The Council of the European Union has recently reached an agreement on a negotiating mandate for the comprehensive review of the crisis management and deposit insurance (CMDI) framework for banks. This review encompasses a wide range of measures intended to strengthen the existing EU crisis management framework, with a particular focus on enhancing the resolution process for small and medium-sized banks. The aim is to further the completion of the Banking Union, as directed by the Eurogroup in June 2022.
Vincent Van Peteghem, Belgian Minister of Finance, has hailed this agreement as a significant step towards establishing a more integrated and effective crisis management framework. The revised CMDI framework promises considerable benefits, including bolstered financial stability, enhanced protection of deposits and taxpayers’ money, and a level playing field for smaller and larger banks in the EU. This development represents a major achievement for the Belgian Presidency, despite the complexities and political sensitivities that accompanied the negotiations.
The framework includes several vital components, one of which is the clear guidance on the public interest assessment for initiating a resolution procedure. It establishes a two-stage assessment process by the resolution authorities to determine the necessity of a resolution procedure in the face of insolvency. The primary objective is to maintain financial stability and mitigate disruptions to the real economy at both national and regional levels, considering the potential impact of small and medium-sized banks.
Another key aspect of the CMDI reform is the facilitation of bank resolution to minimize contagion risks in the EU. This focuses on strengthening the framework and addressing funding issues faced by some small and medium-sized banks during the resolution process. The goal is to maintain the minimum requirement for own funds and eligible liabilities while also allowing the use of industry-funded safety nets, such as the national Deposit Guarantee Schemes (DGSs) and the Single Resolution Fund (SRF), to finance transfer strategies in resolution proceedings.
In addition, the CMDI framework maintains the preference for deposits and introduces safeguards to avoid unintended consequences when utilizing DGS or SRF funds. It also establishes stricter requirements and limitations for the use of these funds for banks within a specific balance sheet size range. This serves to ensure a fair and transparent process for all involved parties.
The CMDI review also addresses the hierarchy of claims, reaffirming the preference for deposits and defining the use of DGS funds. Furthermore, it clarifies the distinction between preventive and alternative measures in the resolution process, ensuring the involvement of relevant authorities at each stage.
Lastly, the framework provides clarity on the permissible forms of public financial support for failing banks and outlines the governance of the Single Resolution Board (SRB) in adopting legal instruments. These measures are aimed at promoting an inclusive Single Resolution Mechanism, taking into account the concerns of national resolution authorities.
Following the Council’s agreement, the next step involves negotiations with the European Parliament towards reaching a final consensus before the legislation is formally adopted. Once achieved, this revised directive will contribute to the continued strengthening and stability of the Banking Union, in line with the broader objectives for the EU financial system.
The original legislative proposals concerning the CMDI framework were adopted by the Commission in April 2024, marking a significant milestone in the ongoing efforts to reform and enhance the resilience of the EU banking sector.