decision-makers from supervisory and regulatory authorities (the European Central Bank (ECB), the European
Banking Authority (EBA) and Bundesbank) as well as academics and practitioners
from all over Europe considered topical banking union questions in outstanding
presentations, talked about matters generating controversy during two panel
discussions and answered numerous questions from the audience. Some 150 participants
from supervisory authorities, banks, academic circles and the legal sector
played an active part in the discussions.
The Single Supervisory Mechanism (SSM) directed by the ECB has become firmly established since the launch of the banking union
in 2014. The Single Resolution Mechanism (SRM), the second pillar of the
banking union, became fully operational on 1 January 2016. At the same time,
the international framework is continually evolving, with European legislators
recently presenting a proposal for the reform of the cornerstones of banking
supervision, recovery and resolution (CRR II, CRD V, revision of the SRM
Regulation and the BRRD). The Commission report on the implementation of the
SSM Regulation is being eagerly awaited, as well as any legislative proposals
concerning the further evolution of the SSM that may be prompted by it.
Banking supervision in the fourth year of the banking union
European legislators cannot regulate all the details themselves.
Following the welcoming address delivered by Rolf Friedewald, managing director
of the Institute for Law and Finance, Adam Farkas, the executive director of
the EBA, spoke vividly about the practical challenges facing European
legislators, the EBA and supervisory authorities in striking an appropriate
balance between detailed regulation and the need for flexibility in applying
the law. In his opinion, the room for manoeuvre granted to national legislators
in implementing European rules and the interests that some member states have
in bolstering national champions could be an obstacle to achieving the goal of
uniform supervision. At the same time, he spoke out against a deterministic
approach to regulation. He said that European legislators cannot regulate all
the details themselves. At the same time, he observed that the process for the
adoption of Level 2 measures is lengthy and inflexible. Farkas said he
therefore favoured the EBA being given greater independence in setting detailed
technical standards so that new developments can be responded to faster.
SSM was in no way a hierarchical organisation.
Andreas Dombret, a member of the Deutsche Bundesbank Executive Board,
stressed the network structure of the SSM. He said that the SSM was in no way a
hierarchical organisation. In the area of the direct supervision of important
institutions, national supervisory authorities continue to play an important
role as, for example, a part of the JST, but also through the ECB Supervisory
Board. He noted that the SSM was virtually dependent on strong support being provided
by national supervisory authorities in the form of, for example, the supply of
qualified personnel. That is why national supervisory authorities have to
fulfil their personnel commitments. He said the Bundesbank would do so in any
event. In addition, Dombret called for a reappraisal of the view that sovereign
bonds are ‘risk free’. He observed that this resulted in misallocations,
especially in view of capital requirements.
There are many crossroads along the way from global standards to actual law.
To round off the morning presentations, Danièle Nouy, chair of the SSM
Supervisory Board, began by providing an overview of international developments
concerning financial market regulation in recent years. She then discussed the
problems resulting from the fact that international standards are not always
transposed into national law in a uniform manner: ‘There are many crossroads
along the way from global standards to actual law. And states can take a
slightly different course at each crossroads.’ She said that in Europe, too,
member states still had many options and scope for exercising discretion. Nouy
emphasised that from the ECB’s perspective there was a need to introduce
improvements into the EU Commission’s current CRR/CRD IV reform proposal, which
continues to give member states a certain degree of room for manoeuvre. What is
needed is a further harmonisation of rules complemented by scope for action on
the part of supervisory authorities. Finally, she pointed out in connection
with Brexit that, following the departure of the UK, the activities of British
banks in the EU would also have to be subject to European rather than member
state supervision. In contrast to the current legal situation, this would also
be the case even if British banks only maintained branches in the eurozone or
organised subsidiaries as broker-dealers. Nouy noted that this required a
response from legislators.
National rules frequently imposed conflicting requirements on banks.
A panel discussion
was then opened by Sylvie Matherat, Chief Regulatory Officer and member of the
Management of Deutsche Bank. She stressed the importance of the international
harmonisation of supervision rules for banks operating internationally. This is
not only the case with regard to prudential regulations but also particularly
required with respect to rules governing conduct in, for example, the field of
combating money laundering. Matherat said that national rules frequently
imposed conflicting requirements on banks. Thus, in the United States, communications
frequently have to be precisely documented and kept for long periods, which, by
contrast, would cause problems in Germany, for example, with respect to data
protection legislation. Responding to critical questions from the audience
concerning the preventative recapitalisation of Italian banks, Ms Nouy
explained that this was possible under the BRRD and that the role of the ECB
was limited in this regard.
Then the panel, with the participation of the audience, discussed recovery and resolution planning and initial practical experience. A recurring issue during the debate was the burden imposed by regulation on small banks in particular.
Bank resolution in theory and practice
The second part of the conference, which was devoted to the subject of
bank recovery and resolution, opened with a presentation delivered by Raffaele
Lener, a partner at Freshfields Bruckhaus Deringer in Rome. He described the
first cases that have entailed the application of Italy’s new resolution
regime. The Italian authorities had already performed a bail-in in respect of
four smaller, regional Italian banks in 2015. In the following year, Italy
granted Banca Monte dei Paschi di Siena financial support by way of
preventative recapitalisation under the BRRD. Lener said that this example
illustrated that there was a need to strike an appropriate balance between the
bail-out prohibition and the public interest in financial stability on a
TLAC and MREL regimes are functionally equivalent, but not technically equivalent.
Christos Hadjiemmanuil from the University of Piraeus and the London
School of Economics delivered a presentation in which he examined the current
European Commission reform proposal concerning the amending of the SRM
Regulation and the BRRD. A key issue in this context is the implementation of
the new technical loss-absorbing capacity (TLAC) standard. This could conflict
with the current European standard concerning minimum own funds and eligible
liabilities (MREL), because they are ‘functionally equivalent, but not
technically equivalent’. He said that European legislators had sound reasons
for deciding to integrate TLAC into the existing MREL regime, because an
independent TLAC regime would have made bail-in regulations even more complex.
Alexander Glos, a partner in the Frankfurt office of Freshfields
Bruckhaus Deringer, then outlined the possible impact of Brexit on SRM
resolution planning. As the UK, like any other third country, will no longer be
subject to European law following Brexit, this raises the critical question of
the mutual recognition of resolution measures in the case of banks with
The afternoon’s speakers then answered questions from the audience
during a panel session moderated by Helmut Siekmann from Frankfurt’s Goethe
University. One of the focal points of the discussion was the controversial
issue of the proportionality of regulation, which places a burden on smaller
institutions in particular.
Summing up the conference, Alexander Glos expressed his delight at the
lively interest displayed by the expert audience and the many stimulating
‘The banking union is a complex structure that continues to have a pressing need for professional debate among its participants,’ he said. ‘That is why we will continue to follow the successful conference format next year too.’