Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
Reporting on key macro data at the time of release.
Real-time insight on key fixed income and fx markets.
- Emerging MarketsEmerging Markets
Real-time insight of emerging markets in CEMEA, Asia and LatAm region
- MNI ResearchMNI Research
Actionable insight on monetary policy, balance sheet and inflation with focus on global issuance. Analysis on key political risk impacting the global markets.
- About Us
By Silvia Marchetti
ROME (MNI) - New Eurozone banking rules face serious interpretation issues
that need addressing in order to give equal treatment to small and large banks
or risk inefficient bank crisis management, a Bank of Italy source told MNI.
The Banking Recovery and Resolution directive (BRRD) requires a "wording
fix" in certain ambiguous "grey areas" seen when applying the new rules, which
could create mayhem over the different treatment of small banks and large
investment banks, the official warned.
The problem is not the BRRD itself, despite being a rather "unclear tool",
but rather the reading given to it and in its application by different EU
banking authorities in the wake of a bank crises. That, the source argued, may
lead to confusion and overlapping competences.
"The recent increase in complexity and multiplication of new European
banking rules has made the resolution mechanism ever more complicated," the
source said. "Resolution tends to be adopted mainly for significant, systemic
banks which default poses a threat to the entire financial system's stability,
while smaller non-systemic lenders are left with liquidation as ultimate measure
to address a crisis".
--INCREASED NUMBER OF REGULATORS
Additionally, the number of banking authorities involved at the European
level in crisis management has grown significantly lately, but their competences
and goals remain unclear.
The source argued that the BRRD does envisage resolution for all types of
banks, independent from their role and size within a financial system, but that
authorities tend to apply it only for the "upper level cases" that have the
potential to negatively impact "public interest".
"Such thorny interpretation issues, a major concern for all states, are
currently being discussed in various EU institutions and levels with the
ultimate objective of increasing clarity in the reading and therefore adoption
of adequate resolution tools," the official noted.
The risk, in the absence of a clearer picture, could be that of paving way
to a two-tier banking system where smaller, traditional banks are penalized in
crisis management over significant, systemic lenders involved in investment
--SHIFTING ITALIAN CONCERNS
Italian concerns over banking rules have shifted recently. In past months,
the country was pushing for a BRRD revision by end of this year, looking to
introduce a "transitory period" for banks to adopt to the new bail-in rules. But
now the main goal is to "rationalize" the volume of complex rules, their
interpretation and the various procedures that are causing havoc and creating
uncertainty over the management of bank crises.
"The real challenge ahead is not debating on possible amendments to the
BRRD, but to simplify the financial outlook and define a clear, unique
interpretation of the new rules. A messy situation poses stability threats," the
BOI official said.
Simplification of the European regulatory framework is paramount,
especially after the introduction of minimum requirements for own funds and
eligible liabilities (MREL) and total loss absorbing capacity (TLAC) aimed at
giving lenders proper tools to deal with crises, the source added.
Smaller banks will face a tougher -- and longer -- time in putting aside
required capital to absorb losses, with the danger of "being left behind" in the
case of a default and be pushed towards liquidation in the absence of
--MNI London Bureau; tel: +44 203-586-2225; email: firstname.lastname@example.org