18 Jul 2023

Policy Lunch in Brussels: Debating the future of bank resolution in the EU

Researchers and practitioners discuss the reform proposal of the CMDI framework

After the European Commission published a proposal to reform the Crisis Management and Deposit Insurance (CMDI) framework in April 2023, legal scholars at the Leibniz Institut for Financial Research SAFE argue that the proposal is a step in the right direction but will not be sufficient to address existing problems in bank resolution. To provide research-based policy advice, interaction with policymakers and regulators in Europe is essential. As the Commission’s proposal represents a first step in the legislative process, SAFE invited representatives from industry, politics, and research dealing with the resolution process in the European Union to a Policy Lunch at the Representation of the state Hessen in Brussels on 3 July 2023.

SAFE Affiliate Ioannis Asimakopolous and Tobias Tröger, Director of the Law & Finance Cluster at SAFE, discussed their assessments of the reform proposal with Samy Harraz, Head of Strategy, International Relations and Communications of the Single Resolution Board, and Heinrich Wollny, Head of Unit “Resolution and Deposit Insurance” of the European Commission’s Directorate General Financial Stability, Financial Services and Capital Markets Union (FISMA).

During the well-attended event, the attendees followed the presentation and discussion and exchanged views on possible challenges and concerns that will not be solved with the implementation of the proposal.

SAFE Affiliate Ioannis Asimakopolous during his presentation in Brussels
SAFE Affiliate Ioannis Asimakopolous during his presentation on the EU-Commission's proposal to reform the Crisis Management and Deposit Insurance (CMDI) in Brussels.

With its proposal, the Commission wants to prevent taxpayers’ money from being used in the event of a new banking crisis. A single European Deposit Insurance Scheme (EDIS), which would also be an important step towards the completion of the Banking Union, is politically difficult to implement. For more stability in the event of a crisis, the Commission, therefore, proposes to expand the use of the Single Resolution Fund (SRF).

The Commission is concentrating on four points of adjustment, which should particularly affect the resolution procedures for small and medium-sized banks and make the financing more flexible. These include early intervention and warning of failing or likely to fail institutions (FOLTF), public interest assessment (PIA), conditions for access to industry-funded safety nets, use of deposit guarantee schemes for resolution funding, and harmonization of depositor preferences.

Legal expert Asimakopoulos, for example, addressed the Commission’s proposal to close the funding gap using funds from deposit guarantee schemes. “But in order to achieve financial stability and market discipline, we need predictability,” he said. According to Asimakopoulos, topping up with up to eight percent from the deposit guarantee schemes may not be enough, the Single Resolution Fund SRF, for example, should cover all funding gaps.

Asimakapopoulos also addressed the proposals regarding the Minimum Requirement for Own Funds and Eligible Liabilities (MREL) and stressed additionally that simplification and standardization would help rather than creating more uncertainty.