On June 25, 2025, the European Council and the European Parliament reached an agreement on reforming the crisis management and deposit insurance (CMDI) framework.
In the future, small and medium-sized banks will be able to fall back on deposit guarantee and resolution funds under certain conditions if their own funds are insufficient in times of crises. The reform specifies the criteria for the required “public interest,” expands the assessment to include regional impacts, and introduces uniform rules for the “least cost test,” which determines whether the use of deposit guarantee funds is the most cost-effective option. The existing order of priority in the treatment of deposits remains unchanged. The legislative act will now be finalized at the technical level and then formally adopted by both institutions.
Tobias Tröger, Director of the "Law and Finance" Cluster at the Leibniz Institute for Financial Research SAFE, comments:
“This timid reform of the CMDI framework will not fix the many deficits of the regulatory regime. In particular, the retained superpriority of covered deposits and all deposits from households and small and medium-sized enterprises deprives attempts to facilitate access to bank-funded deposit and resolution funding schemes of their practical effectiveness.
The CMDI framework in the Single Resolution Mechanism will remain a costly, little-used institution that is a millstone around the neck for the competitiveness of European banks without significantly strengthening financial stability."
More information on the reform of the crisis management and deposit insurance framework can be found in the SAFE Working Paper No. 418 “Reform of the CMDI Framework - Driving Off With the Brakes On” by Tobias Tröger and Ioannis Asimakopoulos, as well as the SAFE Finance Blog.
