BBA welcomes EU framework for bank recovery and resolution

New European Union proposals to put in place new safeguards for taxpayers against the failure of financial institutions have been welcomed by the British Bankers’ Association.

The EU’s consultation on a possible EU framework for bank recovery and resolution is the third stage in the process of EU regulatory reform. The EU has already reformed the bank capital regime and its supervisory structures to make Europe's financial services sector more resilient against financial crisis. Now it is addressing the steps to be taken if these safeguards do not work if a bank faces failure.

‘This paper does address prevention measures, principally how to identify problems in a bank at an early stage, but its main significance is that it would extend across the EU some of the protections already enjoyed by UK bank customers,’ said BBA chief executive Angela Knight.

‘It would put in place for the first time mechanisms to address the failure of cross-border institutions, so that they can recover or the business can be wound up without cost to the taxpayer,’ she explained.

The UK’s ‘special resolution regime’ for banks is already in place, as the UK recognised early on that in the case of bank failures customers needed the best possible protection, she added. This was enshrined in the Banking Act 2009. But the ambition of the EU is to ensure all member states have resolution authorities with similar powers.

‘Taken together, the measures in this paper are very significant. They are intended to ensure that no European financial institution should be too big to fail. This is an ambitious report and care will need to be taken as to how the proposals are developed,’ said Knight.

‘The view of those who invest in banks is vital as well as the view of the banks themselves, our members. We will work with all to provide a comprehensive response,’ she added.

The EU paper, Technical Details of a Possible EU Framework for Bank Recovery and Resolution, covers the scope of preparatory and preventative measures and resolution tools, the authorities responsible for resolution, supervision, preparation and prevention.

It also covers details such as recovery planning, intra-group financial support, resolution plans, early intervention powers, resolution tools, powers and mechanisms, arrangements for group resolution, financing arrangements, possible approaches to the design of debt write-down as a resolution tool, and possible changes to company law.

The deadline for responses is 03 March. The European Commission intends to adopt a legislative proposal on bank recovery and resolution in June 2011.