15 Financial services: recovery and
resolution~
| (a)
(34012)
11066/12
+ ADDs 1-2
COM(12) 280
(b)
(34560)
17849/12
—
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Draft Directive establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directives 77/91/EC and 82/891/EC, Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC and 2011/35/EC and Regulation (EU) No. 1093/2010
European Central Bank Opinion on a draft Directive establishing a framework for the recovery and resolution of credit institutions and investment firms (CON/2012/99)
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| Legal base | (a) Article 114 TFEU; co-decision; QMV
(b) —
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| Department | HM Treasury
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| Basis of consideration | Minister's letter of 7 June 2013
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| Previous Committee Reports | (a) HC 86-vii (2012-13), chapter 7 (4 July 2012), HC 86-xxx (2012-13), chapter 5 (30 January 2013) and HC 83-iv (2013-14), chapter 15 (5 June 2013)
(b) HC 86-xxx (2012-13), chapter 5 (30 January 2013) and HC 83-iv (2013-14), chapter 15 (5 June 2013)
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| Discussion in Council | Possibly 21 June 2013
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
15.1 The financial crisis and, in particular, the high profile
banking failures revealed serious shortcomings in the existing
crisis management arrangements. Amongst its responses the Commission
proposed, in June 2012, this draft Directive, document (a), for
the recovery and resolution of credit institutions and investment
firms. The proposals in the draft Directive, taken together, seek
to preserve financial stability, limit taxpayer exposure and improve
the functioning of the single market, reducing moral hazard and
perceptions of an implicit state guarantee for financial institutions.
15.2 Last week, we considered this proposal for the
third time, together with the European Central Bank's Opinion
on the draft Directive, document (b). We said that we did not
feel that we yet had sufficient assurance on the issues, drawn
to our attention previously, which might be disadvantageous for
the UK or for the effective operation of recovery and resolution.
Nor had our point, about whether the period to be allowed for
transposition of the bail-in provisions was too long, been addressed.
So we decided not to clear the draft Directive from scrutiny
then. Rather, we asked to have, if the Irish Presidency decided
to try for a general approach at the 21 June ECOFIN Council, a
less tentative account of improvements to the text of the proposals
and a clear statement as to the acceptability of the text to be
proposed to the Council. Meanwhile, the documents remained under
scrutiny.[60]
The Minister's letter
15.3 In response to our previous report the Financial
Secretary to the Treasury (Greg Clark) says that:
- the Irish Presidency still
aims to reach a general approach on the draft Directive at the
21 June ECOFIN Council meeting;
- some of the key areas still warrant further discussion
before an agreement can be found;
- it is likely that such discussions will continue
right up until the meeting and most likely on the day of Council
itself; and
- given the anticipated timetable, he hopes we
can grant a waiver, in terms of the Scrutiny Reserve Resolution
of 17 November 1998, or clear the proposal from scrutiny in advance
of the meeting, so that the Government is in a good position to
support an agreement should the opportunity arise.
15.4 Before turning to the detail of a number of
the issues, the Minister mentions that the Chancellor of the Exchequer
made interventions at the May ECOFIN Council on many of the points
we raised in our last report.[61]
15.5 On the bail-in implementation date the Minister
says that:
- the Commission's proposal does
not require the introduction of the bail-in tool until 2018, but
allows Member States to introduce the tool earlier, from 1 January
2015, alongside the rest of the proposals, if they choose to do
so;
- this would allow the UK to meet the recommendation
of the Independent Commission on Banking for the UK to deliver
a bail-in tool by 2019;
- the Government is seeking to ensure that the
bail-in tool delivered by the draft Directive is both credible
and workable;
- whilst it is important to deliver the tool as
soon as possible, it may also be advantageous to have a transition
period to give market participants time to appropriately adjust
to the "risks" of the bail-in tool and to allow banks
to manage their liabilities, to ensure that any funding cost changes
can be managed smoothly;
- this would help ensure that the implementation
of the tool is credible and give time for institutions to build
up the required amount of bail-inable liabilities, as provided
for in Article 39 of the draft Directive; and
- although Member States have until 1 January 2018
the provisions in Articles 51-55 relating to write down of capital
instruments will apply from 1 January 2015 — this will ensure
that all regulatory capital instruments are fully able to bear
losses.
15.6 On the role of the European Banking Authority
(EBA) the Minister says that:
- this remains under discussion;
- there is acknowledgement that the EBA has a role
to play in ensuring that good practice is followed while implementing
and undertaking recovery and resolution matters;
- Member States, however, are keen to ensure that
there is an appropriate balance of decision making power between
home and host authorities, whilst ensuring that decision making
and fiscal responsibility are aligned;
- the Government is also seeking to ensure that
the role of the EBA is in line with its powers and responsibilities
as defined in Regulation (EU) No. 1093/2010, which established
it;
- in particular, that Regulation states that "decisions
taken by the European Supervisory Authorities should not impinge
on the fiscal responsibilities of Member States";
- the Government has concerns that some of the
EBA's roles as proposed by the Commission would cut across this
safeguard — especially in Article 83, on group resolution;
- it considers that EBA binding mediation would
be inappropriate here, as resolution actions have the strong potential
to have fiscal consequences for Member States;
- it is also not realistic in the middle of a crisis
to expect Member State authorities to refer decisions that can
have profound consequences for their economies to a technical
EBA committee; and
- the Government has support from a number of other
Member States on this specific issue.
15.7 In relation to resolution financing the Minister
tells us that:
- this still remains one of the
key issues to be resolved;
- the Government is still evaluating these proposals,
with the objective of ensuring that they do not impose disproportionate
burdens on banks, which could be passed on to the wider economy
or adversely impact on the Government's fiscal position;
- after careful consideration, it remains confident
of achieving an outcome that meets this objective;
- it is, for example, considering whether the UK's
bank levy should be recognised in an appropriate way as part of
this package;
- this would be in line with the June 2010 European
Council agreement, which called on Member States to establish
systems of levies and taxes as part of a credible resolution framework
— the Government has delivered this through the establishment
of the bank levy; and
- negotiations in this area remain very fluid,
and in an ECOFIN press release the Presidency recognised that
some country-specific concerns should be addressed, in particular
as regards issues specific to non-eurozone Member States.[62]
Conclusion
15.8 Although it appears that some significant
issues remain in the balance, we recognise that negotiation on
aspects of the proposal may continue up until the Council meeting,
leaving little or no time for further scrutiny. So, on the presumption
that the Government will be voting against the measure unless
satisfied on the outstanding points, we now clear the documents.
60 See headnote. Back
61
See http://video.consilium.europa.eu/webcast.aspx?ticket=775-979-12851. Back
62
http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ecofin/137122.pdf Back
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