BRUSSELS (MNI) – The following is the sixth part of a text
published by the European Commission, which answers a number of
questions regarding its proposal for a centralised Eurozone banking
supervisor:

How will the proposal interact with the Capital Requirements Directive
(CRD) IV proposal? Will the CRD IV package have to be amended?

The proposed CRD IV package currently under discussion by the
European Parliament and the Council is set to regulate the activities of
banks and the prudential framework that governs the whole EU internal
market and therefore constitutes an important element of the Single
Rulebook. Supervision at European level will build on the Single
Rulebook, just as supervision outside of the SSM will.

The ECB will exercise its supervisory tasks in accordance with the
EU supervisory framework to be established by the CRDIV proposals.
Consequently, the creation of the single supervisory mechanism will not
in principle require substantive changes to the proposed CRDIV
legislative package, although in a limited number of areas, some
fine-tuning may be required to reflect the new situation. During the
final stages of the CRDIV negotiations, the Commission will pay
particular attention to ensure that the texts agreed are technically
compatible with the proposed SSM Regulation, and will work with the
European Parliament and the Council in this respect. This will include
in particular ensuring that all provisions of the proposed CRDIV
Directive are operational for application both by Member States and
national authorities and by the ECB.

What does this mean for the proposals on deposit guarantee schemes and
bank resolution?

Work on finalising the current proposals on deposit guarantees
schemes (DGS) (IP/10/918) and bank recovery and resolution (IP/12/570)
should be accelerated in order to have them adopted by the end of 2012.
This will establish the common framework of rules for protecting
deposits and for dealing with banks in difficulty across the EU’s single
market, covering all relevant definitions, powers, objectives,
principles, tools, procedures, safeguards etc. Most importantly, it will
set in motion the process of making instruments available to make sure
that banks pay for bank restructuring, rather than taxpayers, via
bail-in mechanisms and national resolution funds.

How would the ECB relate to resolution? Will the ECB be able to exercise
certain resolution powers, like intervening in a bank’s structure?

Today’s proposal concerns the daily task of banking supervision.
Consistent with the existing EU regulatory framework for banking
supervision as well as the Commission’s proposal for bank recovery and
resolution (IP/12/570), it includes some powers in terms of early
intervention if a bank breaches some of its regulatory requirements. In
such a scenario, some of the possible measures which the supervisor
could take include requiring the bank to reduce its exposures to certain
risks, to increase its capital, or to implement changes to its legal or
corporate structures. All other tasks related to resolution remain with
the national authorities.

What further steps are foreseen in relation to a more centralised system
of bank resolution at EU level?

Reinforced supervision within the banking union will help improve
the robustness of banks. If a crisis nonetheless occurs it is necessary
to ensure that institutions can be resolved in an orderly manner and
that depositors are assured their savings are safe. A banking union
should therefore include a more centralised management of banking
crises.

Once agreement on the existing DGS and Bank Recovery and Resolution
proposals is achieved, the Commission envisages making a proposal for a
single resolution mechanism which would have the responsibility to
resolve banks and to coordinate in particular the application of
resolution tools to banks within the banking union. This authority would
be more efficient than a network of national resolution authorities, in
particular in the case of cross-border failures, given the need for
speed and credibility in addressing banking crises. It would be a
natural complement to the establishment of a single supervisory
mechanism. It would also entail significant economies of scale, and
avoid the negative externalities that may derive from purely national
decisions. It would take its decisions in line with the principles of
resolution set out in the single rulebook which are consistent with
international best practice and in full compliance with Union state aid
rules. In particular shareholders and creditors should bear the costs of
resolution before any external funding is granted, and private sector
solutions should be found instead of using taxpayers’ money.

Moreover, and based on an assessment of its functioning, such a
single resolution mechanism could also be entrusted with further tasks
of coordination regarding the management of crisis situations and
resolution tools in the banking sector, as set out in the report
presented in June 2012 by the Presidents of the European Council, the
Commission, the ECB and the Eurogroup.

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