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2020 | OriginalPaper | Buchkapitel

11. Assessments and Proposals

verfasst von : Christos V. Gortsos

Erschienen in: European Central Banking Law

Verlag: Springer International Publishing

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Abstract

Finally, this chapter contains the author’s assessments and proposals. Assessments (in the first section) pertain to the basic tasks of the European Central Bank (ECB) within the Eurosystem and some institutional aspects governing its operation, the necessary link between a more robust EMU and a well-functioning and financial stability-enhancing Banking Union (BU), as well as the positive effects and the concerns from the dual role of the ECB as monetary and banking supervisory authority. In the second section, specific modest proposals are put forward for an improved European bank safety net, which in the author’s view contains several elements of fragmentation (described as ‘partial Europeanisation of the bank safety net’), even after the establishment of the BU and even with regard to significant credit institutions. In this respect, apart from indicating that an important missing element in the architecture is harmonisation at EU level of the rules on winding up credit institutions, it proposes an enhanced role for the ECB in the provision of last-resort lending within the Emergency Liquidity Assistance mechanism and assigning it with powers relating to the provision of liquidity in resolution.

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Vorheriges Kapitel Concluding Remarks

Such an assessment is outside the scope of this book.

See Sect. 11.1.2.

On the existing rules, see Code of Conduct for High-Level ECB Officials, Article 17 (on this Code, see above in Chap. 6, Sect. 6.4.1).

On the CGFS, which was set up in 1971 by the G10 Central Bank Governors as the ‘Euro-Currency Standing Committee’ and was the first international financial forum established, see Gortsos (2019), pp. 104–107.

See Committee on the Global Financial System (2011). For more details, see also Basel Committee on Banking Supervision (2011) and Shambaugh (2012), pp. 157–162 and 187–190.

For an overview, see also Table 11.1 and Graph 11.1.

This Report was issued in 1997, revised in October 2006 and then again in September 2012; it is available at: https://www.financialstabilityboard.org/2012/09/cos_061030a.

See Chap. 4, Sect. 4.1.2.

On this aspect and, in particular, the economic rationale and the design challenges of such a union, see indicatively Thirion (2017) (containing, inter alia, a comprehensive literature review).

Carletti and Dell’ Ariccia (2015) are sceptical about this expected lower risk, using as a basis a model which explores how a supranational institutional design affects the incentives of national supervisors (like the ‘spokes’ in a wheel) to collect appropriately information on behalf of the supranational supervisor (serving as the ‘hub’).

For a summary, see Table 11.2.

It is noted that, under the DGSD, in the vast majority of cases, the repayment procedure of DGSs is activated by a decision to withdraw a credit institution’s authorisation and wind it up, rendering its deposits ‘unavailable’ and activating the repayment procedure of national DGSs.

See Chap. 9, Sect. 9.2.3. These credit institutions are currently subject to winding up under the insolvency proceedings of Italian law, which does not prevent the bail-out of senior creditors. In addition, on 25 June 2017, the Commission made public its decision to approve state aid of 17 billion euros to facilitate their liquidation under Italian law on the condition that shareholders and subordinated debtholders were bailed-in in accordance with the burden-sharing requirements laid down in accordance with the ‘2013 Banking Communication’. The Commission approval of state aid for market exit of the two credit institutions is available at: https://europa.eu/rapid/press-release_IP-17-1791_en.htm. On this aspect, see more details in Grünewald (2017), pp. 299–302.

This proposal is based (with due adjustment and updating) on the author’s paper referred to as Gortsos (2015b).

See Chap. 4, Sect. 4.1.2.

The need for a differentiation depending on the “systemic significance at European level” of credit institutions has been pointed out in Schoenmaker (2000), p. 221, with reference to Prati and Schinasi (2000), well before the recent institutional developments. If the proposal below were to be adopted, it would obviously also apply to less significant credit institutions that the ECB decides to subject to its direct micro-prudential supervision, and to credit institutions in Member States which establish a close cooperation procedure.

For an overview of these arguments, see Schoenmaker (2000), pp. 219–220.

See indicatively Goodhart and Schoenmaker (1993).

On the aspect of burden sharing, Lastra and Louis (2013, pp. 90–91) state: “(…) if the ECB makes losses it will be for the NCBs and, indirectly, their respective States to come and help. (…) The ECB faces a particular problem in that there is not one government but seventeen governments [note: today nineteen] standing behind and that therefore losses on LOLR loans (if the situation turns out to be of insolvency not illiquidity) will ultimately be borne by the (…) Member States under the current institutional setting. No doubt the LOLR [lender of last resort] role tests the limits of the mandate of the ECB in the pursuit of its objectives and hence the ambiguity that surrounds the provision of ELA.”

See Gortsos (2015a), p. 29 and Brescia Morra (2014), citing De Grauwe (2013).

See Lastra and Louis (2013), p. 79, and Lastra (2015), p. 254; on Article 127(5) TFEU, see Chap. 3, Sect. 3.1.2.

On the absence of a primary mandate content and scope of application of this article (ex Article 105(5) TEC, carried over verbatim to Article 3.3 ESCB/ECB Statute), see Smits (1997), pp. 338–355.

See on this Psaroudakis (2018), pp. 155–156.

See Chap. 5, Sect. 5.1.1.

Lastra and Goodhart (2015), p. 16.

The author highlights the extreme caution with which the ECB (just like central banks in general) accepts to perform tasks and powers that are based on an expansive reading of regulatory provisions. A case in point is that Lastra (2012) mentions (p. 9) the recourse to Article 14.4 ESCB/ECB Statute as a legal basis for the ELA as a result of ‘a restrictive reading’ of the ECB’s tasks by the ESCB (see also Lastra and Goodhart (2015), p. 16).

Lastra (2015, p. 378) expresses the view that this ECB competence could also be based on the subsidiarity principle (TEU, Article 5(3)), since amidst a crisis ECB action is more effective than action by NCBs.

Smits (1997), p. 269 (under (I)), with reference to Louis (1995), p. 59; see also Lastra (2015), p. 378.

This is a solid safeguard against potential conflicts of interest between the two ECB functions.

When resort is made to the sale of business tool, the liquidity problems may be less severe, to the extent that the acquiring credit institution may be in a better position to fund its liquidity potentially heightened liquidity through internal resources or access to capital markets.

See also Article 50(1), point (c) SRMR.

Ibid., Article 8(6), fifth sub-paragraph.

In this respect, it is noted that, in accordance with Chapter IV of the ESCB/ECB Statute on the achievement of the Eurosystem’s objectives (see above in Chap. 7, Sect. 7.1.2), the ECB and the NCBs conduct open market operations and offer standing facilities to credit institutions. A recapitalised credit institution can raise liquidity through these standard monetary facilities, upon meeting the relevant eligibility criteria and being able to pledge eligible collateral, which must be of such a (high) quality. However, it is questionable whether, after its resolution, such a credit institution would have sufficient amount of collateral eligible for Eurosystem funding.

Financial Stability Board (2016), pp. 9–11.

Ibid., pp. 11–14.

This proposal was made by the Commission in its Report of 30 April 2019 on the application of the BRRD and the SRMR, at p. 7, acknowledging, however, that the amounts of borrowings would be limited (COM(2019) 213 final, 30.4.2019 (available at: https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/190430-report-bank-recovery-resolution_en.pdf). In this Report, it is also remarked that in non-participating Member States as well as third countries (such as the USA), the provision of liquidity support in resolution is foreseen either with no limits or with limits well above those possible within the BU, often with the possibility of increases.

See on this De Groen (2018).

See Chap. 4, Sect. 4.3.3. It is noted that while the combined funds of the SRF and the ESM’s credit line is estimated at 120 billion euros, the liquidity support granted (only) for the restructuring of the banking group Hypo Real Estate exceeded 145 billion euros; see, in this respect, also König (2018). On Articles 70–74 SRMR, see Gortsos (2019), pp. 251–258.

See European Parliament (2018), p. 2 and Mersch (2018). On liquidity in resolution under the existing EU law, see Ringe (2017), BBVA (2018), Demertzis et al. (2018) and Moullin et al. (2018).

See European Parliament (2018), pp. 10–11.

Basel Committee on Banking Supervision. (2011). The Transmission Channels Between the Financial and Real Sectors: A Critical Survey of the Literature. Working Paper No. 18, February.

BBVA. (2018, May). Funding Before and in Resolution: A Proposal for a Funding in Resolution Mechanism. Retrieved from https://www.bbvaresearch.com/wpcontent/uploads/2018/05/Liquidity-in-resolution_vFm.pdf.

Brescia Morra, C. (2014). From the Single Supervisory Mechanism to the Banking Union: The Role of the ECB and the EBA. Working Paper No. 2, Luiss Guido Carli School of European Political Economy, Luiss University Press, Italy.

Carletti, E., & Dell’ Ariccia, G. (2015). Supervisory Incentives in a Banking Union. Mimeo.

Committee on the Global Financial System. (2011, July). The Impact of Sovereign Credit Risk on Bank Funding Conditions. CGFS Papers, No. 43, Bank for International Settlements.

De Grauwe, P. (2013, February). Design Failures in the Eurozone: Can They Be Fixed? London School of Economics, “Europe in Question” Discussion Paper Series.

De Groen, W. P. (2018, November). Financing Bank Resolution: An Alternative Solution for Arranging the Liquidity Required. Banking Union Scrutiny, In-depth Analysis, European Parliament, ECON Committee. Retrieved from https://www.europarl.europa.eu/RegData/etudes/IDAN/2018/624423/IPOL_IDA(2018)624423_EN.pdf.

Demertzis, M., Raposo, I. G., Hüttl, P., & Wolff, G. (2018, November). How to Provide Liquidity to Banks After Resolution in Europe’s Banking Union. Banking Union Scrutiny, In-depth Analysis, European Parliament, ECON Committee.

European Parliament. (2018, July). Banking Union: Towards New Arrangements to Finance Banks Under Resolution. Briefing. Retrieved from https://www.europarl.europa.eu/RegData/etudes/BRIE/2018/624402/IPOL_BRI(2018)624402_EN.pdf.

Financial Stability Board. (2016). On the Temporary Funding Needed to Support the Orderly Resolution of a Global Systemically Important Bank (“G-SIB”). Retrieved from https://www.fsb.org/wp-content/uploads/Guiding-principles-on-the-temporary-funding-needed-to-support-the-orderly-resolution-of-a-global-systemically-important-bank-%E2%80%9CG-SIB%E2%80%9D.pdf.

Goodhart, C. A. E., & Schoenmaker, D. (1993). Institutional Separation Between Supervisory and Monetary Agencies. In C. A. E. Goodhart (Ed.), The Central Bank and the Financial System. London: Macmillan Press.

Gortsos, Ch. V. (2015a). The Single Supervisory Mechanism (SSM): Legal Aspects of the First Pillar of the European Banking Union. Athens: Nomiki Bibliothiki – European Public Law Organisation (EPLO).

Gortsos, Ch. V. (2015b). Last-resort Lending to Solvent Credit Institutions in the Euro Area: A Detailed Presentation of the Emergency Liquidity Assistance (ELA) Mechanism. ECB Legal Conference 2015 – From Monetary Union to Banking Union, on the Way to Capital Markets Union: New Opportunities for European Integration, European Central Bank, December, pp. 53–76. Retrieved from https://ssrn.com/abstract=2688953.

Gortsos, Ch. V. (2019). The Single Resolution Mechanism (SRM) and the Single Resolution Fund (SRF): Legal Aspects of the Second Main Pillar of the European Banking Union (e-book, 5th ed.). Retrieved from https://ssrn.com/abstract=2668653.

Grünewald, S. N. (2017). Legal Challenges of Bail-in. ECB Legal Conference 2017 – Shaping a New Legal Order for Europe: A Tale of Crises and Opportunities. European Central Bank, December, pp. 287–310. Retrieved from https://www.ecb.europa.eu/pub/pdf/other/ecblegalconferenceproceedings201712.en.pdf.

König, E. (2018, July). Speech at the ECON Committee, European Parliament. Retrieved from https://srb.europa.eu/en/content/speech-elke-konig-chair-srb-econ-committee-hearing-european-parliament.

Lastra, R. M. (2012). The Evolution of the European Central Bank. Queen Mary University of London, School of Law Legal Studies Research Paper No. 99/2012.

Lastra, R. M. (2015). International Financial and Monetary Law (2nd ed.). Oxford: Oxford University Press.

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Mersch, Y. (2018, January). The Limits of Central Bank Financing in Resolution. Speech at the IMFS Distinguished Lecture Series Goethe Universität Frankfurt. Retrieved from https://www.ecb.europa.eu/press/key/date/2018/html/ ecb.sp180130.en.html.

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Smits, R. (1997). The European Central Bank – Institutional Aspects. The Hague: Kluwer Law International.

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Titel: Assessments and Proposals
verfasst von: Christos V. Gortsos
Verlag: Springer International Publishing
Buch: European Central Banking Law
Print ISBN: 978-3-030-34563-1

Electronic ISBN: 978-3-030-34564-8

Copyright-Jahr: 2020
DOI: https://doi.org/10.1007/978-3-030-34564-8_11