BANK OF GREECE
Opening address by
Distinguished speakers,
Ladies and Gentlemen,
The
I am delighted to be here with you today, and to share with you some thoughts on this issue, which I consider to be of the utmost importance for the future of banking - and European banking, in particular.
Not by chance, this conference is taking place on the tenth anniversary of the adoption of the Bank Recovery and Resolution Directive under the Greek Presidency of the
Specifically, while the Basel III reforms sought to enhance the resilience of the banking systems by significantly strengthening the prudential standards for credit institutions, the new resolution frameworks were intended to provide a coherent, sophisticated and internationally consistent response to the problem of bank failures, especially those that raise systemic concerns.
Banks play an important role in the economy, providing finance to households and businesses, while ensuring that depositors continue to have access to their funds. Any disruption caused by the disorderly failure of a bank could have a severe impact on the economy, and even trigger an economic downturn, as seen during the Global Financial Crisis. This does not mean, however, that we should operate a zero-failure regime, or that failed banks should be bailed out with taxpayers' money. Bad banks should exit the market. And no bank should be allowed to pass on the costs of its own mismanagement to the taxpayer just because it is considered 'too big to fail'.
However, a bank's exit from the market should be orderly, should not disrupt the continuous provision of critical services, should not jeopardise the stability of the banking system as a whole and should avoid unnecessary destruction of value.
In view of these considerations, the post-Crisis resolution frameworks seek to combine the preservation of systemic stability and the continuity of financial services with market discipline and the avoidance of taxpayer-funded bailouts of failed banks. This is also the main idea behind the Bank Recovery and Resolution Directive.
In
The creation of the Single Resolution Mechanism was a bold and decisive step towards the integration of European banking markets.
Subsequent events, including the handling of the failures of Banco Popular and
But this does not mean that all is well and that we should rest on our laurels.
As last year's unfortunate events in the US, the
First, the US cases in particular showed that the framework should be flexible enough to allow authorities to take resolution actions to deal with the failure of medium-sized or even small banks. The reality is that the Bank Recovery and Resolution Framework was designed primarily to deal with the failure of significant institutions. While the use of insolvency proceedings may be a credible solution for small or medium-sized banks, there may be cases, as seen in the US, where the prospect or experience of depositors bearing losses may lead to runs by unsecured depositors on other banks perceived to be similar to the troubled bank, creating a systemic problem.
Second, we need to maintain flexibility in the use of resolution strategies to deal with different scenarios, including liquidity crises. In this context, we may need to consider whether transfer tools or a combination of strategies might be more appropriate than the bail-in tool.
Third, liquidity in resolution is of paramount importance. Authorities should be prepared to provide liquidity, as was the case in the US and
I expect that these issues will be analysed in detail today.
As far as
Fortunately, the proposals for reform of the European crisis management and deposit insurance framework tabled by the
In particular, the Commission's proposals:
a. extend the resolution framework to medium or small banks, facilitating the financing of the sale of selected assets and liabilities through MREL funds and, in exceptional cases, through the deposit guarantee schemes;
b. propose that all depositors be given the same preferential treatment, or priority, in the hierarchy of banks' liabilities, that is, the order in which a bank's various liabilities are satisfied in the event of insolvency, thereby achieving greater harmonisation of the hierarchy of creditors across the Union, while facilitating the use of deposit guarantee scheme funds to finance resolution actions;
c. harmonise the conditions for the financing by deposit guarantee schemes of preventive and alternative measures aimed at ensuring the continuity of a failing bank's operations, as an alternative to simply allowing the bank to fail and then paying out covered deposits. If the package is adopted as proposed, this will facilitate the use of such preventive and alternative measures, always subject to the least-cost constraint, which prohibits the financing of such measures if their application would expose the deposit guarantee scheme to higher losses than a traditional payout to depositors.
d. safeguards, to a maximum possible degree, level playing field among member states in the issues concerned.
Three weeks ago, on
We expect the
It is of the utmost importance that the legislative package progresses quickly and that the current one-size-fits-all approach is replaced by a more flexible one. This will allow authorities to use their toolkit appropriately, to adapt its use to the specificities of real bank failures and to avoid systemic repercussions.
Finally, we should bear in mind that the current proposals do not address the most important missing element of the European bank crisis management framework. This is the establishment of the third pillar of the
Once again, it is a pleasure to host today's event at the
Thank you for your attention.
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