MNI: EU Unlocks Talks On Overhauling Bank Crisis Management

The Belgian holders of the European Union’s rotating presidency have unlocked long-stalled talks over overhauling its bank crisis management and deposit insurance framework, which aims which aims to streamline and reduce costs of bank resolution while at the same time better protecting depositors, sources close to talks said.

A new text on CMDI, which is regarded by officials as a crucial step on the path to a full-fledged EU Banking Union, has been circulated by Belgium and is being analysed by national officials, sources said. While this new draft contains “new elements”, one official noted that there was still a risk that new tweaks might bring more countries on board only at the risk of alienating others..

“The Belgian presidency is working hard, but it still looks difficult. Chances are probably 50/50,” one source said.

Sources said that the presidency may be in a position to conclude the talks by the end of this week or next, but that will mean addressing objections by Germany, France and Italy to the proposals.

GERMAN, FRENCH OBJECTIONS

CMDI aims to widen the scope of EU resolution by a more flexible use of national Deposit Guarantee Schemes, including using these as a bridge to tap the EU’s Single Resolution Fund for smaller banks which otherwise have problems raising MREL. (Minimum Required Own Funds and Eligible Liabilities for loss absorption)

Germany is said to be reluctant to embrace any circumvention of bail-in and also wants to protect existing institutional protection schemes. While France objects to any further contributions to the SRF, Italy is seeking greater flexibility in the proposals.(See MNI: Italy To Ratify ESM Changes, Quit Bargaining-Sources)

Without agreement on CMDI, officials believe any further move towards EU Banking Union will be unlikely, although - even if CMDI is agreed - Banking Union will be tough to complete, given longstanding German objections to proposals for European Deposit Insurance and Italian opposition to any change of the current Regulatory Treatment of Sovereign Exposures which awards Italian government bonds a zero-risk weighting.