Financial Challenges to Solidarity: Building the European Banking Union in Times of Crisis

Schuman (1950) Déclaration Schuman, 9 May 1950.

Delors (2003), p. 462.

Domurath (2013), Hilpold (2015), Ross (2010), Sangiovanni (2013). Over the years, forms of transnational solidarity have emerged, as mobile EU citizens seek access to social benefits in a host Member State: see de Witte (2015).

Dammann (2014), p. 1066.

Merkel (2015).

Soros and Schmitz (2014), p. 40.

On solidarity within the European Monetary Union see Hilpold (2015), p. 15.

Bini-Smaghi (2015).

Baglioni (2016), Baroncelli (2014), Bush and Ferrarini (2015), de Witte (2013, 2015),. Hinojosa-Martinez and Beneyto (2015), Lastra (2013) and Pugliese (2014).

The SSM founding texts consist of a Regulation that confers supervisory tasks on the ECB and an amended Regulation on the European Banking Authority: Council Regulation (EU) No. 1024/2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, OJEU L 287, 29 October 2013, pp. 63 et seqq.; Regulation (EU) No. 1022/2013 of the European Parliament and of the Council of 22 October 2013 amending Regulation (EU) No. 1093/2010 establishing a European Supervisory Authority (European Banking Authority) as regards the conferral of specific tasks on the European Central Bank pursuant to Council Regulation (EU) No. 1024/2013, OJEU L 287, 29 October 2013, pp. 5 et seqq.

The main conditions for the establishment of a close cooperation between the ECB and the competent authorities of a Member State whose currency is not the Euro are defined in Article 7 of the SSM Regulation, while the procedural aspects are set out in a decision adopted by the ECB (Decision of the European Central Bank of 31 January 2014 on the close cooperation with the national competent authorities of participating Member States whose currency is not the Euro (Decision ECB/2014/5)).

Regulation (EU) No. 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No. 1093/2010, OJEU L 225, 30 July 2014, pp. 1 et seqq.

Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No. 1093/2010 and (EU) No. 648/2012, of the European Parliament and of the Council, OJEU L 173, 12 June 2014, pp. 190 et seqq.

European Commission, Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No. 806/2014 in order to establish a European Deposit Insurance Scheme (COM/2015/0586 final).

Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes, OJEU L 173, 12 June 2014, pp. 149 et seqq.

The single rulebook includes the BRRD and the deposit guarantee schemes Directives mentioned above as well as: Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential credit requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012, OJEU L 176, 27 June 2013, pp. 1 et seqq.; and Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, OJEU L 176, 27 June 2013, pp. 338 et seqq.

The SRM is fully operational since 1 January 2016.

A bail-in occurs when a bank’s investors are forced to bear some of the burden by having a portion of their holdings written off to avoid bankruptcy.

Fabbrini (2014), Zavvos and Kaltsoumi (2015), p. 140; Gortsos (2015), Huhtaniemi et al. (2015), p. 114.

See Council Implementing Regulation (EU) No. 2015/81 of 19 December 2014 specifying uniform conditions of application of Regulation (EU) No. 806/2014 of the European Parliament and of the Council with regard to ex ante contributions to the Single Resolution Fund, OJEU L 15, 22 January 2015, pp. 1 et seqq.

See de Witte (2013); Fabbrini (2014); Kern (2015), p. 176; Moloney (2014), p. 1658. See also the legal opinion delivered by the Council Legal Service: Council, Opinion of the Legal Service, 2013/0253 (COD), 13524/13, LIMITE, JUR 458, ECOFIN 787; and European Parliament Committee on Economic and Monetary Affairs, Letter to the Council Presidency of the EU regarding the intergovernmental agreement negotiated within the framework of the SRM Regulation, 15 January 2014.

Agreement on the transfer and mutualisation of contributions to the SRF (Council Document 8457/14, ECOFIN 342), available at http://​register.​consilium.​europa.​eu/​doc/​srv?​l=​EN&​fST%20​8457%20​2014%20​INIT. The Agreement was signed on 21 May 2014 by all EU Member States except Sweden and the United Kingdom, and ratified by all Euro area Member States by December 2015, with Luxembourg joining on 11 January 2016. The obligation to transfer the contributions raised at domestic level to the SRF does not derive from EU law. Besides, the Agreement affirms that all the rights and obligations laid down in its articles are valid provided that the principle of reciprocity is respected (see recital 20 of the Preamble).

See IMF (2015), p. 18, which also advocated for an acceleration in the mutualisation of national compartments from the planned eight-year transition period. See also IMF (2013).

Statement of the ECOFIN Ministers on Banking Union and bridge financing arrangements for the Single Resolution Fund of 8 December 2015. In December 2013 Member States had already committed to put in place a bridge financing mechanism to back national compartments in case of funding shortfalls during the transition period (see Statement of the Eurogroup and of the ECOFIN Ministers of 18 December 2013). See also: Five Presidents’ Report (2015), p. 11.

Statement of the ECOFIN Ministers on Banking Union and bridge financing arrangements for the Single Resolution Fund of 8 December 2015. See also Statement of Eurogroup and Ecofin Ministers on the SRM backstop, 18 December 2013, http://​www.​consilium.​europa.​eu/​en/​council-eu/​eurogroup/​pdf/​20131218-SRM-backstop-statement_​pdf.

The ESM is the permanent crisis resolution mechanism for the Euro area Countries. It provides financial assistance to Member States experiencing, or threatened by, severe financing problems. The Treaty establishing the ESM was originally signed by Finance Ministers of the 17 Euro area Countries on 11 July 2011. However, a modified version of the Treaty, incorporating amendments aimed at improving the effectiveness of the mechanism, was signed in Brussels on 2 February 2012. The ESM Treaty entered into force on 27 September 2012. The current version of the Treaty, amended following the accession of Latvia and Lithuania to the ESM, entered into force on 3 February 2015.

Corti Varela (2015); Merler (2014).

Euro Area Summit Statement, Brussels, 29 June 2012.

European Council Conclusions on completing EMU, Brussels, 14 December 2012.

The ESM has a total subscribed capital of €704.8 billion, with a paid-in capital of €80.5 billion, and it raises funds by issuing bonds on capital markets. The liability of each ESM Member is limited to its quota in the ESM capital (cf. the ESM shareholder contribution key annexed to the ESM Treaty).

The resolution of the ESM Board of Governors (that is, the Finance Ministers of the Countries of the Euro area, chaired by the Eurogroup President) was taken on the basis of Article 19 of the ESM Treaty. ESM, Board of Governors Resolution No. 4 of 8 December 2014: Establishment of the Instrument for the Direct Recapitalisation of Institutions (SG/BoG/2014/05/04). See also ESM, Guideline on Financial Assistance for the Direct Recapitalisation of Institutions, 8 December 2014 as well as ESM, Guideline on Financial Assistance for the Recapitalisation of Financial Institutions (which applies to the ESM indirect bank recapitalisation instrument under Article 15 of the ESM Treaty).

A political understanding was reached already in June 2014. See Statement by the President of the Eurogroup on the ESM Direct Recapitalisation Instrument, 10 June 2014.

Five Presidents’ Report (2015), p. 11.

IMF (2015).

See Article 1 of the ESM Guideline on Financial Assistance for the Direct Recapitalisation of Institutions as well as footnote 2, which broadens the concept of systemic relevance.

Hadjiemmanuil (2015), p. 22.

Directive 94/19/EC on deposit guarantee schemes was first amended in 2009 by Directive 2009/14/EC of the European Parliament and of the Council of 11 March 2009, OJEU L 68, 13 March 2009, pp. 3 et seqq., in particular with a view to increase deposits coverage level from €20,000 to €100,000 by the end of 2010.

European Commission, Proposal for a Directive on deposit guarantee schemes, COM(2010)368 final, 12 July 2010.

Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes, OJEU L 173, 12 June 2014, pp. 149 et seqq. On the EDIS see Gros (2014, 2015a, 2015b); Kleftouri (2015).

Five Presidents’ Report (2015), p. 11.

IMF (2015), p. 18: “To discourage liquidity ‘ring-fencing’ within national jurisdictions, a pan-European DGS should be established. Since such a pan-European DGS will take time, consideration should be given now to developing a common fiscal backstop to national DGSs, perhaps through the ESM”.

European Commission, Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 806/2014 in order to establish a European Deposit Insurance Scheme, 24 November 2015, COM(2015) 586 final. See also Communication from the Commission to the European Parliament, the Council and the European Central Bank, On steps towards completing Economic and Monetary Union, 21 October 2015, COM(2015) 600 final; Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions, Towards the completion of the Banking Union, 24 November 2015, COM(2015) 587 final.

In its April 2016 legal opinion for the German Banking Industry Committee, prof Matthias Herdegen considers Article 114 TFEU not an adequate legal basis for the EDIS. Transferring fiscal competence to an EU body which would collect financial contributions from banks would require recourse to Article 352 TFEU and unanimity in the Council. See https://​die-dk.​de/​themen/​pressemitteilung​en/​opinion-confirms-inadequate-legal-basis-european-deposit-insurance-scheme-edis/​.

In particular, with the DGS Directive, the Bank Recovery and Resolution Directive and the obligations that will arise from the EDIS Regulation.

Five Presidents’ Report (2015), p. 11.

ECB (2016), p. 36, Financial Integration in Europe 2016, Frankfurt am Main.

See European Central Bank (2016), p. 9, Opinion on a proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No. 806/2014 in order to establish a European Deposit Insurance Scheme (CON/2016/26), 20 April 2016.

In some Member States, banks have large holdings of domestic sovereign bonds and of non-performing loans.

Banks will have to pay back any funds used from a public backstop through ex post contributions.

Duff (2016).

Italy and Spain are strong opponents of a common upper limit on banks’ holdings of domestic sovereign debt. Almost 22% of the Italian sovereign debt is owned by its banks. It is worth noting that Germany made the adoption of sovereign debt ceilings a precondition for further discussions on the EDIS.

Daniel Gros of the Centre for European Policy Studies expressed this view on 23 May 2016 during the public hearing of the Committee on Economic and Monetary Affairs of the European Parliament which was held on the EDIS.