06.06.2012
By Simon Miller
The EC proposals on recovery and resolution plans for banks has received a mixed reaction in the UK.
Although the proposals were broadly welcomed, some criticised the plans as poorly planned.
Michael Wainwright, partner at international law firm Eversheds, commented: “The EC’s proposal for measures to co-ordinate the winding-up of a cross border bank in Europe are both long overdue, and poorly timed. They are overdue because we have known for years that co-ordination in this area is badly needed in order to protect the financial system and minimise the cost of banking failures. They come at the wrong time because they make it more difficult for banks to raise capital, by increasing the risk in unsecured bank debt, at a time when banks need to shore up their funding base."
The proposals include the appointment of a "special manager" if banks look like failing capital adequacy requirements and the winding up of failed banks either through a bail-in or a living will
Matthew Fell, CBI director for Competitive Markets, said: "Recovery and resolution plans are the critical final piece of the regulatory jigsaw. Along with better supervision and higher levels of capital, they should form the core defence against any future financial shocks, systemic risks to the economy, and taxpayer exposure to any future losses."
In addition, the proposals suggest that banking groups could cross-subsidise weaker parts of the unit, seemingly contradicting the Independent Commission on Banking's (ICB) proposal on ringfencing retail banks.
Wainwright added: "The irony is that the ICB proposals may risk being stifled by European measures whose main aim is to rescue banks that are already in trouble."
Clifford Smout, co-head of the Deloitte EMEA Centre for Regulatory Strategy, said:
"Many of the core elements are similar to the UK approach to recovery and resolution plans but there are some important differences. Attention will focus on how these translate into workable solutions and how requirements such as the proposed role and powers of the European Banking Authority, the possible use of a special manager (rather than the firm’s own management) in the recovery phase and the financing of a resolution fund sit alongside or alter the UK resolution regime. The position of EU branches of firms headquartered outside the EU may also prove interesting."
The proposals can be downloaded here.
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