medium-sized institutions to be part of this growing regime.
The New Dawn for Crisis Management and Deposit Insurance
The CMDI reform marks a significant leap in securing a banking union. This reform has been meticulously designed to strengthen the resilience of EU banks, enhance depositor protection, and further integrate EU banking markets.
Broadening the Scope of Resolution
The updated guidelines expand the scope of resolution, enabling resolution authorities to manage failures of small and medium-sized banks. This proactive approach allows more banks to exit the market in an orderly fashion, minimizing economic turmoil associated with bank failures.
Strengthening Depositor Protection
The revamp emphasizes the protection of depositors across all EU member states, thereby providing a stronger safety net for banking customers.
Preserving Public Funds
The CMDI reform places a high priority on preventing taxpayer money from being used to rescue failing banks, promoting financial stability and boosting depositor confidence.
Honoring National Specificities
While fostering a level playing field, the reform acknowledges the idiosyncrasies of various national banking sectors to preserve their native qualities.
Advancing the Banking Union and Market Integration
The reform significantly contributes to the completion of the banking union and the integration of EU banking markets. This aids the wider savings and investment union agenda in the EU.
The Single Resolution Fund (SRF) and Medium-Sized Institutions
The reform explicitly incorporates medium-sized institutions within the resolution's purview. As a direct consequence, the Single Resolution Fund can now be utilized more expansively, offering the possibility for failing medium-sized banks to undergo resolution without creating systemic disruption or relying on public funds.
This extended usage allows for the assessment and management of risks within medium-sized banks in a consistent and uniform manner across the EU.
Timing and Context
The CMDI reform comes on the heels of initial delays in the implementation of banking rules, pushed back to 2027 due to international developments and Basel III updates. However, the CMDI reform has been prioritized as a cornerstone in the fortification of the EU banking sector. Technical details are currently being finalized by co-legislators, and a final endorsement is expected soon to ensure timely implementation.
In essence, the CMDI reform fortifies crisis management by broadening the resolution's scope, strengthens depositor protection, makes the Single Resolution Fund more accessible, and reaffirms the EU's commitment to maintaining financial stability without resorting to taxpayer bailouts. This reform is a pivotal step toward a more robust and integrated EU banking sector.
The CMDI reform signifies a crucial step towards expanding the European Banking Union, as it includes medium-sized institutions within the resolution's purview, allowing for the Single Resolution Fund to be utilized more broadly and reducing the need for taxpayer bailouts. This move also strengthens depositor protection and contributes to the completion of the banking union, aiding the wider savings and investment union agenda in the EU.
The Single Resolution Fund's extended usage allows for the assessment and management of risks within medium-sized banks in a consistent and uniform manner across the European Union, contributing to the integration of EU banking markets and fostering financial stability.
