In November 2016, as a Risk Reduction Measures (RRM) package, the European Commission proposed amendments to the following key pieces of legislation:
- The Capital Requirements Regulation and Directive (CRR and CRD IV), which were adopted in 2013 and which provide the prudential requirements for institutions and rules on governance and supervision of institutions operating in Europe.
- The Bank Recovery and Resolution Directive and the Single Resolution Mechanism Regulation (BRRD and SRMR) which were adopted in 2014 and which set the rules on the recovery and resolution of failing institutions and establish the Single Resolution Mechanism, respectively.
These amendments aim to tackle remaining weaknesses by implementing some outstanding elements of the reform agenda, which are essential to ensuring the resilience of the banking sector.
The Council Working Party on Financial Services met 16 times during the Maltese Presidency to examine the RRM package and will continue its examination during the current Estonian Presidency.
In relation to the recent bailout of two Italian banks, I am informed by the Central Bank that on 23 June 2017, the Supervisory Board of the European Central Bank made a determination of ‘Failing or Likely to Fail’ (FOLTF) with respect to Veneto Banca and Banca Popolare di Vicenza, and duly informed the Single Resolution Board (SRB).
However, the Single Resolution Board (SRB) decided that resolution action was not warranted with respect to these two banks on the same day. This decision was based on the application of the public interest assessment (PIA), which concluded that neither of these banks provide critical functions, and that their failure is not expected to have significant adverse impact on financial stability.
As a result, the winding up of both banks is taking place under national insolvency proceedings launched by the Italian authorities. This is in line with the principles of the BRRD.
Outside the BRRD, EU rules foresee the possibility for governments to seek EU Commission approval for the use of national funds to facilitate liquidation by mitigating negative regional economic effects. In this case as the two aided banks will exit the market the EU Commission found that there should be no distortion of competition in European banking markets. Liquidation is largely a national competence and powers and procedures can vary by EU Member State.
Consequently, the Italian Government received approval from the EU Commission to provide support to facilitate the liquidation or these two banks, part of which involved the sale of certain assets to Intesa Sanpaolo. The measures enable the sale of parts of the two banks' activities to Intesa, including the transfer of employees. The measures will also enable the wind-down of the remaining liquidation entity, financed by loans provided by Intesa. The Italian State will grant the following measures:
- Cash injections of €4.78bn; and
- State guarantees of a maximum of €12bn, notably on Intesa's financing of the liquidation process. The State guarantees would be called upon if the liquidated estate were insufficient to pay back Intesa for its financing of the liquidation process.
In both banks, shareholders and junior creditors have fully contributed, reducing the costs to the Italian Government, whilst depositors were protected.
