Bank Crisis Management and Deposit Insurance framework review (CMDI)

Policy debate

the Commission's aim was to strengthen the crisis management of EU banks;
the proposals addressed the Eurogroup statements from June 2022, calling for further action on the area.

Valdis Dombrovskis, Executive Vice-President responsible for an Economy that Works for People, European Commission

he stated that overall, the banking union had been a success, and the banking sector was currently strong and in good shape;
the EU system worked well, with strong rules that allowed authorities to handle crises effectively. Nevertheless, more could be done on the topic;
he stressed that the banking union had to be completed, and it remained a key objective of the EU;
recent events in the banking sector worldwide demonstrated the importance of a strong crisis management framework, setting rules for appropriate tools for dealing with any bank that could get in trouble;
he noted that often, national authorities used taxpayers money to deal with failures, instead of banks' internal resources;
the current system was not fully functioning as intended, and for that reason the Commission presented the proposal to improve the CMDI framework;
the goal was to broaden the scope of resolution;
the Commission proposed to improve the use of industry-funded safety nets, as well as to further harmonise standards of depositor protection across the EU;
he underlined that there was still a missing pillar of the Banking Union: the European Deposit Insurance Scheme (EDIS);
the CMDI package was a pragmatic step forward that would improve the crisis management framework for banks, and improve the banking union;
while the resolution framework could be effective, there was room for improvement, and challenges for smaller and medium size banks;
- smaller and medium size banks were managed outside of the resolution framework, often using taxpayers money;
the proposals would improve the EU's capacity to ensure that any bank could exit the market smoothly, irrespective of the size or business model;
the proposals also clarified the scope of banks that fell under the resolution framework;
he noted that resolution authorities at EU and national level would still be able to choose between resolution and national insolvency, but the Commission set up a different criteria to frame that choice, making sure that the conditions were right for authorities to choose resolution when it was of public interest;
the main principle of resolution remained that all banks within the scope needed internal capacity to absorb losses. It was an essential principle for a level playing field and market discipline;
if the capacity to absorb losses was insufficient, depositors were at risk of bearing losses, and then resolution authorities could decide that deposit guarantee schemes (DGS) intervened to help or finance the sale;
he stressed that this could only happen under strict conditions, only:
- if the resolution authority deemed it necessary to safeguard financial stability;
- to finance a market exit, so that failing banks were not kept alive without money;
- if it was cheaper for DGS to simply pay out insurance deposits in the bank;
he highlighted that depositors in the EU would continue to be protected up to 100,000 euros wherever they were in the EU, and the Commission would slightly extend the scope of the situations that were covered by depositor insurance;
he hoped to reach an agreement on the package by early 2024.

Luis de Guindos, Vice-President of the European Central Bank

the key elements of the package would only function as intended if they were put in place together;
applying the resolution framework to smaller banks required a credible solution for resolution funding;
for that reason, allowing DGS to fund resolution with strict safeguards created a win-win situation:
- protecting depositors was in the interest of financial stability and citizens;
- the costs were borne by the banking industry;
the worst possible outcome would be to increase the scope of banks that went to resolution without a credible resolution strategy;
the two components of expanding the scope of resolution, and availability of adequate funding had to go together;
using DGS in crisis management required a single tier depositor preference, which the ECB welcomed;
the Commission proposals intended to preserve the functioning of institution protection schemes, while creating a more level playing field with other DGSs;
it was important to preserve the coherence of the proposal, and to adapt it during the current institutional cycle to improve the resolution framework;
he noted that recent events in the US and Switzerland were a "wake up call", signalling how rapidly trust in a bank could deteriorate, and at which pace a bank run could happen;
a complete banking union would offer the best protection against contagion, and the CMDI showed a positive step in that direction;
he concluded that moving to the subsequent step - a complete banking union - has currently become even more pressing than before.

Poland welcomed the CMDI reform, and believed that it would improve the current resolution framework;
the proposals would facilitate resolvability of problematic banks, irrespective of their features, and would also contribute to enhancing financial stability;
Poland appreciated the amendments in depositors' protection rules to ensure better protection for credit institutions and clients;
the country welcomed the extension of DGS coverage to public authorities and units financed by taxpayers such as schools and hospitals;
Poland welcomed the adjustments related to financing with DGS funds the resolution and recovery of small banks;
there were some parts of the package that still had to be analysed, and Poland considered that some parts needed further clarification, such as the consolidated internal minimum requirement for own funds and eligible liabilities (MREL) of the daisy chain act;
- Poland believed that the proposed approach may affect the feasibility and credibility of single point of entry resolution strategy, and found it detrimental to host MS;
nevertheless, the package was a good starting point for further work.

Germany welcomed the package and supported the efforts towards completing the banking union;
Germany was unsure about the extent to which the package was aligned to the Eurogroup statement of June 2022;
the country had doubts:
- Germany saw no need to expand the resolution regime to smaller banks, given that there were already functioning mechanisms at domestic level;
- called for the responsibility of shareholders and creditors. There was a bail-in of 8%, and the Commission suggested a different approach without the 8%, and Germany considered that it was not wise;
there was still significant work to do in order to make the proposal work properly.

the objective of the review should be to strengthen financial stability and depositor protection, while shielding taxpayers' money from banking crises;
Denmark supported the proposal to broaden the scope of resolution, so that more failing credit institutions were subject to bail-in of shareholders and creditors;
Denmark also considered that the scope should be broadened to smaller and medium banks;
DGS contributions should only be possible under certain conditions and within certain limits;
Denmark recognised that the proposal had conditions and safeguards that limited the DGS contributions in resolution, but it was still necessary to examine and discuss the restrictions in more detail;
Denmark agreed with Germany on the fact that bail-in was important, and there was a need to ensure that the bail-in requirement of 8% of liabilities was primarily fulfilled by writing down shareholders and creditors, and less by DGS contributions;
Denmark called for caution in order not to water down the bail-in requirement.

recent events showed that there was a need to continue with the efforts to complete the banking union;
the two pillars of the banking union were fully operational, and it was about time to devote efforts to the third pillar;
a reinforced banking union would increase trust and strengthen financial stability;
Cyprus welcomed the Commission's proposals, and believed that a stronger resolution framework could improve host efficiency;
the country stood ready to work constructively in the upcoming negotiations with a view to reaching an agreement on the Commission's proposals.

Italy welcomed the package;
even if Italy appreciated the efforts made on the use of industry funded safety nets, the country also disagreed on various aspects of the proposals, specially where the envisaged framework risked impeding financial stability:
- Italy called for being more mindful with regard to the proposed enlarged scope for resolution, and noted that it should only apply to entities that were fit for it;
- resolution was not a goal, but a means to the goal of financial stability. The alternative between resolution and other national liquidation regimes should be driven by financial stability;
- there also had to be room for making the MREL calibration more proportionate. The framework had to carefully reflect banks specificities;
- Italy called on continuing building on international best practices;
further progress should also be made in order to finally complete the banking union;
Italy understood the CMDI review as the first step in stone in the direction of finally completing the banking union.

the goals should be ensuring financial stability, protecting depositors and taxpayers' money, and contributing to reaching a level playing field in the single market;
Czechia welcomed the package, but there was room for improvement:
- the country understood that it was necessary to allow the use of resolution tools not only for the largest banks, but also for mid-size and smaller institutions. Nevertheless, Czechia was not convinced that resolution should be the default option for all bank failures;
- financing was a key element to the successful resolution of a bank failure. The country understood that the single tier depositor preference in the creditor hierarchy improved access to the resolution fund, but removing the priority of the DGS may lead to an excessive burden and jeopardise the performance of their primary role, which was to be fully loaded industrially to protect covered deposits.

Finland agreed with the goals behind the proposal proposed by the Commission;
the country agreed on the idea that resolution tools should be used more often;
the Commission's proposal includes several substantial changes to the current framework, so all files had to be carefully analysed;
the review of the state aid framework for banks should have been done in parallel with the CMDI proposal;
Finland called for not abandoning the central principle for a fair bank resolution agreed after the great financial crisis, which stated that banks owners and investors should carry the burden for a bank failure;
Finland asked for the Commission assessment of the proposed general depositor preference, and its impact on the availability of different funding sources to banks;
Finland asked whether it was likely that the attractiveness of deposits would increase significantly to the detriment of other funding tools;
one lesson from the US banking crisis was that it was necessary to have the widest set of tools available, and the same went for resolution strategies;
working on the details of the package was very much needed before an agreement would be reached.

Greece supported the package, and considered that it was crucial to agree on it within the proposed timeline;
Greece supported the adoption of a single tier deposit preference;
the country also welcomed the use of industry funded safety nets;
Greece was in favour of the availability of preventive measures by DGS in all jurisdictions, as well as of the amendments proposed regarding the interaction of the use of the Single Resolution Fund (SRF) and the application of state-aid rules. The country also considered that the same approach should be applied when DGS intervened in insolvency so as to ensure the effectiveness of both processes;
there was also room for further improvement:
- enhancement of the protection of all depositors as part of the resolution process;
- further steps should be taken to address the problem of liquidity in resolution, which was an issue that the current framework did not address;
Greece reiterated that it was key to complete the banking union.

Croatia supported the package;
the country welcomed the two pillars of the banking union and referred to them as a success;
the third pillar was still missing, and the CMDI was a good step forward;
it was important to have in mind that the aim of the CMDI framework was to make intermediate progress, and it should not include any developments that could fragment the insurance framework;
Croatia called for caution with regard to harmonising the use of funds from DGS and new hierarchy schemes;
recent banking events reminded that shocks in the banking system could emerge anytime;
Croatia called for taking into account the impact of digitalisation and social networks on the banks failure.

recent events in the banking sector showed that it was key to have a sound resolution framework;
Belgium welcomed the package presented by the Commission;
the country supported the proposal to extend the scope of the resolution framework to cover smaller and medium banks;
Belgium considered that liquidation of banks should remain an exception;
the new framework would strengthen the tools to organise the market exit for failing banks of any size and business model;
with regard to the financing of the resolution of smaller and medium sized banks, for Belgium the main line of defence during resolution should be MREL;
Belgium was assessing the impact of the proposal on DGS, so the comments on the issue remained preliminary;
the country called to providing the elements and tools that would strengthen trust in the system.

in order to tackle crises in an effective manner, it was important to have decisive, quick and flexible actions;
Spain referred to the "only Spanish case of a successful resolution was the Banco Popular case", and it had taken 6 years to close the arbitration processes that were opened at the time;
for that reason, it was key to have legal certainty and excellent cooperation between the SRB and national resolution authorities;
direct analogies between the US and the EU cases should be avoided;
Spain welcomed the two pillars of the banking union, and called for making progress as fast as possible on its completion. It was key to adopt EDIS;
Spain supported the core elements of the package, including broadening the scope of resolution;
the Commission suggested facilitating the use of DGS on resolution to bridge the funding gap, until the 8% threshold of the SRF was reached. It was crucial to enable it, but also that the SRF intervened automatically once the 8% was reached;
the second requirement was to have balanced MREL requirements, in order not to penalise those institutions that had little or smaller access to financial markets;
Spain called for addressing the issue of liquidity provision.

France welcomed the package;
the country regretted that the files were not made available in all official languages of the EU;
France supported the ambition to broaden the scope of resolution, as it would enable to have a buffer to absorb losses of banks;
it was important to hold an economic debate on the key question of which creditors should be protected, and with what money;
SMEs and private savers needed better protection. Larger deposits and larger businesses should not necessarily be treated in the same as smaller deposits;
the proposal would increase protection, but it also entailed costs, so it was important to decide who would bear those costs. The first line of defence should be MREL, in order to cushion losses.

Portugal welcomed the Commission's package;
it was key to have a regime that strengthened deposits protection while making resolution more likely and credible;
Portugal underlined the several positive elements of the proposal:
- the enlargement of the scope of resolution;
- new depositor preference to ensure adequate funding both inside and outside resolution;
- the possibility to use industry funds in the national DGS to bridge the gap to protect deposits, which would also enhance the credibility of the resolution;
Portugal believed that more ambition was needed in the restrictions on the SRF's use, and the limitations to use the DSG to bridge the gap only for transfer strategies;
the governance of the DGS participation was also a concern, particularly the lack of a national decision power to use national funds;
overall, it was a good basis for discussion, given that the current regime had to be improved.

the topic was sensitive, specially after what happened in Switzerland and the US;
it was key to look at how financial stability could be strengthened, and whether there were loopholes in the current framework;
proportionality must be of high value when discussing the package;
Austria considered that the package should ensure compliance with the Eurogroup statement, and considered that it was not very much the case at the moment;
Austria called for sticking to procedures that were currently well-functioning, and avoid replacing them;
the country considered that the bail-in must be the main source of funding, and observed a risk of deviating too much from that principle in the package.

Malta welcomed the Commission's proposals;
Malta noted that broadening the scope could have consequences, such as an increasing costs for banks that were mainly deposit-funded;
Malta regretted that there had been no progress with regard to EDIS;
given the absence of agreement on EDIS, the proposal called for extended use of national GDS funds in resolution. Malta considered that it was a sensitive topic which should be carefully considered, given the associated risks of using such funds in resolution;
Malta also considered that it could put substantial risk on national governments backstop mechanisms, which would ultimately not reduce or break the vicious sovereign-bank nexus;
the country considered that the super priority of DGS and covered deposits should not be amended or removed;
Malta supported harmonising the triggers for putting a bank in liquidation to ensure further clarify, equity and trust on the system.

thanked the Commission for the hard work on the package;
it should be a priority to enhance the credibility of the resolution framework, and strengthen the financial stability in the EU;
the package included several elements that were sensitive for Slovakia:
- the extensive use of national DGS in resolution. Slovakia considered that the broadening of the use of DGS weakened the credibility of the schemes, and noted that deposit schemes should be primarily used for the payout function, and not to fill up the gap in financing resolutions;
- - the country called for proper discussion and sufficient time in order to consider all possible deficiencies that could undermine the existing balance;
- the ambition of the Commission and the speed of upcoming negotiations should not be at the speed of a well-balanced framework.

thanked the Commission for the proposals;
the package had to contribute to protecting financial stability and enhance citizens' confidence in the regulatory framework;
the key question of Luxembourg was whether the Commission proposal would deliver on the goal of reinforcing the protection of depositors, and broadening the scope of resolution tools;
protecting depositors was crucial;
Luxembourg noted that the package had to be aligned with the principles set out at the Eurogroup statement;
for Luxembourg, it would be highly problematic if the CMDI touched upon elements that altered the home-host balance.

Ireland welcomed the publication of the CMDI;
completing banking union was of key relevance;
Ireland observed some elements of the proposal that could have unintended consequences, but stressed the importance of reaching a high level of consensus;
Ireland thanked the Commission for carrying out the review and impact assessment of the daisy chain regulation;
as the daisy chain regulation would come into force before the end of 2023, Ireland strongly supported to separate the daisy chain's amendments from the rest of the package.

Netherlands supported the proposal and the improved focus on the application of the resolution framework, in order to ensure a level playing field between banks:
the country supported the harmonisation of the use of DGS, and clarification and stricter framing of preventive measures;
there were other elements that required further clarification, such as the reform of the creditor hierarchy, as it may significantly increase the costs for the DGS;
further discussions were key to understand the implications of the suggested reforms, such as the ultimate scope of resolution and how to ensure that costs were not disproportionate.

the EU regulatory framework should be adjusted so that MS could ensure a harmonised approach to protect investors and depositors;
currently, depositor protection safety nets were strengthened through well functioning systems at national level;
Latvia considered that the focus should be first set on strengthening the CMDI system;
Latvia called for strongly respecting the scope of the mandate given by the Eurogroup;
the current CMDI proposal implied coming closer to the political goal, but it was key to keep the ambition to complete the banking union.

Lithuania supported the package;
the CMDI reform would be stronger with an EDIS included in it;
Lithuania supported broadening the application of the resolution regime to include smaller banks, as well as the option to use DSG funds for alternative measures;
the country was cautious regarding changes in creditors' hierarchies;
Lithuania welcomed the fact that the CMDI proposal addressed practical issues, related to the transfer of contributions when a credit institution joined another DGS;
the country also welcomed the amendments regarding the protection of e-money institutions, payment institutions, and investment funds.

Estonia supported the objectives of the package;
predictability was key to ensure trust and financial stability, while not undermining expectations of creditors;
a sensible balance should be found when changing the creditor hierarchy and allowing the use of DGS for resolution.

Slovenia welcomed the Commission's efforts towards improving the second pillar of the banking union;
among the measures proposed in the package, Slovenia supported the amendments in respect of the medium sized and small banks, being subject of resolution;
Slovenia put special focus on provisions that would expand the use of funds from the national DGS for resolution purposes. The country was reluctant to use those funds at least until there was no EDIS at EU level;
in Slovenia's view, the establishment of an EU single fund would be more effective in providing liquidity support compared to a scheme based on the national deposit insurance funds;
Slovenia called for the completion of the banking union.

Romania welcomed the Commission's proposal in order to ensure legal certainty in the field of crisis management;
it was key to find the right balance between the need to access financing in resolution, while preserving the main function of the DGS;
the available financing resources of the DGS should be exclusively used for protecting covered depositors;
attention should be given to changes made to deposits ranking in insolvency.

Bulgaria was ready to work constructively on the package, in line with the Eurogroup statement;
it was important that the proposed reform did not lead to additional fragmentation, nor impose requirements that had a negative impacts on deposit insurance;
Bulgaria called for the further completion of the banking union.

Mairead McGuinness, Financial services, financial stability and Capital Markets Union, European Commission

the package was large and complex, and for that reason there were delays with regard to translation of the documents;
she made clear that the Commission's work was not linked to the events that took place in the US banking sector;
with regard to the minimum bail-in, the proposal did not amend the access condition to the resolution funds, which required a minimum bail-in of 8% of the bank's liabilities and own funds;
the proposal facilitated the use of the funds from national DGS in resolution, including under certain conditions, as a bridge to meet the 8% condition;
the introduction of the bridge mechanism based on the intervention of the DGS did not weaken the minimum bail-in rule. Access to the resolution funds remained conditional to a contribution from banks shareholders, creditors, and when it was not enough, the national DGS instead of depositors;
she reminded that it would remain an exceptional tool, only to be applied in specific cases when the authorities considered that imposing losses on depositors would lead to adverse consequences;
with regard to institutional protection schemes (IPSs), the Commission recognised that preventive measures could be helpful. The Commission review strengthened the set of safeguards applicable to preventive measures to ensure their timeliness and cost-efficiency;
it was important to find a balance between harmonising the safeguards for the use of national DGS to maintain the level playing field, and to take due account of national specificities;
the resolution framework and state aid rules were complementary, and the Commission was carrying out an evaluation of the state aid framework for banks, planned for early 2024;
the CMDI proposals did not cover EDIS, given the absence of political consensus. The Commission remained convinced that EDIS was key for the completion of the banking union.

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