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Commission consults on the measures necessary for a new EU framework for Crisis Management in the Banking Sector
Reference:  IP/09/1549    Date:  20/10/2009
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IP/09/1549

Brussels, 20 th October 2009

Commission consults on the measures necessary for a new EU framework for Crisis Management in the Banking Sector

(see MEMO/09/468 )

The European Commission has adopted a Communication on an EU framework for crisis management in the banking sector. The purpose of the Communication is to consult as widely as possible on a broad range of issues aimed at safeguarding financial stability and the continuity of banking services in a cross border banking crisis. The Communication sets out questions on the tools that the Commission considers would be necessary for an EU crisis management framework. These tools range from “early intervention” action by banking supervisors aimed at correcting irregularities at banks, to bank resolution measures which involve the reorganisation of ailing banks, , to insolvency frameworks under which failed banks are wound up. The Commission’s consultation will last for three months, and will be followed by a public hearing to present the results and set out the Commission’s intentions.

Internal Market and Services Commissioner Charlie McCreevy said: "The crisis has shown clearly that Europe needs a crisis management framework which mirrors the cross-border nature of financial markets. We must also recognise that no bank will ever be immune to failure. We need a robust set of arrangements which will allow a possible failure to be detected and averted, if at all possible and if not, then the bank should reorganise or wound down. This should be managed in a way that does not threaten the financial system and which minimises the costs for European taxpayers. A clear framework to manage cross-border banking crises is, therefore, an essential complement to our work on supervisory reform.”

The financial crisis has highlighted the importance of putting in place effective cross-border arrangements to handle banking crises. There have been a number of high profile banking failures over the past 18 months (Fortis, Lehman Brothers, Icelandic banks) which revealed serious shortcomings in the existing arrangements.

The Commission takes the view that the existing arrangements are clearly insufficient to stabilise and control the systemic impact of cross border financial institutions and that a new legal framework needs to be put in place. A new framework should equip authorities with the right tools and provide the legal certainty to handle cross-border banking failures, in ways that minimise costs to taxpayers and allow even the largest banks to fail without damaging financial stability.

The Commission's consultative Communication adopts a broad ranging approach to the complex and interlinked issues surrounding crisis management:

  • Under "early intervention" (i.e. when the ailing institution is still a going concern and when supervisory intervention can still remedy the situation) the Communication considers the need for new supervisory tools, possibilities to transfer assets between different legal entities and across borders within a group, and the feasibility of wind-down plans.

  • Under "bank resolution", consideration is given to the need for new re-restructuring tools and a framework to support their use in a cross-border context. Views are also sought on the challenges facing stakeholders in banks such as shareholders and creditors could be best addressed in an EU crisis management framework, especially with respect to changes to insolvency and company law.

  • The important question of how bank resolution measures need to be financed is raised with a clear preference for private sector solutions, but recognising that inevitably burden sharing between Member States needs to be addressed.

  • Under "insolvency" consideration is given to the need to harmonise existing insolvency procedures in order to facilitate the winding up and re-organisation of cross-border banking groups.

At this stage, the Commission is consulting stakeholders (e.g. public authorities including finance ministries, company law and insolvency experts, the banking industry, bank customers, shareholders and creditors) before coming forward with concrete policies and proposals. The Commission views such a consultation as an essential first step in preparing the ground for what will be an important new policy area. A public hearing will be organised in February 2010.

More information is available at: http://ec.europa.eu/internal_market/bank/news/index_en.htm