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

What has the EU done so far in terms of banking regulation?

a. Banking supervision

Three European supervisory authorities (ESAs) started work on 1
January 2011 to provide a supervisory framework (see MEMO/10/434):

– the European Banking Authority (EBA) which deals with banking
supervision, including the supervision of the recapitalisation of

– the European Securities and Markets Authority (ESMA) which deals
and with the supervision of capital markets;

– the European Insurance and Occupational Pensions Authority (EIOPA),
which deals with insurance supervision.

b. Bank capitalisation

Banking institutions entered the crisis with capital that was
insufficient both in quantity and in quality, leading to unprecedented
support from national authorities. With its proposal on capital
requirements for banks (“CRD IV”) made in July last year (see IP/11/915
and MEMO/11/527), the Commission launched the process of implementing
for the European Union the new global standards on bank capital agreed
at G20 level (most commonly known as the Basel III agreement). Europe is
playing a leading role on this matter, applying these rules to more than
8,000 banks, representing 53% of global assets. The Commission proposals
are currently being discussed by the Council and the European Parliament
and the Commission expects agreement to be reached shortly.

The Commission also wants to set up a governance framework giving
national supervisors new powers to monitor banks more closely and take
action through possible sanctions when they spot risks, for example to
reduce credit when it looks like it is growing into a bubble. European
supervisors would intervene in some cases, for example when national
supervisors disagree in cross-border situations.

c. Bank restructuring

Extensive financial sector conditionality has been included in the
policy requirements addressed to Member States that have received
international financial assistance.

With respect to the banking sector, the required policy measures
consist, on the one hand, of the orderly winding-down of non-viable
institutions and, on the other hand, of the restructuring of viable
banks. Higher capital requirements, recapitalisations of banks, stress
tests, deleveraging targets as well as enhancing the regulatory and
supervisory frameworks have also been part of the policy initiatives.
While not specific to programme countries, these stabilisation measures
are most easily implemented in the context of international financial

The European Financial Stability Facility (EFSF) can provide loans
to non-programme euro area Member States for the specific purpose of
recapitalising financial institutions, with the appropriate
conditionality, institution-specific as well as horizontal, including
structural reform of the domestic financial sector.

Specific bank restructuring under the programme goes hand-in-hand
with the conditionality of EU state aid rules.

d. Deposit guarantees

Thanks to EU legislation, bank deposits in any Member State are
already guaranteed up to 100,000 per depositor if a bank fails. From a
financial stability perspective, this guarantee prevents depositors from
making panic withdrawals from their bank, thereby preventing severe
economic consequences.

In July 2010, the Commission proposed to go further, with a
harmonisation and simplification of protected deposits, faster pay-outs
and improved financing of schemes, notably through ex-ante funding of
deposit guarantee schemes and a mandatory mutual borrowing facility. The
idea behind this is that if a national deposit guarantee scheme finds
itself depleted, it can borrow from another national fund. This would be
the first step towards a pan-EU deposit guarantee scheme. This proposal
is still being discussed by the Council and Parliament in second
reading. The Commission calls upon the legislators to speed up the
process of co-decision on this proposal, retaining the mutual borrowing

In managing a number of bank crises over recent years, national
authorities have often created a new structure out of the failing bank
and transferred some critical functions of the bank to this structure,
such as safeguarding deposits. These resolution mechanisms make sure
that depositors never lose access to their savings (for example in the
case of Northern Rock, the bank was split into a good bank, which
contained the deposits and good mortgage loans, and a bad bank winding
down the impaired loans).

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