Brussels Drama Unfolds - Tough Talk in Initial CMDI Negotiations
Standoffs persist in negotiating the financial crisis of small banking institutions
It's a rocky start, folks. The first trilogue — or final negotiations — between the two European legislatures, the Council and the European Parliament, has hit a snag when it comes to the winding-down rules for small banks. In plain words, they seem as far apart as ever.
This contentious discussion surrounds the European Union's plans for the winding-down of small and medium-sized banks, and the use of funds from national deposit guarantee schemes in times of crisis (Crisis Management and Deposit Insurance, CMDI). The ongoing clash is likely to be one for the history books.
Stalemate Over Institution Protection Systems
The main bone of contention is the differing views on handling institution protection systems in negotiations. These systems, like those of the large savings and cooperative banks in Germany, ensure full creditor protection. Both parties showed their mettle in the initial trilogue. The Hungarian EU Council presidency took issue with the European Parliament's wish to separate the institution protection issue, while the chair of the trilogue, Aurore Lalucq, emphasized the European Parliament's strong mandate. These diplomatic jabs hint at a challenging negotiation phase ahead.
General Exchange of Views - Lack of Progress
With no agreement on the negotiating proposal, parties were forced to resort to a "general exchange of views on the CMDI legislative proposal," the most informal and non-binding form of negotiation.
The EU Council confirmed that its general approach — the text on which national member states agreed as the basis for the final negotiations — aligns with the legislative initiative's objectives. However, the Council had proposed significant amendments to the European Commission's draft during the summer, one of the most notable changes being the repeal of the "super-preference status" of national deposit guarantee schemes.
Super-Preference Status - A Hot Topic
The European Commission advocates for banks, not just large financial conglomerates, to be wound down rather than sent into insolvency during crises using funds from national deposit guarantee schemes. To make this possible, these systems' special status in the creditor hierarchy would need to be removed. The EU Parliament supports this idea, but the EU Council is firmly against it, creating a major point of contention.
German Banks' Stance
The German Banking Industry Committee, representing various German banking associations, backs the Council's stance on super-preference, arguing that it rectifies "many distortions." They view maintaining the priority of these systems in the creditor hierarchy as "essential" for funding security and to boost depositor confidence.
Against Communitization - Germany's Financial Sector Resistance
The German Banking Industry Committee also opposes the extensive expansion of resolution rules to small and medium-sized institutions, citing significant regulatory burdens without consumer or financial stability benefits. They reject the concept of mixing deposit insurance and bank resolution as well as the communitization of national guarantee funds at the EU level.
This stalemate underlines the ongoing struggle between EU-level coordination and national autonomy in banking regulation, a recurring issue in the development of the Banking Union. Stay tuned for further updates as this drama unfolds!
[1] Overview: The disagreement revolves around the scope of harmonized resolution procedures by Banking Union authorities and resolution funding, potentially impacting small banks' access to national deposit guarantee schemes during crises.
[2] Impact on Small Banks: A narrower EU-wide resolution framework might result in less centralized support during crises, with greater reliance on national mechanisms. Uneven regulatory environments across member states could also affect consistent and reliable deposit insurance for small banks.
- The EU Council's stance on the super-preference status of national deposit guarantee schemes is being strongly opposed by the European Commission and the EU Parliament, causing a significant point of contention in the CMDI negotiations, particularly regarding the winding-down rules for small and medium-sized banks.
- The German Banking Industry Committee, representing various German banking associations, supports the EU Council's stance on super-preference, arguing that maintaining the priority of these systems in the creditor hierarchy is "essential" for funding security and to boost depositor confidence.
- In the ongoing process of Banking Union development, this stalemate highlights the recurring issue of finding a balance between EU-level coordination and national autonomy in banking regulation, with potential implications for the harmonization of resolution procedures and the impact on small banks' access to national deposit guarantee schemes during crises.
