The Steering Committee of the Vienna Initiative
2 submitted observations on cross-border resolution to a number of European
authorities. The EBRD,
EIB, IMF, World Bank Group, and European Commission are members of the
Steering Committee as well as Italy and Romania, which represent home and
host authorities respectively. The Committee is chaired by Marek Belka,
President of the National Bank of Poland.
The European Commission
may have different views on the issues addressed in this document.
Vienna Initiative has also prepared a note Observations on Cross-border
Supervisory Practices of October 18, 2012; see the Vienna 2 homepage
focused on critical aspects of home-host cooperation, which are of
particular importance for countries in Central, Eastern, and South-Eastern
Europe (CESEE), where locally systemic affiliates of foreign banks operate.
The aim is to provide input for the ongoing discussions on the design of
the European financial stability framework and to communicate general concerns
of host as well as of home countries. Some specific features of the CESEE
countries make the cross-border resolution process particularly challenging
in this region. These include the systemic importance of subsidiaries
(or branches) of euro zone based banks in their local markets, and the
fact that subsidiaries in many cases rely on the parent bank not only for
funding support but also for all major strategic and financial decisions.
The document draws on discussions between home and host country supervisors,
central banks, fiscal authorities and key parent banks, including views
gathered at a workshop hosted by the European Bank for Reconstruction and
Development in London on September 12, 2012 and at a Vienna Initiative’s
Full Forum meeting on November 9, 2012 in Brussels.
The observations have been sent to the European Banking Authority, the
European Central Bank, the European Systemic Risk Board, and the European
The observations on cross-border bank resolution have been developed
within the context of the currently discussed Bank Recovery and Resolution
Directive (BRRD) and banking union proposal, which suggests the establishment
of a centralized resolution authority. Other elements include a single
supervisory mechanism (SSM) and a common system for deposit guarantees.
While the implementation of a full-fledged banking union would take time,
the concerns of host countries outside the initially euro zone-based banking
union – presented in this paper – should be taken into account. The
right balance between division of competencies in the decision-making process
and responsibilities for financial stability should be assured.
Based on the principle
that actions taken by authorities in one country should not lead to financial
instability in another country, the note indicates that:
· If host
countries are to participate, as expected, in resolution procedures, they
must be assured adequate influence in the decision making in the normal
non-crisis work of the supervisory colleges. And this influence should
have an EU legal backing.
· The interest
of host authorities should be appropriately taken into account when establishing
the group resolution and recovery plans by the group level authorities,
particularly when branches or subsidiaries are systemic in a host country
while of lesser importance for the banking group as a whole;
that may be rational from the home-country perspective but can nonetheless
have unintentionally destabilizing effects for the financial system in
a host country. EBA mediation may diminish the home bias in supervisory
and resolution colleges. However, safeguards for host countries should
be considered so that they are protected in case the mediation process
does not work as intended in practice. Introducing a “comply or explain”
procedure would be one possibility.
of the adequate participation of host countries in supervision and resolution
seems to be a precondition to open up for discussions on burden sharing.
A clear division of competences and responsibilities between home and host
authorities must be established to achieve this;
proposals concerning bail-inable liabilities need to be further developed
to account for conditions in the countries with small and yet undeveloped
domestic capital markets of the emerging Europe, where the low-risk, deposit-funded
banking model dominates;
· Host country
rights and responsibilities in the supervision and resolution of systemic
branches must increase. One way to address this problem is to agree that
branches above a certain size relative to the host country market could,
at the initiation of the host supervisor, be transformed into subsidiaries
in a joint coordinated action with the home supervisor. Agreeing on the
threshold size of a branch relative to the local market could be a way
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