Don't They Ever Agree? CMDI Talks between EU Council and Parliament Lead to Stalemate
Brussels
Intense standoffs in finalizing plans for smaller financial institutions
It's all drama at the beginning of negotiations: The representatives of ourTwo European authorities - Council and EU Parliament - are still as far apart as ever at the start of their final discussions on the resolution rules for small banks (CMDI). Far from moving towards each other, it seems this session just solidified their differences.
Trying to hammer out EU rules for the future resolution of small to medium-sized banks, and the use of funds from national deposit guarantee schemes in a crisis (Crisis Management and Deposit Insurance, CMDI), is set to be one heck of a battle. This much became clear during the initial trilogue meeting, held just before Christmas, involving the EU Parliament and Council, with the EU Commission in attendance. To make matters worse, the parties couldn't even agree on the meeting's agenda!
The bone of contention lies in the conflicting views on how to handle the issue of institute protection systems during future negotiations on EU guidelines. These systems, like the liability communities maintained by large associations of savings banks or cooperative banks in Germany, provide full creditor protection, and both sides are digging their heels in.
The Hungarian EU Council presidency has already made it known that they don't agree with the EU Parliament's wish to treat the institute protection issue separately. On the other hand, the chair of the trilogue meeting, Aurore Lalucq, chair of the Economic and Monetary Affairs Committee of the EU Parliament, has stressed that the Parliament's negotiators have received a forceful mandate and will take a firm stance in the negotiations. Diplomatic talk aside, we're in for a real fight!
The meeting ultimately resulted in a "general exchange of views on the CMDI legislative proposal," which is the most non-committal and general form of negotiation.
The EU Council presidency reaffirmed that the text agreed by the national member states as the basis for the final negotiations with the EU Parliament ("General Approach") was "fully in line with the objectives" of the legislative initiative. In the summer, the Council had proposed significant amendments to the EU Commission's draft.
One of the most significant changes proposed by the Council is the removal of the EU Commission's proposed abolition of the "super-preference status" of national deposit guarantee schemes. In other words, the EU Commission wants to see smaller institutions resolved rather than sent into insolvency during a crisis.
To cover the cost of this gentle disposal, European clearers should also be allowed access to funds from national deposit guarantee systems. But this can only happen if their special status in the creditor hierarchy falls. The EU Parliament supports the EU Commission's idea, while the EU Council wholeheartedly disagrees.
The German Banking Industry Committee (DK), a joint forum of associations representing savings banks, cooperative banks, private institutions, promotional banks, and Pfandbrief banks, is adamantly backing the Council on the super-preference issue. The DK urges the German government to support the EU Council's position and correct "many misdevelopments." Keeping the priority status of the guarantee systems in the creditor hierarchy, they feel, fortifies the funding security of the guarantee systems and strengthens saver trust.
The German Banking Industry Committee is also opposed to the comprehensive extension of resolution rules to small and medium-sized institutions. It argues that doing so would mean corners cutting on safety measures and unnecessary regulatory burdens, without benefiting consumers or financial stability. The associations of the German financial industry also reject the mixing of deposit insurance and bank resolution, as well as the communitization of national guarantee funds at the EU level.
Lastly, it's worth mentioning that Europe's banking union has developed supervision and regulatory frameworks, improving the resolution regime for banks, but specific information on the changes proposed to super-preference status and communitization of national guarantee funds is scant. The discussions, however, reflect broader ongoing debates on the balance between national and European-level regulation.
- The European Council and Parliament have found themselves at an impasse in their discussions on the resolution rules for small banks, known as CMDI, with no signs of compromise.
- The major point of contention seems to be the conflicting views regarding institute protection systems during future negotiations on EU guidelines, with both sides holding firm positions.
- The Hungarian EU Council presidency has expressed disagreement with the EU Parliament's wish to treat the institute protection issue separately, while the EU Parliament's negotiators have been warned to take a firm stance.
- One of the most significant changes proposed by the Council is the removal of the EU Commission's proposed abolition of the "super-preference status" of national deposit guarantee schemes, a point fiercely contested by the EU Parliament.
- The German Banking Industry Committee, a representative of various financial associations in Germany, is urging the government to support the Council's position on the super-preference issue, arguing that it fortifies the funding security of the guarantee systems and strengthens saver trust.
