Terence Flanagan
Question:97. Deputy Terence Flanagan asked the Minister for Finance his views on EU rules on bank resolutions; if he has any proposals for the EU in this area; and if he will make a statement on the matter. [54954/13]
View answerThursday, 19 December 2013
Questions (97, 99)
Terence Flanagan
Question:99. Deputy Terence Flanagan asked the Minister for Finance his views on the new European bail-in; and if he will make a statement on the matter. [54957/13]
View answerWritten answers
I propose to take Questions Nos. 97 and 99 together.
Last week the Presidency of the EU Council reached agreement with the European Parliament on the Bank Recovery and Resolution Directive (BRRD). The BRRD proposal provides a common framework of rules and powers to help EU countries manage arrangements to deal with failing banks at national level as well as cross-border banks, whilst preserving essential bank operations and minimising taxpayers' exposure to losses.
There are three pillars to the BRRD framework to facilitate a range of appropriate actions by authorities:
- Preparatory and preventative measures including reinforced supervision and robust recovery and resolution planning for major institutions;
- Early intervention which would include supervisory powers and implementing recovery plans;
- Resolution tools including appointing a special manager, sale of business, bridge bank and asset separation tools and also the use of bail-in mechanisms.
I welcome the introduction of this important piece of legislation which is designed to safeguard financial stability and to protect taxpayers’ funds. The rules will be transposed into national law over the course of 2014.
The bail-in tool that the Deputy specifically refers to is, in my view, an essential part of this new resolution framework and an important means of protecting taxpayers’ money from any future bank crisis. Bail-in will enable resolution authorities to write down or convert into equity the claims of shareholders and creditors of institutions that are failing or likely to fail. This is an important means of ensuring that a bank’s losses are absorbed by those who fund its activities and not taxpayers.
The introduction of clear EU wide bail-in rules should assist in creating a level playing field for banks and should force market discipline, so that investors’ decisions to lend to banks and the premiums they charge for such lending are based on the financial health and soundness of the particular bank rather than its geographical location. This should constrain banks from engaging in the excessive risk taking that was at the heart of many bank failures of recent years.
Where excessive application of bail-in might lead to significant financial instability, other measures in the BRRD can be considered. This could for example include using the resolution fund to absorb some of the losses. The resolution fund will be funded by the wider banking industry and in a banking union context this will be set up at a European level, thereby increasing the amount of funding available.
I am of the view that this new EU framework will reduce both the likelihood and the impact of future problems in the banking system, while also enabling authorities to manage bank crises in a coordinated manner minimising contagion to the wider economy. This represents significant progress in enhancing financial stability within the European banking system.