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The EcoFin reached an agreement on the draft directive on bank recovery and resolution

The EcoFin reached an agreement on the draft directive on bank recovery and resolution

27.6.2013 8:46

The EcoFin reached an agreement on the draft directive on bank recovery and resolution (BRRD), the heart of the second pillar (Single Resolution Mechanism) of the banking union. Negotiations with the European Parliament will now start. The EC hopes to present a proposal on SRM at the July 09 Ecofin meeting. The BRRD embodies rules to force losses on creditors in failed banks.

In first instance, a minimum bail-in of 8% of total liabilities will be forced on shareholders and creditors. Insured depositors under €100k are exempt and uninsured deposits of individuals and small companies are given preferential status in the bail-in pecking order. After this bail-in, countries are given an option to dip in national resolution funds to recapitalize and shield other creditors. This intervention is capped at 5% of total liabilities. Afterwards, there is still a role for the ESM. If all unsecured bondholders are wiped out, a bank is eligible to receive capital directly from the ESM. This condition would not apply to interventions before 2018. Overall, we believe this agreement is a positive and a welcome and necessary step in the right direction. On markets, the impact is very limited.

Today, EU leaders gather in Brussels for the EU Summit. Combating youth unemployment is at the top of the agenda. Initiatives are likely plenty, but leaders will need to find funds to realize their plans. Other items on the agenda are access to financing, in particular for SME’s, endorsing country-specific recommendations under the European Semester and taking stock of progress on the banking union. No specific outcome is expected on the latter subject.


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