EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

Europaudvalget 2020-21
EUU Alm.del Bilag 472
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EUROPEAN COMMISSION

DIRECTORATE-GENERAL FOR FINANCIAL STABILITY, FINANCIAL SERVICES AND CAPITAL

MARKETS UNION

Bank, insurance and financial crime

Resolution and deposit insurance

TARGETED CONSULTATION DOCUMENT

REVIEW OF THE CRISIS MANAGEMENT AND DEPOSIT INSURANCE

FRAMEWORK

Disclaimer

This document is a working document of the Commission services for consultation.

The statements reflected in this consultation paper do not prejudge a final policy position

or a formal proposal by the European Commission.

The responses to this consultation paper will provide important guidance to the

Commission when preparing, if considered appropriate, a formal Commission proposal.

Commission européenne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel. +32 22991111

You are invited to reply

by 20 April 2021

at the latest to the

online questionnaire

available

on the following webpage:

https://ec.europa.eu/info/publications/finance-consultations-

2021-crisis-managementdeposit-insurance-review-targeted_en

Please note that in order to ensure a fair and transparent consultation process

only

responses received through the online questionnaire will be taken into account and

included in the report summarising the responses.

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

This consultation follows the normal rules of the European Commission for public

consultations. Responses will be published unless respondents indicate otherwise in the

online questionnaire.

Responses authorised for publication will be published on the following webpage:

https://ec.europa.eu/info/publications/finance-consultations-2021-crisis-

managementdeposit-insurance-review-targeted_en

NTRODUCTION AND GENERAL CONTEXT

Background of this targeted consultation

In response to the global financial crisis, the EU took decisive action to create a safer

financial sector for the EU single market. These initiatives triggered comprehensive

changes to European financial legislation and to the financial supervisory architecture. The

single rulebook for all financial actors in the EU was enhanced, comprising stronger

prudential requirements for banks, improved protection for depositors and rules to manage

failing banks. Moreover, the first two pillars of the

banking union

–

the

single supervisory

mechanism (SSM)

as well as the

single resolution mechanism (SRM)

–

were created. The

third pillar of the banking union, a common deposit insurance,

is still missing. The

discussions of the co-legislators on the

Commission’s

proposal to establish a European

deposit insurance scheme (EDIS),

adopted on 24 November 2015, are still pending.

In this context, the EU

bank crisis management and deposit insurance framework

lays

out the rules for handling bank failures while protecting depositors. It consists of three EU

legislative texts acting together with relevant national legislation: the

Bank Recovery and

Resolution Directive (BRRD

–

Directive 2014/59/EU),

the

Single

Resolution Mechanism Regulation (SRMR

–

Regulation (EU) 806/2014),

and the

Deposit

Guarantee Schemes Directive, DGSD

–

Directive 2014/49/EU)

. For the purpose of this

consultation, reference will be made also to insolvency proceedings applicable under

national laws.

For clarity, the consultation only concerns insolvency proceedings

applying to banks.

Other insolvency proceedings, notably those applying to other types

of companies, are not the subject of this consultation.

Experience with the application of the current crisis management and deposit insurance

framework

until now seems to indicate that adjustments may be warranted. In particular:

•

One of the cornerstones of the current framework is the objective of shielding

public money from the effects of bank failures. Nevertheless, this has only been

partially achieved. This has to do with the fact that the current framework creates

incentives for national authorities to deal with failing or likely to fail (FOLF) banks

through solutions that do not necessarily ensure an optimal outcome in terms of

consistency and minimisation in the use of public funds. These incentives are

partly generated by the misalignment between the conditions for accessing the

Provisions complementing the crisis management framework are also present in the

Capital Requirements Regulation (CRR

–

Regulation (EU) 575/2013)

and the

Capital Requirements Directive (CRD

–

Directive 2013/36/EU).

The

winding up Directive

(Directive 2001/24/EC)

is also relevant to the framework.

It should be noted that insolvency laws are not harmonised in the EU and they may be very different from country to country, both in terms

of type of procedure (judicial or administrative) and available measures.

European Commission (30 April 2019),

Commission Report (2019) on the application and review of Directive 2014/59/EU (BRRD) and

Regulation 806/2014 (SRMR).

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

resolution fund and certain (less stringent) conditions for accessing other forms of

financial support under existing EU State aid rules, as well as the availability of

tools in certain national insolvency proceedings (NIP), which are in practice

similar to those available in resolution. Moreover, a reported difficulty for some

small and medium-sized banks to issue certain financial instruments, that are

relevant for the purpose of meeting their minimum requirement for own funds and

eligible liabilities (MREL), may contribute to this misalignment of incentives.

•

The procedures available in insolvency also differ widely across Member States,

ranging from pure judicial procedures to administrative ones, which may entail

tools and powers akin to those provided in BRRD/SRMR. These differences

become relevant when solutions to manage failing banks are sought in insolvency,

as they cannot ensure an overall consistent approach across Member States.

•

The predictability of the current framework is impacted by various elements, such

as divergence in the application of the Public Interest Assessment (PIA)

by the

Single Resolution Board (SRB) compared to National Resolution Authorities

(NRA) outside the banking union. In addition, the existing differences among

national insolvency frameworks (which have a bearing on the outcome of the PIA)

and the fact that some of these national insolvency procedures are similar to those

available in resolution, as well as the differences in the hierarchy of liabilities in

insolvency across Member States, complicate the handling of banking crises in a

cross-border context.

•

Additional complexity comes from the fact that similar sources of funding may

qualify as State aid or not and that this depends on the circumstances of the case.

As a result, it may not be straightforward to predict

ex ante

if certain financial

support is going to trigger a FOLF determination or not.

•

The rules and decision-making processes for supervision and resolution, as well as

the funding from the resolution fund, have been centralised in the banking union

for a number of years, while deposit guarantee schemes are still national and

depositors enjoy different levels and types of guarantees depending on their

location. Similarly, differences in the functioning of national

deposit guarantee

schemes (DGSs)

and their ability to handle adverse situations, as well as some

practical difficulties (e.g., when a bank transfers its activities to another Member

State and/or changes the affiliation to a DGS) are observed.

•

Discrepancies in depositor protection across Member States in terms of scope of

protection, such as specific categories of depositors,

and payout processes result

in inconsistencies in access to financial safety nets for EU depositors.

As also explained in detail later, the PIA is carried out by a resolution authority to decide whether a failing bank should be managed under

resolution or insolvency according to national law.

While the protection of standard banking deposits by DGSs has been harmonised, exceptions excluding certain deposits (for instance those of

public authorities) or extending the protection above the EUR 100 000-threshold are defined on a national basis.

Study financed under the European Parliament Pilot Project

‘Creating a true banking union’ on the

Options and national discretions

under the Deposit Guarantee Scheme Directive

and their treatment in the context of a European Deposit Insurance Scheme and

EBA opinions of

8 August 2019, 30 October 2019, 23 January 2020

and

28 December 2020

issued under Article 19(6) DGSD in

the context of the DGSD review.

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

The possible revision of the resolution framework as well as a possible further

harmonisation of insolvency law are also foreseen in the respective review clauses of the

three legislative texts.

By reviewing the framework, the Commission aims to increase its

efficiency, proportionality and overall coherence to manage bank crises in the EU, as well

as to enhance the level of depositor protection, including through the creation of a common

depositor protection mechanism in the banking union. Crisis management and deposit

insurance, including a common funding scheme for the banking union, are strongly

interlinked and inter-dependent, and present the potential for synergies if developed jointly.

Additionally, in the context of the crisis management and deposit insurance framework

review, the State aid framework for banks will also be reviewed with a view to ensuring

consistency between the two frameworks, adequate burdensharing of shareholders and

creditors to protect taxpayers and preservation of financial stability.

Structure of this consultation and responding to this consultation

In line with the

better regulation principles,

the Commission is launching this targeted

consultation to gather evidence in the form of relevant stakeholders’ views and experience

with the current crisis management and deposit insurance framework, as well as on its

possible evolution in the forthcoming reviews. Please note that this consultation covers the

reviews of the BRRD, SRMR and DGSD.

The targeted consultation is available in English only. It is split into two main sections: a

section covering the general objectives and the review focus, and a section seeking specific

more technical feedback on stakeholders’ experience with the current framework and the

need for changes in the future framework.

Part 1

–

General objectives and review focus

(Questions 1 to 6)

Part 2

–

Experience with the framework and lessons learned for the future framework

Resolution, liquidation and other available measures to handle banking crises

(Questions 7 to 28)

Level of harmonisation of creditor hierarchy in the EU and impact on

‘no creditor worse off’ principle (NCWO)

(Questions 29 to 30)

Depositor insurance

(Questions 31 to 39)

general public consultation will be launched in parallel

. It covers only general questions

on the bank crisis management and deposit insurance framework and will be available in

23 official EU languages. Some general questions are asked in both questionnaires. This is

indicated whenever this is the case. Please note that replies to either questionnaire will be

equally considered.

Views are welcome from all stakeholders.

You are invited to provide feedback on the questions raised in this online questionnaire.

We invite you to add any documents and/or data that you would deem useful to accompany

your replies at the end of this questionnaire, and

only through the questionnaire.

It is relevant in this respect to notice the European Commission’s

Report (2019) on the application and review of Directive 2014/59/EU (BRRD)

and Regulation 806/2014 (SRMR).

https://ec.europa.eu/info/publications/finance-consultations-2021-crisis-management-deposit-insurance-review_en

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

Please explain your responses and, as far as possible, illustrate them with concrete

examples and substantiate them numerically with supporting data and empirical evidence.

Where appropriate, provide specific operational suggestions to questions raised. This will

allow further analytical elaboration.

You are requested to read the

privacy statement attached

to this consultation for

information on how your personal data and contribution will be dealt with.

The consultation will be open for 12 weeks.

------

Please note:

In order to ensure a fair and transparent consultation process

only responses

received through our online questionnaire will be taken into account

and included in

the report summarising the responses. Should you have a problem completing this

questionnaire or if you require particular assistance, please contact

fisma-

[email protected].

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

ONSULTATION

The crisis management and deposit insurance (CMDI) framework was introduced as a

legislative response to the global financial crisis, to provide tools to address bank failures

while preserving financial stability, protecting depositors and avoiding the risk of

excessive use of public financial resources.

The CMDI was in particular designed with the aim of handling the failure of credit

institutions of any size, as well as to protect depositors from any failure.

The CMDI framework also provides for a set of instruments that can be used before a bank

is considered failing or likely to fail (FOLF). These allow a timely intervention to address

a financial deterioration

(early intervention measures) or to prevent a bank’s failure

(preventive measures by the DGS).

When a bank is considered FOLF and there is a public interest in resolving it,

the

resolution authorities will intervene in the bank by using the specific powers granted by

the BRRD

in absence of a private solution. In the banking union, the resolution of

systemic banks is carried out by the Single Resolution Board (SRB). In the absence of a

public interest for resolution, the bank failure should be handled through orderly winding-

up proceedings available at national level.

The CMDI framework provides for a wide array of tools and powers in the hands of

resolution authorities as well as rules on the funding of resolution actions. These include

powers to sell the bank or parts of it, to transfer critical functions to a bridge institution and

to transfer non-performing assets to an asset management vehicle. Moreover, it includes

the power to bail-in creditors by reducing their claims or converting them into equity, to

provide the bank with loss absorption or recapitalisation resources. When it comes to

funding, the overarching principle is that the bank should first cover losses with private

resources (through the reduction of shareholders’ equity and the

bail-in

of creditors’

claims) and that external public financial support can be provided only after certain

requirements are met. Also, the primary sources of external financing of resolution actions

(should the bank’s private resources be insufficient)

are provided by a resolution fund and

the DGS, funded by the banking industry, rather than taxpayers’ money. In the context of

the banking union, these rules were further integrated by providing for the SRB as the

single resolution authority and building a Single Resolution Fund (SRF) composed of

contributions from credit institutions and certain investment firms in the participating

Member States of the banking union.

Deposits

are protected up to EUR 100 000. This applies regardless of whether the bank

is put into resolution or insolvency. In insolvency, the primary function of a DGS is to pay

out depositors

within 7 days of a determination of unavailability of their deposits. In line

with the DGSD, DGSs may also have functions other than the pay-out of depositors. As

pay-out may not always be suitable in a crisis scenario due to the risk of disrupting overall

Resolution is considered in the public interest when normal insolvency proceedings would not sufficiently achieve the resolution objectives. See

Article 32 BRRD.

In the following, reference to the BRRD should be understood as including also corresponding provisions in the Single Resolution Mechanism

Regulation (SRMR).

If not excluded under Article 5 DGSD.

Article 11(1) DGSD.

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

depositor confidence

, some Member States allow

the DGS funds to be used to prevent

the failure of a bank (DGS preventive measures) or finance a transfer of assets and

liabilities to a buyer in insolvency to preserve the access to covered depositors (DGS

alternative measures).

The DGSD provides a limit as regards the costs of such preventive

and alternative measures. Moreover, DGSs can contribute financially to a bank’s

resolution, under certain circumstances.

The functioning of the DGSs and the use of their funds cannot be seen in isolation from

the broader debate on the

European deposit insurance scheme (EDIS).

A possible broader

use of DGSs funds could represent a sort of a renationalisation of the crisis management

and expose national taxpayers unless encompassed by a robust safety net (EDIS). A first

phase of liquidity support could be seen as a transitional step towards a fully-fledged EDIS,

in view of a steady-state banking union architecture as the final objective for completing

the post-crisis regulatory landscape. In the consultation document the references to national

DGSs, as concerns the banking union Member States, should be understood to also

encompass EDIS, bearing in mind the design applicable in the point in time on the path

towards the steady-state.

Finally, the CMDI framework also includes measures that could be used in exceptional

circumstances of serious disturbance to the economy. In these circumstances, it allows

external financial support for precautionary purposes (precautionary measures) to be

granted.

The main policy objectives of the CMDI framework are to:

limit potential risks for financial stability caused by the failure of a bank;

minimise recourse to public financing / taxpayers’ money;

protect depositors;

facilitate the handling of cross-border crises; and

break the bank/sovereign loop and foster the level playing field among banks from

different Member States, particularly in the banking union.

ART

–

ENERAL OBJECTIVES AND REVIEW FOCUS

Question 1

In your view, has the current CMDI framework achieved the following objectives? On a

scale from 1 to 10 (1 being “achievement is very low” and 10 being “achievement is very

high”), please rate each of the following objectives.

Do not

know /

opinio

The main challenges are related to (i) the short-term

interruption of depositors’ access to their deposits for pay-outs,

(ii) the cost to the

DGS and to the economy, and, (iii) the inherent risk of destruction of value in insolvency.

Article 11(6) DGSD.

Questions 1-6 of the general part of this targeted consultation correspond to questions 1-6 of the general public consultation.

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

The framework achieved the

objective of limiting the risk for

financial stability stemming from

bank failures

The framework achieved the

objective of minimising recourse to

public financing and taxpayers’

money

The framework achieved the

objective of protecting depositors

The framework achieved

objective of breaking the

bank/sovereign loop

the

The framework achieved the

objective of fostering the level

playing field among banks from

different Member States

The framework ensured

certainty and predictability

legal

The framework achieved the

objective of adequately addressing

cross-border bank failures

The scope of application of the

framework beyond banks (which

includes some investment firms but

not, for example, payment service

providers and e-money providers)

is appropriate

If possible, please explain:

In general, we believe that the current framework is very effective from a Danish

perspective and the answers above are based on the application of the framework in

Denmark and when cooperating with authorities in other Member States in resolution

colleges.

As a Member State outside the Banking Union, within the BRRD/DGSD framework, we

have to some extent a different approach to failing banks than most of the EU, as resolution

is the preferred strategy for almost all Danish banks, including smaller banks. This

approach ensures predictability and credibility for banks, investors and customers alike,

and it ensures that customers can continue their banking activities without interruption if

their bank fails. We believe the BRRD contains the right tools to conduct resolution of

banks of all sizes, while protecting financial stability and public money.

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

If we look at the framework from an overall EU perspective, our concern is that there seems

to be some discrepancy between the resolution tools available in the BRRD and the will to

apply these tools consistently across all Member States. In this regard we believe that a

better functioning CMDI framework that achieves our common objectives of financial

stability and protecting taxpayer’s money from banking crisis could be

ensured by a

targeted evolution of the framework in light of experience. To this end we may better fulfill

these objectives by including a broader spectrum of banks in the resolution mechanism,

increasing the use of bail-in in resolution cases and by ensuring sufficient build up of

MREL and subordinated MREL in particular.

In this light, Denmark is generally open for amendments leading to further consistency and

effectiveness. However, any amendment should leave appropriate flexibility in order to

ensure that banking customers can access their banking accounts and continue their

banking business without interruption, while still pursuing the aims embedded in the

current framework of protecting public money and breaking the bank sovereign nexus.

Further, amendments should not harm the key principles in the BRRD, including the use

of bail-in.

Of key importance for Denmark in the upcoming review are the themes and main points

listed in the paragraphs just below. The points mentioned are further elaborated

throughout the questionnaire.

Regarding the application of the public interest assessment (PIA) we support a more

consistent application of the PIA and a broadening of the notion of public interest in the

rest of EU. It is in this regard important that further clarification on the discretion for

resolution authorities with respect to the PIA still leaves appropriate flexibility to ensure,

that well-functioning and tested resolution frameworks as in Denmark is not prevented.

One of the areas where further consistency is needed concerns the use of state aid for

failing banks. As a starting point, the Commission’s Banking Communication on State Aid

should be changed and aligned with the BRRD, safeguarding the principles of bail-in.

Second, it should be ensured that precautionary recapitalization is used strictly for solvent

banks and as an exemption to resolution as the general rule and only if necessary for

preserving stability in the financial system and the overall economy.

Another key issue is the calibration of MREL. In Denmark, all banks

–

including very small

banks

–

have an MREL requirement, and we have good experience with winding up even

smaller banks through BRRD resolution. At the EU level, it should be considered to also

set individual targets for MREL at the individual bank, large as well as small banks, in a

similar manner. Having sufficient eligible liabilities is the key to credible resolution plans

that work in practice. In this regard subordinated MREL is strongly preferred to non-

subordinated MREL as it creates legal certainty for investors and also enhances the

likelihood that simple creditors can be protected. Fully subordinated MREL would also

expectedly entail that the will to do bail-in is there when needed.

Regarding the issue on whether to establish an orderly liquidation tool with funding from

the national deposit guarantee schemes that can also be used in cases where there is no

public interest in putting the bank in resolution,we are open to exploring the creation of

such a tool. However, as we use the already existing tools in BRRD for the same purpose,

it is crucial that effectiveness of the existing tools do not deteriorate, including the bail-in

tool.

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

Finally, regarding EDIS, Denmark generally supports establishing a depositor insurance

scheme in the Banking Union and could see merit in a hybrid model as part of a balanced

road map to move forward on the Banking Union work streams, which is highly relevant

to all Member States. We encourage that Member States that may decide to participate in

the Banking Union enter EDIS on an equal footing with existing members of the Banking

Union.

Which additional objectives should the reform of the CMDI framework ensure? Do you

consider that the BRRD resolution toolbox already caters for all types of banks, depending

on their resolution strategy? In particular, are changes necessary to ensure that the

measures available in the framework (including tools to manage the bank’s crisis and

external sources of funding) are used in a more proportionate manner, depending on the

specificities of different banks, including the banks’ different business models?

We refer to our answer to the question above.

Beyond that, we do consider that the framework gives the necessary flexibility for all types

of banks, but in many member states the framework still needs to apply fully in practice. In

light of experiences seen in relation to member states somewhat diverging application of

certain parts of the current framework, we are open for further harmonizing amendments

leading to further consistency and effectiveness. However, any amendment should leave

appropriate flexibility in order to ensure that different needs are met while still pursuing

the aims of protecting tax payer money and breaking the bank sovereign nexus embedded

in the CMDI framework.

A concern for us would be that further harmonization of the CMDI framework in regards

to dealing with small and medium-sized banks would end up damaging the present sound

approach in Denmark.

Question 2

Do you consider that the measures and procedures available in the current legislative

framework have fulfilled the intended policy objectives16 and contributed effectively to

the management of banks’ crises?

On a scale from 1

to 10 (1 being “have not fulfilled the intended policy objectives/have not

contributed effectively to the management of banks’ crises” and 10 being “have entirely

fulfilled the intended policy objectives/have contributed effectively to the management of

banks’

crises”), please rate each of the following measures.

Do not

know / No

opinion

Early intervention

measures

Precautionary

measures

DGS

measures

preventive

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

Resolution

The main policy objectives of the CDMI framework are to:

•

limit potential risks for financial stability caused by the failure of a bank;

•

reduce recourse to public financing / taxpayers’ money;

•

protect depositors; and

•

break the bank/sovereign loop and foster the level playing field among banks from different Member States, particularly in

the banking union.

BRRD Articles 27 and following

BRRD Article 32(4)(d) (i) to (iii)

We refer in this respect to the use of the tools available in resolution, i.e. bail-in, sale of business, bridge institution and asset

management vehicle as well as the use made so far of the available sources of funding in resolution (resolution fund and DGS

particularly).

National

insolvency

proceedings, including

DGS

alternative

measures where

available

If possible, please explain your reply, and in particular elaborate on which elements of the

framework could in your view be improved.

“DGS preventive measures” and “National insolvency proceedings, including DGS

alternative measures ” have not been used in Denmark

since the implementation of the

present DGSD, and therefore they are marked as "No opinion".

Question 3

Should the use of the tools and powers in the BRRD be exclusively made available in

resolution or should similar tools and powers be also available for those banks for which

it is considered that there is no public interest in resolution? In this respect, would you see

merit in extending the use of resolution, to apply it to a larger population of banks than it

currently has been applied to? Or, conversely, would you see merit in introducing

harmonised tools outside of resolution (i.e. integrated in national insolvency proceedings

or in addition to those) and using them when the public interest test is not met? If such a

tool is introduced, should it be handled centrally at the European (banking union) level or

by national authorities? Please explain and provide arguments for your view.

We believe that the current framework is very effective and useful in practice in Denmark.

Amendments should ensure that flexible tools continue to be available to cater for the

different kind of situations. If harmonized tools outside of resolution should be introduced

it would be of great importance, that the set of tools are not limited in order to ensure a

broad spectrum of available tools both inside and outside of resolution.

In this regard, by way of example, we note that in our experience it will not always be

possible to carry out a sale or transfer to a private buyer, especially not within a few days.

Thus, it is important to ensure that a broad and wide range of tools such as bail-in,

replacement of management, forming subsidiaries to assume ownership of the bank etc.

are available.

We refer here to the functioning of available insolvency proceedings at national level as well as the use of DGS resources for alternative measures

in insolvency, where these are available in national law.

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

At the EU level, we believe there is room for expanding the definition of public interest and

the use of resolution tools so they can be applied to most banks, as in Denmark.

Question 4

Do you see merit in revising the conditions to access different sources of funding in

resolution and in insolvency (i.e. resolution funds and DGS)?

Would an alignment of

those conditions be justified? If so, how should this be achieved and what would the impact

of such a revision be on the incentives to use one procedure or the other? Please explain

and provide arguments for your view.

Yes

No X

No opinion

Please elaborate

In general, we consider that handling a failing institution through bankruptcy and basic

DGS payout is not desirable. If the failing institution does not meet the resolution

conditions, then it would be possible to reach a better result for winding down the

institution through alternative measures.

As already mentioned, we are very satisfied with the current Danish approach.

Question 5

Bearing in mind the underlying principle of protection of taxpayers, should the future

framework maintain the measures currently available when the conditions for resolution

and insolvency are not met (i.e. precautionary measures, early intervention measures and

DGS preventive measures)? Should these measures be amended? If so, why and how?

Yes

No X

No opinion

Please elaborate

Today, the difference between a regular supervirsoy tool and an early intervention measure

is not clear. This should be addressed so it is clear when a measure is a supervisory

measure and when it is an early intervention measure. The measures that currently exist

in both regulations should be aligned in the general supervisory powers. Early intervention

measures should include only the most intrusive powers as these powers should reflect the

severe situation in which they are meant to be used.

The conditions for precautionary measures (recapitalizations etc.) should be reviewed in

order to better ensure that this is the exemption and not the rule.

In short, the resolution fund can be accessed only in resolution and only after a bail-in

of at least 8% of the bank’s total liabilities and

own funds; the DGS can be accessed based on the least cost test in insolvency and under the conditions in Article 109 BRRD in

resolution; under applicable State aid rules, liquidation aid can be granted under some competition conditions, which include a

burden sharing of shareholders and subordinated creditors.

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

Question 6

Do you agree or disagree with the following statements regarding a potential reform of the

use of DGS funds in the future framework?

Agree

Disagree

Do not know / No

opinion

The DGSs should only be allowed to pay

out depositors, when deposits are

unavailable, or contribute to resolution (i.e.

DGS preventive or alternative measures

should be eliminated

The possibility for DGSs to use their funds

to prevent the failure of a bank, within pre-

established

safeguards

(i.e.

DGS

preventive measures), should be preserved.

The possibility for a DGS to finance X

measures other than a payout, such as a sale

of the bank or part of it to a buyer, in the

context of insolvency proceedings (i.e.

DGS alternative measures), if it is not more

costly than payout, should be preserved.

The conditions for preventive and X

alternative measures (particularly the least

cost methodology)

should be harmonised

across Member States.

If none of the statements above reflects your views or you have additional considerations,

please provide further details here:

As already stated above, we are open to discuss further harmonisation also on this topic

while keeping appropriate flexibility and not damage well functioning setups for dealing

with small and medium sixed banks as in Denmark.

We are open to discuss alternative measures involving the Danish DGS. In our opinion

alternative measures can be very useful in relevant cases.

Preventive measures have not been implemented in Danish legislation, and we generally

believe that preventive measures should be limited in order to keep incentives within the

institution and the private sector to solve issues without intervention.

If the preventive or alternative measures were eliminated in a future framework, the DGS could use the voluntary schemes to finance such

measures.

The least cost methodology requires a comparison between the cost of an alternative intervention and the loss that the DGS would have

to bear in case of payout.

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

ART

–

XPERIENCE WITH THE FRAMEWORK AND LESSONS LEARNED FOR THE

FUTURE FRAMEWORK

–

DETAILED SECTION PER TOPIC

A. Resolution, liquidation and other available measures to handle banking crises

(i)

Measures available before a bank’s failure

Early intervention measures (EIMs)

EIMs allow supervisors to intervene and tackle the financial deterioration of a bank before

it is declared failing or likely to fail (FOLF).

These measures can be important to ensure

a timely intervention to address issues with the bank, with a view to, where possible,

preventing its failure or to at least limiting the impact of the bank’s distress on the rest of

the financial sector and the economy.

Experience shows, however, that early intervention measures have hardly been used so far.

Reasons for such limited use include the overlap between some early intervention measures

and the supervisory actions available to supervisors as part of their prudential powers

the lack of a directly applicable legal basis at banking union level to activate early

intervention measures

, the conditions for their application and interactions with other

Union legislation (Market Abuse Regulation). It might be necessary to assess whether the

use of EIMs could be facilitated, while remaining consistent with the need for a

proportionate approach.

Question 7

Yes

Do not

know /

opinion

Can the conditions for EIMs or other features of the X

existing framework, including interactions with other

Union legislation, be improved to facilitate their use?

Should the overlap between EIMs and supervisory X

measures be removed?

Do you see merit in providing clearer triggers to

activate EIMs or at least distinct requirements from

the general principles that apply to supervisory

measures?

Article 32 BRRD lays down when a bank can be declared FOLF.

The European Banking Authority (26 June 2020),

Discussion Paper on the Application of early intervention measures in the European Union

according to Articles 27-29 of the BRRD (EBA/DP/2020/02).

EIMs provisions are only contained in BRRD and not in the SRMR. Since BRRD needs transposition, and certain aspects of it may

vary from Member State to Member State, there may be differences as to how these powers can be activated. This may impact their

use, particularly in a cross-border context.

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Is there a need to improve the coordination between

supervisors and resolution authorities in the context of

EIMs (in particular in the banking union)?

Please elaborate on what in your view the main potential improvements would be:

The most crucial improvement would be to eliminate the EIMs that overlap with

supervisory measures. Only the most intrusive measures should be included as an EIM.

The use of EIMs should still be connected to a rapid or severere deteriorating financial

situation of the institution. However there should also still be room for supervisory

judgement as to whether EIMs would achieve the intended objective: For example if the

institution is in the process of implementing recovery measures the supervisor should not

be obligated to apply EIMs. As such supervisors need to maintain a degree of supervisory

judgement in applying EIMs. Denmark has a long standing close cooperation between

supervisory and resolution authorities. We cannot see how coordination would be

improved through legal requirements. The cooperation comes first and foremost from

experience and practice.

Precautionary measures

Precautionary measures allow the provision of external financial support from public

resources to a solvent bank, as a measure to counteract potential impacts of a serious

disturbance in the economy of a Member State and to preserve financial stability.

The

available measures comprise capital injections (precautionary recapitalisation) as well as

liquidity support.

The provision of such support (which constitutes State aid) is an exception to the general

principle that the provision of extraordinary public financial support to a bank to maintain

its viability, solvency or liquidity should lead to the determination that the bank is FOLF.

For this reason, specific requirements must be met in order to allow such measures under

the BRRD as well as under the 2013 Banking Communication.

Past cases show that this tool is a useful element of the crisis management framework,

provided that the conditions for its application are met. Past work has also highlighted the

possible use of precautionary recapitalisation as a means to provide relief measures through

the transfer of impaired assets

, and similar considerations have been extended to asset

protection schemes

Question 8

Should the legislative provisions on precautionary measures be amended? What would be,

in your view, the main potential amendments?

These measures are provided in Article 32(4)(d) BRRD.

In particular, BRRD and SRMR require that the measure is limited to solvent banks and it does not cover incurred and likely losses. Also,

the amount is limited to the shortfall identified in an asset quality review, stress test or equivalent exercise.

The necessary conditions to allow the use of precautionary recapitalisation to support an impaired asset relief measure are outlined in

detail in the Commission Asset Management Companies blueprint, page 36, see European Commission staff working document

(March 2018),

AMC Blueprint.

European Commission (16 December 2020),

Communication from the Commission to the European Parliament, the Council and the

European Central Bank: Tackling non-performing loans in the aftermath of the COVID-19 pandemic (COM(2020) 822 final,

16).

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Yes X

No opinion

Please specify your reply

Precautionary recapitalization is in our view only to be used in a systemic crisis and for solvent

banks, experiencing temporary difficulties, where the use of precautionary recapitalization would

lower the net draw on public finance and avoid serious macroeconomic consequences. We see a

need for review to achieve that. It could be beneficial with a more specific definition in the

legislation of what defines solvent in the context of precautionary recapitalization. It would be

relevant to consider a specification as to who is entitled to determine when an institution is solvent.

Also further clarification on of the use of AQR could be considered, e.g. specific data requirements

and to what extent there are specific data requirements for the analysis that identify losses that

are likely to be or have already been incurred - e.g. how old must the data be and what are the

requirements for the sample size?

The conditions for precautionary recapitalizations should generally be reviewed in order to better

ensure that this measure is the exemption and does not become the rule.

DGS preventive measures (Article 11(3) DGSD)

DGSs can intervene to prevent the failure of a bank. This feature of DGSs is currently an

option under the DGS Directive and has not been implemented in all Member States.

Such a use of DGS resources can be an important feature to allow a swift intervention to

address the deteriorating financial conditions of a bank and potentially avoid the wider

impact of the bank’s failure on the financial market. The DGSs’ intervention is currently

limited to the cost of fulfilling its statutory or contractual mandate.

Recent experience with this type of DGS measures gave rise to questions about the

assessment of the cost of the DGS intervention, and about the interaction between Article

11(3) DGSD and Article 32 BRRD, with respect to triggering a failing or likely to fail

assessment.

Question 9

In view of past experience with these types of measures, should the conditions for the

application of DGS preventive measures be clarified in the future framework? What are,

in your view, the main potential clarifications?

Yes

No opinion X

Please specify your reply

In our opinion, and as already mentioned above, the overall best solution for a bank

approaching difficulties should be to find a private solution where a sound bank takes over

In particular, the DGS can act in a preventive capacity only if the cost of that intervention does not exceed the cost of fulfilling its statutory or

contractual mandate.

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the FOLF institution. Setting up schemes with use of DGS funds (or other public funds)

should not make the private solutions less attractive.

Thus, it is important for us to ensure that preventive measures do not lead to less incentives

for the institution to solve the issues without intervention. If preventive measures were to

be used it should thus only be at a very late stage before failure and would require

valuations and assessments similar to “least cost test” and NCWO-test.

(ii)

Measures available to manage the failure of banks

The BRRD provides for a comprehensive and flexible set of tools, ranging from the power

to sell the bank’s business entirely or partially, to the transfer of critical functions to a

bridge institution or the transfer of non-performing assets to an asset management vehicle

(AMV) and the bail-in of liabilities to absorb the losses and recapitalise the bank. The

framework also provides for different sources of funding for such tools, including external

funding, mainly through the resolution fund and the DGSs.

Outside resolution, the extent of the available measures to manage a bank’s failure depends

on the characteristics of the applicable national insolvency law. These procedures are not

harmonised and can vary substantially, from judicial proceedings very similar to those

available for non-bank

businesses (which entail generally the piecemeal sale of the bank’s

assets to maximise the asset value for creditors), to administrative proceedings which allow

actions

similar to those available in resolution (e.g. sale of the bank’s business to ensure

that its activity continues). These tools can be funded through DGS alternative measures,

which allow the DGS to provide financial support in case of the sale of the

bank’s business

or parts of it to an acquirer. Moreover, financial support from the public budget can be used

to finance such measures in insolvency, provided that the relevant requirements under the

applicable State aid rules (Banking Communication), including burden sharing, are

complied with.

As already indicated in the

Commission Report (2019),

practical experience in the

application of the framework showed that, in the banking union

, resolution has been used

only in a very limited number of cases and that solutions outside the resolution framework,

including national insolvency proceedings supported with liquidation aid, remain available

(and subject to less-strict requirements).

This raises a series of important questions with respect to the current legislative framework

and its ability to cater for effective and proportionate solutions to manage the failure of any

bank. In order to address these questions, it is appropriate to look at the following elements

of the framework:

The decision-making process regarding FOLF;

The application of the public interest assessment by the resolution authorities, i.e.

the assessment which is used to decide whether a bank should be managed under

resolution or national insolvency proceedings;

The tools available in the framework, particularly to assess whether those available

in resolution are sufficient and appropriate to manage the failure of potentially any

bank or whether there is merit in considering additional tools;

Outside the banking union, resolution seems to have been the preferred way for dealing with failing banks.

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

The sources of funding available in the framework, in particular to determine

whether they can be used effectively and quickly and whether they can be accessed

under proportionate requirements.

In the context of this assessment, it seems also appropriate to keep in mind the strong links

between the CMDI and the State aid rules and to explore their interaction, where relevant.

Scope of banks and PIA, strategy: resolution vs liquidation and applicability per types

of banks

Resolution authorities can only apply resolution action to a failing institution when they

consider that such action is necessary in the public interest. According to Article 32(5)

BRRD, the public interest criterion is met when resolution action is necessary for the

achievement of one or more of the resolution objectives and the winding up of the

institution under normal insolvency proceedings would not meet those resolution

objectives to the same extent. The resolution objectives

are considered to be of equal

importance and must be balanced as appropriate to the nature and circumstances of each

case.

Additionally, the BRRD

provides that, due to the potentially systemic nature of all

institutions, it is crucial that authorities have the possibility to resolve any institution, in

order to maintain financial stability.

However, as described above, experience in the banking union, has shown that, once a bank

has been declared as failing or likely to fail, resolution was applied in a minority of cases.

Outside the banking union, resolution has been used more extensively.

Question 10

What are your views on the public interest assessment?

Agree

Disagree

Do not know / No

opinion

The current wording of Article

32(5) BRRD is appropriate and

allows the application of resolution

to a wide range of institutions,

regardless of size or business

model

The relevant legal provisions result

in a consistent application of the

public interest assessment across

the EU

Continuity of critical functions, avoidance of significant adverse effect on the financial system, protection of public funds, protection

of covered deposits and investors covered by investor compensation schemes, protection of client funds and client assets

–

see

Article 31 BRRD.

See recital 29 BRRD.

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The relevant legal provisions allow

for a positive public interest

assessment on the basis of a

sufficiently broad range of

potential impacts of the failure of

an institution (e.g. regional impact)

The relevant legal provisions allow

for an assessment that sufficiently

takes into account the possible

systemic nature of a crisis

Please explain

Increased consistency and broader application of the PIA across member states could

further the avoidance of national solutions inconsistent with the overall objectives of the

CMDI-framework. However we believe that some flexibility is required in order to meet

different needs.

A concern for us would be that further harmonization or further framing of the discretion

for resolution authorities in regards to the public interest assessment would end up

damaging the present approach in Denmark, which ensures banking customers a crucial

access to their banking accounts and makes it possible for them to continue their banking

business without interruption. In Denmark the PIA is an individual assessment, and all

Danish banks are as a starting point considered to have critical functions, if the bank is

the primary bank for consumers and enterprises. The number of customers is not of

importance in this regard.

In Denmark payment cards (Dankort), electronic payments, mobile payments and

payments through internet banks are widely used (even more after Covid-19). And as a

consequence hereof most people will not be in a position to live their everyday life without

access to their accounts and payment cards. Therefore, even smaller banks are as a

starting point expected to be wound up through BRRD resolution, which ensures that

customers still have access to their accounts and can use their payments cards despite the

fact that the institution in question is under resolution.

Therefore, it is important that any amendment of the PIA should allow even smaller banks

to be wound up through BRRD resolution in order to ensure that the above described

approach would be applicable.

Accordingly, we believe that the following factors should be taken into account when

amending the PIA i) the possibility of incorporating specific nation factors (e.g. the

possibility to consider means of payments most commonly used), ii) possibility of

incorporating qualitive measures (the PIA should be based on a case-by-case assessment)

and iii) considerations of practicality, i.e. making the assessment least complicated under

the given circumstances.

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FOLF triggers, Article 32b BRRD, triggers for resolution and insolvency (withdrawal

of authorisation, alignment of triggers for resolution and insolvency)

When an institution is FOLF and there are no alternative measures that would prevent that

failure in a timely manner, resolution authorities are required to compare resolution action

with the winding up of the institution under normal insolvency proceedings (NIP), under

the PIA. The same elements of comparison (resolution and NIP) are used when assessing

compliance with the ‘no creditor worse off’ principle (NCWO), which ensures that

creditors in resolution are not treated worse than they would have been in insolvency.

If resolution action is not necessary in the public interest, Article 32b BRRD requires

Member States to ensure that the institution is wound up in an orderly manner in

accordance with the applicable national law. This provision was introduced with the aim

of ensuring that standstill situations, where a failing bank cannot be resolved, but at the

same time a national insolvency proceeding or another proceeding which would allow the

exit of the bank from the banking market cannot be started, could no longer occur.

However, it is still unclear whether the implementation of this Article in the national legal

framework would address any residual risk of standstill situations, in particular in those

cases where the bank has been declared FOLF for

“likely” situations (for example “likely

infringement of prudential requirements” or “likely illiquidity”) and a national insolvency

proceeding cannot be started as the relevant conditions are not met. Moreover, due to the

variety of proceedings at national

level included in the concept of “normal insolvency

proceedings”, different proceedings may apply when a bank is not put in resolution.

Additionally, due to the different ways Article 18 Capital Requirements Directive has been

transposed by Member States, the withdrawal of the authorisation of a failing institution is

not always justified or possible. Moreover, it is important to assess whether the FOLF

determination was taken sufficiently early in the process in past cases.

Question 11

Do you consider that the existing legal provisions should be further amended to ensure

better alignment between the conditions required to declare a bank FOLF and the triggers

to initiate insolvency proceedings? How can further alignment be pursued while preserving

the necessary features of the insolvency proceedings available at national level?

Yes

No opinion X

Please explain

We do not see this as a current issue in Denmark, but if needed in other member states we

are open to amendments in this regard.

Question 12

Do you think that the definition of winding-up should be further clarified in order to ensure

that banks that have been declared FOLF and were not subject to resolution exit the

banking market in a reasonable timeframe?

Under points (47) and (54) of Article 2(1) BRRD, respectively, normal insolvency proceedings are defined as ‘collective insolvency

proceedings which entail the partial or total divestment of a debtor and the appointment of a liquidator or an administrator normally

applicable to institutions under national law and either specific to those institutions or generally applicable to any natural or legal

person’, and winding up is defined as ‘the realisation of assets of an institution’.

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Yes

No opinion X

Please explain

We do not see this as a current issue in Denmark, but if needed in other member states we

are open to amendments in this regard. However, we believe that if an institution is FOLF

and not subject to resolution it must exit the banking market immediately.

Question 13

Do you agree that the supervisor should be given the power to withdraw the licence in all

FOLF cases? Please explain whether this can improve the possibility of a bank effectively

exiting the market within a short time frame, and whether further certainty is needed on

the discretionary power of the competent authority to withdraw the authorisation of an

institution in those conditions.

Yes X

No opinion

Please explain

When the supervisor withdraws the license of a credit institution, that credit institution is

forced to unwind its business. This can either happen through resolution, liquidation or

bankruptcy.

Considering that a credit institution needs a license to be part of a clearing system there

is however a high risk that the credit institution will face a liquidity crisis immediately

after the license is withdrawn. This would probably also force the credit institution into

bankruptcy.

The withdrawal of a credit institution’s authorization also enables the credit institution to

use national emergency “powers” –

In Denmark the board of directors have the possibility

to agree to a merger, without approval from the general assembly, if the credit institution

is insolvent. As stated above the credit institution will likely be insolvent immediately after

the withdrawal of the credit institution’s authorization.

Question 14

Do you consider that, based on past cases of application, FOLF has been triggered on time,

too early or too late?

On time

Too early

Too late

No opinion X

Please elaborate on your reply

For a resolution process to be as effective as possible it is important that the FOLF is triggered

on time. “On time” should be the

point of non-viability of the failing institution. In our experience,

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the conditions for application of FOLF are sufficiently broad to enable the process to start at on

time, however, assessing when the right time is for each failing institution is not an easy task. It is

important that all other options (EIM, local supervisory crisis management powers and private

solutions) that could be possible within a reasonable timeframe have been exhausted before the

application of FOLF. As such the intention of FOLF as a last resort when all other options are

exhausted has been achieved. This ensures that institutions are not put into resolution if there is

still a chance to recover within an acceptable timeframe. However, recent resolution cases in very

small banks in Denmark has shown higher losses than expected in the resolution plan, resulting

in bail-in of uncovered deposits. If the goal is to ensure that losses will not be higher than planned

for in the resolution plan, the resolution process could have been initiated earlier in the

process.This should however be weighed against the risk of imposing loses on shareholders and

non-preferred creditors by initiating a resolutions process on a bank that might be viable.

However, we should keep in mind that MREL requirements have not been fully phased in for small

and medium institutions (which in the case of Denmark all have an MREL requirement). As such

resolution has incurred further losses than intended with FOLF. A full consideration of the timing

for FOLF cannot be made before the full phase in of MREL requirements for small and medium

sized institutions.

It is our impression, however, that there are examples in the EU where the decision to trigger

FOLF has not been taken when the time was right, at least not in the spirit of the BRRD. This has

lead to higher risk of losses for both depositors and sovereigns.

Question 15

Do you consider that the current provisions ensure that the competent authorities can

trigger FOLF sufficiently early in the process and have sufficient incentives to do so? If

not, what possible amendments/additions can be provided in the legislation to improve

this? Please elaborate in the text box below.

The correct incentives for responsible authorities to trigger FOLF are in place:

Yes X

No opinion

Please elaborate on your reply

The application of FOLF in Denmark has been widely used. It is common procedure that

a credit institution is considered FOLF upon breach of the Pillar 2 requirements (P2R).

However the supervisor only assessed that there is no private or other measure to prevent

failure once this has been explored further (BRRD article 32(1)(b)). As such a credit

institution may remain in going concern for a period of time during which other measures

are attempted. If these other measures are successful the credit institution is no longer

considered FOLF.

Application of FOLF upon breach of P2R has not had a negative impact on the

private/other measures attempted by the credit institution. In several cases of application

of FOLF the credit institution has been able to recover. FOLF can also be declared if a

credit institution fails to meet MREL.

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Adequacy of available tools in resolution and insolvency

As mentioned above, a comprehensive set of tools is available in resolution (sale of

business, bridge institution, asset management vehicle, bail-in). In particular, the resolution

authority can transfer part of the assets and/or liabilities of a bank to a third party (or a

bridge institution). Under some national laws, such a possibility also exists in insolvency.

Question 16

Do you consider the set of tools available in resolution and insolvency (in your Member

State) sufficient to cater for the potential failure of all banks?

Yes X

No opinion

Please elaborate on your reply

In our view, the existing regulatory bases are sufficient to deal with the potential failure of

all banks.

In this respect, it is important for us not to remove parts of the existing set of tools -

especially in the BRRD - as this will lead to inadequacies in being able to cater for the

potential failure of all banks.

Question 17

What further measures could be taken regarding the availability, effectiveness and fitness

of tools in the framework?

Agree

Disagree

Do not know / No

opinion

No additional tools are needed but

the existing tools in the resolution

framework should be improved

Additional tools should be introdu-

ced in the EU resolution frame-

work

Additional

harmonised

tools

should be introduced in the insol-

vency frameworks of all Member

States

Additional tools should be introdu-

ced in both resolution and insol-

vency frameworks of all Member

States

Please specify what type of tool you would envisage and describe briefly its

characteristics.

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In our opinion, no additional tools are needed as effective tools already exist in the BRRD,

but we are always open to discussing improvement of the measures. If new tools are

introduced, it is crucial that the existing tools can continue to apply, even if it may be in a

different legislation than the existing one, and that we ensure consistency and effectiveness

with regard to loss-absorbtion (bail-in) and protecting sovereigns from banking crisis.

As earlier stated, the problem is not the framework, but the application of the framework.

Question 18

Would you see merit in introducing an orderly liquidation tool, i.e. the power to sell the

business of a bank or parts of it, possibly with funding from the DGS under Article 11(6)

DGSD, also in cases where there is no public interest in putting the bank in resolution?

Yes X

No opinion

Please explain

In Denmark with the current framework, we do not have a need for the introduction of an orderly

liquidation tool with funding from the DGS under Article 11 (6) DGSD. In Denmark, we use the

already existing tools in BRRD, and it is therefore crucial to us that the existing tools do not

deteriorate, including the possibility of full use of the bail-in tool if the tools are moved out of the

BRRD.

In Denmark, we have good experience with winding up even smaller banks through BRRD

resolution, and on that basis we support introducing an orderly liquidation tool that can also be

used in cases where there is no public interest in putting the bank in resolution.

As a result of the above, we emphasize that differences amongst the member states and the individual

situations when an institution fails should be considered if an orderly liquidation tool is introduced.

In our experience it will not always be possible to carry out a sale or transfer to a private buyer,

especially not within a few days. Thus, there also needs to be the necessary powers in place for the

authorities to keep the institution open for a longer period of time until the activities can be

transferred or wound down. An orderly liquidation tool must have appropriate flexibility across

member states. We do not believe that an orderly liquidation tool should be limited to only certain

preferred liabilities. All liabilities should be included in order to ensure the best possible and

flexible use of an orderly liquidation tool.

On that basis, it is in our opinion not necessary to establish a new regime for a certain category of

banks since the framework already exist, but we can support introducing an orderly liquidation tool

if the existing tools in the BRRD continues to apply with the existing flexibility to handle the

differences amongst the member states and the individual situations.

However, great care should be taken in not misusing DGS funds.

If the reply to the above is Yes:

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Question 18.1

How would you see the implementation of such a tool?

Agree

Disagree

There would be benefits in

introducing such a tool in all the

insolvency laws of EU Member

States

There are legal challenges for the

introduction of such a tool in

insolvency

Such a liquidation tool (and its

dedicated source of financing)

could be introduced in the

resolution framework and be at the

disposal of the resolution authority,

while still applying to non-public

interest banks

Such a liquidation tool should be

managed

centrally

(i.e.

supranational level) in the banking

union and at Member State level

in the rest of the EU

Do not know / No

opinion

Please explain your answers further

Question 18.2

In what way, if any, should that tool be different from the sale of business in resolution?

Do you consider that there is a risk of duplication with the sale of business tool in resolution

(and that there would be incentives for DGSs to use such a tool and their funds as opposed

to resolution authorities)?

As mentioned above, it is our opinion that no new or additional tools are needed as the

necessary tools already exist in the BRRD. Therefore, if new tools are introduced, it is

crucial that the existing tools can continue to apply.

If so, please explain how such a risk could be addressed [text box]

Resolution strategy

As part of resolution planning, resolution authorities are defining the preferred and variant

resolution strategy and preparing the application of the relevant tools to ensure its

execution. For large and complex institutions, open-bank bail-in is, in general, expected to

be the preferred resolution tool. This comes hand in hand with the need for those

institutions to hold sufficient loss absorbing and recapitalisation capacity (MREL).

However, depending on the circumstances, it may be useful to consider the case of smaller

and medium-sized institutions with predominantly equity and deposit-based funding,

which may have a positive public interest to be resolved, but whose business model may

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not sustain an MREL calibration necessary to fully recapitalise the bank. For such cases,

other resolution strategies are available in the framework such as the sale of business or

bridge bank which, depending on the circumstances, may allow lower MREL targets and

may be financed from sources of financing other than the resolution fund (for example,

DGS).

The potential benefits of these tools depend on the characteristics of the banks and their

financial situation and on how the specific sale of business transaction is structured.

However, depending on the valuation of assets as assessed by the buyer, and the perimeter

of a transfer, there may still be a need to access the resolution fund (complying with the

access conditions) in order to complete the transfer transaction.

Question 19

Do the current legislative provisions provide an adequate framework and an adequate

source of financing for resolution authorities to effectively implement a transfer strategy

(i.e. sale of business or bridge bank) in resolution to small/medium sized banks with

predominantly deposit-based funding that have a positive public interest assessment (PIA)

implying that they should undergo resolution?

Yes X

No opinion

Please explain

The current legal provisions in BRRD provide a sufficient source of financing for resolution

authorities to effectively implement a transfer strategy if the bail-in tool is used in full in the

creditor hierarchy. In Denmark it remains a priority also in small and medium-sized banks that

shareholders and creditors should bear

losses and that taxpayers’ money should be protected.

In Denmark the PIA is an individual assessment, and all Danish banks are as a starting point

considered to have critical functions, if the bank is the primary bank for consumers and

enterprises. In Denmark payment cards (Dankort), electronic payments, mobile payments and

payments through internet banks are widely used (even more after Covid-19). And as a

consequence hereof most people will not be in a position to live their everyday life without access

to their accounts and payment cards. Therefore, even smaller banks are as a starting point

expected to be wound up through BRRD resolution, which ensures that customers still have access

to their accounts and can use their payments cards despite the fact that the institution in question

is under resolution.

The Danish approach is thus that the failure of a small institution at the wrong time or the failure

of more small institutions at the same time could have a negative impact on the financial stability.

Thus, even smaller banks are expected to be wound up through BRRD resolution. The number of

customers involved, and even if all the costumers are located within a smaller region are not of

significance as to the Danish assessment.

As a result even smaller banks are required to have MREL in excess of capital requirements.

However, requirements are calibrated in order for the banks to be resolved through the better

parts being sold and only the more difficult parts remaining thereby lessening the requirements

for MREL.

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The phasing in of MREL requirements has been set in order for the smaller banks to be capable of

accumulating substantial parts of MREL through retained earnings, if they are very frugal on

distributions of their earnings to shareholders.

Funding sources in resolution

In order to carry out a resolution action, the resolution authority may decide to access the

SRF/RF if certain conditions are met, in particular the need to first bail-in shareholders and

creditors for no less than 8% of total liabilities, including own funds (TLOF)

. Article 109

BRRD also provides the possibility of using the DGS in resolution, however only for an

amount that would not exceed the amount in losses that the DGS would have borne under

an insolvency counterfactual. The availability of sufficient sources of funding and the

provision of proportionate conditions to access them are central to ensure that the

resolution framework is adequate to cater for potentially any bank’s failure.

As explained above, in the banking union, those cases where resolution has not been chosen

have usually benefited from State aid under national insolvency proceedings (including

DGS alternative measures under Article 11(6) DGSD and State aid from the public budget)

or from preventive DGS measures under Article 11(3) DGSD. Both the use of aid in NIPs

and Article 11(3) DGSD are subject to different (and arguably lessstringent) conditions

than those for the use of the resolution funds under the SRMR and BRRD. This divergence

may be seen as creating a disincentive to use resolution. This can particularly be the case

for small and medium sized banks as they may rely more than other banks on certain types

of creditors (such as depositors or retail investors) on which it has proved to be difficult to

impose losses.

This issue may be exacerbated by the fact that these categories of banks may have more

difficulty in accessing debt issuance markets and therefore acquire loss-absorption capacity

through, for example, subordinated debt. While some banks rely on more complex issuance

strategies, for others (including in some cases sizeable entities) equity and deposits are the

main sources of funding. As a result, meeting the requirement to access RFs/SRF for these

banks to execute the resolution strategy

may entail bailing-in deposits. At the same time,

it is arguable that a proportionate approach to managing bank failures should ensure that

entities can access funding sources without having to modify their business model. Also,

the existence of a variety of business models is an important element to ensure a diversified,

dynamic and competitive banking market.

However, any potential amendment in this direction should limit risks to the level playing

field among banks. This would require that the criteria used for a potential differentiation

in these access conditions to funding, as well as the calibration of such conditions, are

carefully targeted to avoid unwarranted differences of treatment.

Question 20

What are your views on the access conditions to funding sources in resolution?

Article 44(5) BRRD requires a minimum bail-in of 8% TLOF and provides for a maximum RF contribution of 5% TLOF (unless all

unsecured, non-preferred liabilities, other than eligible deposits, have been written down or converted in full) when a resolution

authority decides to exclude or partially exclude an eligible liability or class of eligible liabilities, and the losses that would have

been borne by those liabilities have not been passed on fully to other creditors, or when the use of the RF indirectly results in part

of the losses being passed on to the RF (Article 101(2) BRRD).

For solvency support

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Agree

Disagree

Do not

know / No

opinion

The

access

conditions

in X

BRRD/SRMR to allow for the use

of the RF/SRF are adequate and

proportionate to ensure that

resolution can apply to potentially

any bank, while taking into account

the resolution strategy applied

There is merit in providing a clear X

distinction in the law between

access conditions to the RF/SRF

depending

whether

its

intervention is meant to absorb

losses or to provide liquidity

The access conditions provided for

in BRRD/SRMR to allow the

authorities to use the DGS funds in

resolution are adequate and

proportionate to ensure that

resolution can apply to potentially

any bank, while taking into account

the resolution strategy applied

The access conditions to funding in

resolution should be modified for

certain banks (smaller/medium

sized, with certain business models

characterised by prevalence of

deposit funding) for more

proportionality

The DGS/EDIS funds should be X

available to be used in resolution

independently from the use of the

RF/SRF and under different

conditions than those required to

access RF/SRF. In particular, it

should be clarified that the use of

DGS does not require a minimum

bail-in of 8% of total liabilities

including own funds

Additional sources of funding

should be enabled.

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Please explain your responses

In general, we do not see any need to change the access conditions to the RF/SRF when

the RF/SRF are used for loss absorption. The prevailing 8 pct. requirement is crucial and

ensures sufficient build-up of MREL-liabilities. Shareholders and creditors should bear

the risk of losses.

In addition, we believe that a clear distinction in the law between access conditions to the

RF/SRF depending on whether its intervention is meant to absorb losses or to provide

liquidity would be relevant to introduce. Use of the RF/SRF to provide liquidity or

guaranties should not be subject to other access conditions than that the institution is sub-

ject to resolution under BRRD/SRMR.

Furthermore, flexibility should be introduced to allow DGS’ to finance the

controlled

winding up of failing institutions under BRRD in those cases where DGS funds is used in

resolution according to the current rules. However, use of DGS to finance the controlled

winding up of failing institutions should not remove the main principle that shareholders

and creditors should bear the risk of losses.

In our opinion, there should also be flexibility when determining the final sequence of

usage of the differrent funding sources as this would allow the DGS to use its funds in the

most efficient way and avoid a firesale of its assets at the point of crisis. Ensuring flexibility

enables the possibility of designing a more optimal plan for the usage of funding.

Sources of funding available in insolvency

Funding sources are also available for banks that do not meet the public interest test and

are put in insolvency according to the applicable national law.

There are, in particular, two sources of potential public external funding:

DGS funds to finance alternative measures pursuant to Article 11(6) DGSD. In this

case, the DGS can provide funding to support a transaction to the extent that this is

necessary to preserve access to covered deposits and that it complies with the least

cost test (i.e. the loss for the DGS is lower than the loss it would have borne in case

of payout in insolvency) and State aid rules, as applicable;

Financial support from the public budget. Such financial support can be provided

by Member States subject to compliance with the requirements enshrined in the

State aid framework,

which include among other things burden sharing by

shareholders and subordinated debt and a requirement that the aid is granted in the

amount necessary to facilitate an orderly exit of the bank from the market.

It is important to examine the consistency and proportionality in the conditions for

accessing external financial support across different procedures, and their related potential

incentives.

Question 21

In view of past experience, do you consider that the future framework should promote further

alignment in the conditions for accessing external funding in insolvency and in resolution?

This includes first and foremost the

2013 Banking Communication.

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Yes X

No opinion

Please explain

Based on the past European experiences we see merit in an alignment of the burden sharing in the

state aid regime (Banking Communication) with the BRRD to secure that shareholders and

creditors are subject to the same burden sharing in line with the BRRD whether the institution is

resolved under BRRD/SRMR or enters into national insolvency procedures.

Governance and funding

The current governance setup of the resolution and deposit insurance framework relies on

both national and European authorities. Outside the banking union, the management of

bank crises is in principle assigned to national authorities (i.e. national resolution

authorities, DGS authorities and authorities responsible for insolvency proceedings), while

the banking union governance structure is articulated on a national and European level

(managed by the SRB).

The framework aims to align the governance structure and the source of funding. In

particular this implies that funding held at national level is managed by national authorities,

while the SRB manages the Single Resolution Fund, although there are exceptions (e.g. if

a national DGS is used to contribute to the resolution of a bank in the SRB remit, the SRB

has a role in deciding on its use under the existing BRRD framework).

This element may be particularly relevant in the context of a reflection on potential

adjustments to the framework. In particular, a question may arise whether a more

prominent role should be reserved for national DGSs/EDIS for financing crisis measures,

how it would relate to the NRAs role (within the SRB governance), or even whether the

management of such measures should also be assigned exclusively to national authorities

or whether some coordination or oversight at European level could be beneficial to ensure

a level playing field. Conversely, a reflection seems warranted on the role of the SRB in

the management of EDIS.

Question 22

Do you consider that governance arrangements should be revised to allow further

alignment with the nature of the funding source (national/supra-national)?

Yes

No opinion X

Please explain

It should be noted, however, that in Denmark, the resolution authority and DGS are in the

same organization, which provides an efficient and flexible process both up to and in

connection with a winding up of an institute. In addition, it also provides a very efficient

use of resources.

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Question 23

Is there room to improve the articulation between the roles of SRB and national authorities

when the DGS is used to finance the resolution of a bank in the SRB remit?

Yes

No opinion X

Please explain [TEXT BOX]

Ability to issue MREL and impact on the feasibility of the resolution strategy

MREL rules are an essential part of the framework, as they aim to ensure that banks can

count on sufficient amounts of easily bail-inable liabilities to increase their resilience,

ensure resolvability according to the resolution strategy identified and preserve the stability

of the financial system in the eventual implementation of the resolution strategy. The bank-

specific MREL calibration by the resolution authority reflects the chosen resolution

strategy. In addition, the MREL capacity is key to ensure a sufficient burden sharing by

the existing shareholders and creditors in case of failure.

At the same time, the ability to issue MREL, particularly through subordinated instruments,

depends on several features of each bank and its business model. Certain banks (e.g. some

banks with traditional funding models relying largely on deposits) may have more

difficulties in accessing debt issuance markets than other, more complex, institutions.

While significant progress has been achieved by banks in reducing MREL shortfalls over

the past years, when it comes to reaching their MREL targets under the applicable

resolution strategy (and complying, if needed, with the conditions for accessing the

resolution fund), challenges remain for certain banks

. They relate to the sustainable build-

up of MREL-eligible instruments, especially against the background of fragile profitability

and capability to roll-over instruments in the short-term, in particular in times of economic

crisis.

Question 24

What are your views on the prospect of MREL compliance by all banks, including in the

particular case of smaller/medium sized banks with traditional business models?

Agree

Disagree

Do not know / No

opinion

While issuing MREL-eligible

instruments remains a priority,

certain banks may not be capable of

closing the shortfall sustainably for

lack of market access.

Joint report by the services of the European Commission, the European Central Bank (ECB) and the Single Resolution Board (SRB)

(November 2020), Monitoring report on risk reduction indicators,

pg 33.

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Possible adverse market and

economic circumstances can also

affect the issuance capacity of

certain banks.

Transitional periods could be a tool

to deal with MREL shortfalls,

resolution

authorities

could

consider prolonging these under

the current framework.

Please explain

All Danish SIFI’s but one already comply

with the MREL-requirement. The prospect for

the remaining SIFI and the smaller and medium sized banks in Denmark is that these banks

will comply with the MREL-requirement by 2024.

In Denmark, MREL requirements for smaller and medium sized banks are set at a level

between insolvency/capital requirements and the full SIFI level. It is outlined in the Danish

setup with national bankers’ associations that these institutions should be able to comply

with the MREL requirement through retained earnings, and not by issuing new

instruments. The institutions have been subject to a phase-in of the MREL requirements

since 2019 in order to stock enough MREL-eligible instruments by 2024.

In our view, subordinated MREL is strongly preferred to non-subordinated MREL.

Subordination creates legal certainty for investors and also enhances the likelihood that

simple creditors can be protected. Therefore, we make full use of the regulatory framework

when setting the subordination requirements for Danish institutions and would strongly

prefer MREL to be fully subordinated.

If subordinated MREL cannot be raised, authorities should set individual plans for setting

aside earnings and not distributing earnings for each institution under their remit. This

would also be a true test of the institutions capacity to raise subordinated MREL.

Question 25

In case of failure of banks, which may lack sufficient amounts of subordinate debt (see

question above) and/or would not meet the PIA criteria, what are your views on possible

adjustments to the MREL requirements?

Agree

Disagree

Do not know / No

opinion

MREL adjustments for resolution

strategies other than bail-in can

help in this context

Rules defining how the MREL is

set for banks likely not to meet the

PIA criteria should be clarified

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In any case, for all banks, an X

adequate burden sharing by

existing shareholders and creditors

should be ensured

Please explain

In the Danish setup, it is assessed that it is in the public interest to apply resolution tools for small

and medium-sized banks, because the main prioritization is to allow for consumers to have access

to their banking accounts and can make transactions Monday morning after a resolution weekend.

Since even small and medium-sized banks are the primary bank for these consumers, this is a key

concern.

The resolution strategy for small and medium-sized banks is not the same as for SIFI banks, since

the bail-in is supplemented with e.g. the sale for business tool. Also MREL requirements reflect

the resolution strategy and are therefore relatively lower than for SIFI institutions.

It remains a priority for both SIFI institutions and small and medium-sized banks that

shareholders and creditors should bear losses and that tax payers’ money should be protected.

This is both underlined by setting what we assess as adequate MREL requirements and

subordination requirements.

The new framework could benefit from continuing to allow appropriate flexibility for member

states to tailor resolution strategies and MREL models to national specificities of the individual

banks and the banking sector as a whole. The principles described above are part of the current

framework and give the possibility to also tailor resolution tools and MREL requirements to small

and medium-sized banks. However, there has to be consistency between resolution strategy and

MREL levels. The presumption must be that public funds are not used for bail out.

Treatment of retail clients under the bail-in tool

The bail-in tool can be applied to all the unsecured liabilities of the institution, except where

they are statutorily excluded from its scope

. Resolution authorities have the discretionary

power to exclude certain liabilities from bail-in, but this can only take place under a limited

set of circumstances and, where it leads to the use of the resolution financing arrangement,

it requires authorisation from the Commission and the Council.

If a significant part of an institution’s bail-inable

liabilities, particularly MREL

instruments, is held by retail investors, resolution authorities might be reticent to impose

losses on those liabilities for a number of reasons

. First, the bail-in of debt instruments

held by retail clients risks affecting the overall confidence in the financial markets and

might trigger severe reactions by those clients, which could translate in contagion effects

and financial instability. Second, bailing-in retail debt holders, especially in case of

selfplacement (where the institution places the financial instruments issued by themselves

or other group entities with their own client base), could hinder the successful

implementation of the resolution strategy. Indeed, the imposition of losses to the customer

Which includes covered deposits and a few other types of liabilities to ensure the continuity of critical functions and reduce risk of

systemic contagion.

In this respect, please see the

statement of the EBA and ESMA on the treatment of retail holdings of debt financial instruments subject to the

Bank Recovery and Resolution Directive.

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base of the institution under resolution could lead to reputational damage, which in turn

could impede the business viability and the franchise value of the institution post-

resolution.

In order to ensure that retail investors do not hold excessive amounts of certain MREL

instruments, BRRD II

introduced a requirement to ensure a minimum denomination

amount for such instruments or that the investment in such instruments does not represent

an excessive share of the investor's portfolio.

MiFID II

, which has been applicable since

January 2018, also included a number of new provisions aimed at strengthening investor

protection in respect of disclosure, distribution and assessment of suitability, among others.

Nevertheless, the question has arisen whether the protection of retail clients should be

reinforced, either by further empowering resolution authorities to pursue that objective or

through directly applicable protection in the context of resolution. These considerations

are independent of the possible measures that may be implemented to address the specific

case of mis-selling of financial instruments to retail clients.

Question 26

What are your views on the policy regarding retail clients’ protection?

Agree

Disagree

Do not know / No

opinion

The current protection for retail

clients (MiFID II and BRRD II) is

sufficient in the resolution

framework, both at the stage of

resolution planning and during the

implementation of resolution

action.

Additional powers should be

explicitly given to resolution

authorities allowing them to

safeguard retail clients from

bearing losses in resolution.

Additional protection to retail

clients should be introduced

directly in the law (e.g., statutory

exclusion from bail-in).

Directive (EU) 2019/879.

See Article 44a BRRD.

Directive 2014/65/EU.

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Introducing additional measures

limiting the sale of bail-inable

instruments to retail clients or

protecting them from bearing

losses in resolution may have a

substantial impact on the funding

capacity of certain banks.

Please explain

We believe that the current protection for retail clients is sufficient in the resolution

framework. However, if there should be any changes in art. 44 a we believe that the

changes should ensure the better protection of the retail clients at the point of distribution,

not in resolution. If authorities believe that they cannot bail in MREL instruments, they

should not be sold to these clients. It does not make sense to offer excess returns to clients

that bear no risk. Present practices of not bailing in MREL holders also creates the risk

that misselling by credit institutions are not pursued.

Question 27

Do you consider that Article 44a BRRD should be amended and simplified so as to provide

only for one single rule on the minimum denomination amount, to facilitate its

implementation on a cross-border basis?

Yes

No opinion X

Please explain

We believe that the protection of retail clients are important. Any changes in art. 44 a

should ensure the better protection of the retail clients at the point of distribution, not in

resolution.

Question 28

Do you agree that the scope of the rule on the minimum denomination amount to other

subordinated instruments than subordinated eligible liabilities (e.g. own funds instruments)

and/or other MREL eligible liabilities (senior eligible liabilities) should be extended?

Yes X

No opinion

Please explain [text box]

We believe that the protection of retail clients are important. We are thus in favor of

extension of the protection at the point of distribution, not in resolution.

B. Level of harmonisation of creditor hierarchy in the EU and impact on NCWO

Liabilities absorb losses and contribute to the recapitalisation of an institution in resolution

in an order that is largely determined by the hierarchy of claims in insolvency. EU law

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already provides for a number of rules on the bank insolvency ranking of certain types of

liabilities

. For the remaining classes of liabilities, there is little harmonisation at EU level.

Notably, some Member States have granted a legal preference in insolvency to other

categories of deposits currently not mentioned in Article 108(1) BRRD

. In this context,

the question is whether there should be a generalised granting of a legal preference to all

deposits at EU level.

The arguments in favour would be that this would ensure a level

playing field in depositor treatment across the EU, contribute to minimizing the risks of

breach of the NCWO principle and properly reflect the key role played by deposits in the

real economy and in banking. Additionally, if the three-tiered ranking of deposits

and

DGS claims currently put in place by Article 108(1) BRRD were to be replaced with a

single ranking, whereby all those claims would rank

pari passu,

the use of the DGS in

resolution and in insolvency would be facilitated.

Moreover, there is still the possibility that the order of loss absorption in resolution deviates

from the creditor hierarchy in insolvency, which has the potential to lead to breaches of the

NCWO principle’.

The lack of harmonisation in the ordinary unsecured and preferred layer

of liabilities in insolvency can also create difficulties when carrying out a NCWO

assessment in case of resolution of cross-border groups, particularly within the banking

union where the SRB is currently required to deal with 19 different insolvency rankings.

On the other hand, arguments against providing such preference would be that it would

treat financial instruments held by the same type of creditors differently and could affect

the costs of funding of institutions. Changes to the relative ranking of deposits could also

lead to an increased risk of losses in insolvency for the DGS in case of pay-out.

Question 29

Do you consider that the differences in the bank creditor hierarchy across the EU

complicate the application of resolution action, particularly on a cross-border basis?

Yes

No X

No opinion

Please explain

In general, we do not believe that the bank creditor hierarchy should be changed.

We are concerned that an adjustment would entail a greater use of the DGS funds. We

have good experience with it being the creditors and depositors of the failing institution

that carries the losses. This should be the general principle. We have not seen any analysis

showing that a larger use of public funds (incl. RF or DGS) should give a sounder

resolution framework.

Namely, own funds items, senior non-preferred debt instruments, covered deposits and claims of DGSs subrogating to covered

deposits, and the part of eligible deposits from natural persons and micro, small and medium-sized enterprises (SMEs) exceeding

the coverage level provided by the DGSD

–

see Articles 48(7) and 108 BRRD.

More specifically, eligible deposits of large corporates, in the part exceeding the coverage level of the DGS, and to deposits excluded from

repayment by the DGS pursuant to Article 5(1) DGSD.

It should be mentioned that in the United States all depositors benefit from the same ranking.

Meaning, the relative ranking of deposits laid down in Article 108(1) BRRD, whereby covered deposits rank above eligible deposits of natural

persons and SMEs, which in turn rank above the remaining deposits.

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Furthermore, we are concerned that such amendments would be a step in the wrong

direction, and undermining the work and progress achieved over time and also contradicts

previous discussions and the general aim of the BRRD. Therefore, as already stated, we

prefer to keep the status quo.

Finally, differences in insolvency rules across the EU is not the real problem. Insolvency

regulation is deeply rooted in national legislation on property rights and has fundamental

effects on distribution. It is therefore very difficult to harmonize.

The above is also relevant to our answers to question 30 below.

Question 30

Please rate, from 1 (lowest) to 10 (highest), the importance of the following actions:

Granting of statutory

preference to deposits

currently not covered

by Article 108(1)

BRRD

Do not know

/ No opinion

Introduction of a single- X

tiered ranking

for all deposits

Requiring

preferred

deposits to rank below

all other preferred

claims

Granting of statutory

preference

insolvency

for

liabilities

excluded

from bail-in under

Article 44(2) BRRD

C. Depositor insurance

Enhancing depositor protection in the EU

As a rule, deposits on current and savings accounts are protected up to EUR 100 000 per

depositor, per bank in all EU Member States. However, based on the experience with the

application of the framework, differences between Member States persist in relation to

several types of deposits.

Questions 31-33 of the technical part of this targeted consultation correspond to questions 7-9 of the general public consultation.

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Certain deposits benefit from a higher protection because of their impact on a depositor’s

life. For example, a sale of a private residential property or payment of insurance benefits

typically creates a temporary high balance on a depositor’s bank account

above the

standard coverage of EUR 100 000. The protection of such temporary high balances

currently varies from EUR 100 000 up to EUR 2 million depending on the Member State.

In the current framework, public authorities are and some local authorities may be excluded

from the deposit protection. In this view, deposits by entities such as schools, publicly

owned hospitals or swimming pools can lose protection because they are considered public

authorities.

Financial institutions, such as payment institutions and e-money institutions, and

investment firms may deposit client funds in their separate account in a credit institution

for safeguarding purposes. Currently, the lack of protection against the banks’ inability to

repay in some Member States could be critical for the clients as well as for the business

continuity of the firms, if bank failures occur.

Question 31

Do you consider that there are any major issues relating to the depositor protection that

would require clarification of the current rules and/or policy response?

Yes X

No opinion

Please elaborate

In our opinion it requires clarification as to whether recital 29 of the DGSD only relates

to the relationship between the electronic money institution and its users or whether recital

29 also relates to the relationship between the electronic money institution and the credit

institutions. The ambiguity may thus mean different implementation from member state to

member state.

It is also of great relevance to have clarified whether it is or should be a condition for

coverage that applicable safeguarding requirements are met. It is as such a question of

how, if at all, the depositor guarantee regulation should apply to funds received from

clients by an investment firm/payment institution/e-money institution in the time period

from when the funds are received in the institution’s (non-segregated)

bank account and

until the time when the funds are transferred in accordance with the applicable

safeguarding requirements to a segregated account. When considering whether or not

compliance with applicable safeguarding requirements is a requirement for client

coverage, it is also relevant to consider if it is possible for coverage to be provided in

situations where the funds are not properly segregated, but the beneficial entitlement of

the funds is documented in another way. Beneficial entitlement could for example be

documented by an auditor’s report.

Question 32

Which of the following statements regarding the scope of depositor protection in the future

framework would you support?

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

Agree

Disagree

Do not know

/ No opinion

The standard protection of EUR 100

000 per depositor, per bank across the

EU is sufficient.

The identified differences in the level of

protection between Member States

should be reduced, while taking into

account national specificities.

Deposits of public and local authorities X

should also be protected by the DGS.

Client funds of e-money institutions,

payment institutions and investment

firms deposited in credit institutions

should be protected by a DGS in all

Member States to preserve clients’

confidence and contribute to the

developments in innovative financial

services.

Please elaborate on any of the above statements, including any supporting documentation

(where available), or add other suggestions concerning the depositor protection in the

future framework:

We agree that there should be as few differences in the level of protection between member

states as possible. However, it is very important that national conditions can continue to

be taken into account - e.g. in relation to pension funds. In our opinion, the target level of

0.8% of the amount of the covered deposits should thus be maintained, but with the

possibility for member states to include and collect contributions on the basis of all

deposits covered by the member state. Thus, if a member state covers a depositor's pension

funds, the additional funds covered should also be recognized at the target level of 0.8%,

so that the contribution collection reflects which funds are covered. In these situations, the

covered funds can be calculated quarterly, after which the contribution can be charged as

an average.

With regard to the protection of public and local authorities we can, due to the operational

aspect, support that these deposits also should be protected by the DGS. A harmonization

on the coverage would reduce the administrative burden of the DGS and only have

marginal charge on the DGS fund. The coverage level should be the same as for other

depositors.

Keeping depositors informed

Depositor confidence can only be maintained when depositors have access to information

about the protection of deposits and understand it well. Under the current rules, credit

institutions shall inform actual and intending depositors about the protection of their

deposits at the start of the contractual relationship, e.g. upon opening of the bank account,

and onwards every year. To this end, credit institutions communicate a so-called depositor

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

information sheet, which includes information about the DGS in charge of protecting their

deposits and the standard coverage of their deposits. Depositors receive such

communication in writing, either on paper, if they so request, or by electronic means (via

internet banking, e-mails, etc.).

Question 33

Which of the following statements regarding the regular information about the protection

of deposits do you consider appropriate?

Agree

Disagree

Do not know / No

opinion

It is useful for depositors to receive

information about the conditions of the

protection of their deposits every year.

It would be even more useful to X

regularly inform depositors when part of

or all of their deposits are not covered.

The current rules on depositor

information are sufficient for depositors

to make informed decisions about their

deposits.

It is costly to mail such information,

when

electronic

means

communication are available.

Digital communication could improve

the information available to depositors

and help them understand the risks

related to their deposits.

Please elaborate on any of the above statements, including any supporting documentation

(where available) or ideas to improve the information disclosure, or add other suggestions

concerning the depositor information in the future framework:

As to whether it will be more useful to simply inform depositors when part of or all of their

deposits are not covered, one must be aware of the balance between the administrative

burdens for companies compared to the utility value for the depositors, and in that context

it will in our opinion be necessary to have an impact assessment. In connection with

depositors receiving information regarding their deposits, it is, however, necessary to

introduce flexibility in relation to when and how depositors are to receive the information.

The rules should be clear, but flexibility on the format etc. is preferable.

This may be the case in situations where part of the deposits exceed the coverage level or where depositors are not eligible for depositor

protection.

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

Making depositor protection more robust, including via the creation of a common

deposit insurance scheme in the banking union

Currently, national deposit guarantee schemes (DGSs) are responsible for protecting and

reimbursing depositors. DGSs are funded primarily by annual contributions of the national

banking sectors. By 3 July 2024, the available financial means of each DGS must reach a

target level of 0.8% of the amount of the covered deposits of its members.

The

2015 Commission proposal to establish an EDIS for bank deposits in the banking

union

builds on the system of the national DGS funds and enhances the mutualisation

across the private sector in the banking union. It aims to ensure that the level of depositor

confidence in a bank would not depend on the bank’s location. It also reduces the

vulnerability of national DGSs to large local shocks and weakens the link between banks

and their national sovereigns.

Since 2015, discussions are ongoing on completing the

third pillar of the banking union

(i. e. a common deposit guarantee scheme)

in the Council’s Ad Hoc Working Party, High

Level Working Group set up by the Eurogroup and in the European Parliament. Most

recently, the set-up and features of a possible compromise on a first stage common deposit

insurance scheme focusing on liquidity provision were discussed at political level.

In a

nutshell, on the basis of these discussions, a common scheme could rely on the existing

national DGSs and be complemented by a central fund to reinsure national systems.

This

first stage of EDIS based on liquidity support could be followed by steps towards a fully-

fledged EDIS with loss-sharing, which would ensure an alignment between control

(supervision and resolution) and liability (deposit protection), and further reduce the nexus

between banks and sovereigns.

Question 34

In terms of financing, does the current depositor protection framework achieve the

objective of ensuring financial stability and depositor confidence, and is it appropriate in

terms of cost-benefit for the national banking sectors?

Agree

Disagree

Do not

know /

opinion

The current depositor framework achieves the X

objective of ensuring financial stability and

depositor confidence.

The cost of financing of the DGS up to the current

target level of 0.8 % of covered deposits is

proportionate, taking into account the objective to

ensure robust and credible depositor insurance.

Letter by the High-Level Working Group on a European Deposit Insurance Scheme (EDIS) Chair to the President of the Eurogroup,

3 December

2019.

Various designs and parameters could be envisaged, pertaining to

–

among other things

–

(i) the allocation of the funds between the

central fund and the national DGSs, as well as a cap on the central fund or on mandatory lending, (ii) the build-up phase of the fund

and the mandatory lending component, (iii) interest rates, maturities and repayment of the loans, or (iv) the overall scope of the

scheme.

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

A target level in a Member State could be adapted X

to the level of risk of its banking system.

Please elaborate on the above statements, including any supporting documentation (where

available), or add other suggestions concerning the financing of the DGS in the future

framework: [text box]

Question 35

Should any of the following provisions of the current framework be amended, and if so

how?

Yes

Financing of the DGS

The DGS’s strategy for investing their financial

means

The sequence of use of the different funding X

sources of a DGS (available financial means,

extraordinary contributions, alternative funding

arrangements)

The transfer of contributions in case a bank X

changes its affiliation to a DGS

Do not know

/ No opinion

Please elaborate on the above, including any supporting documentation (where available), or add

other suggestions concerning the above or other elements of the future framework:

In our opninon, it should be clarified that placing funds at a central bank is considered as a safe

investment which is not subject to any diversification requirement in the DGSD.

We also see merit in clarifying the flexibility in determining the sequence of usage of the differ-

rent funding sources.

In regards to a potential amendment of the transfer of contributions in case a bank changes its

affiliation to a DGS more clarity is needed. The Danish DGS reached the target level some years

ago and have since had experiences with institutions changing affiliation; experiences include

institutions leaving with no transfer of contributions and institutions joining the DGS in combi-

nation of a transfer of contribution despite the DGS having reached the target level.

Article 10 DGSD

Article 11 DGSD

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

Question 36

5354

Which of the following statements regarding EDIS do you support?

Agree

Disagree

Do not know /

No opinion

It is preferable to maintain the national protection

of deposits, even if this means that national

budgets, and taxpayers, are exposed to financial

risks in case of bank failure and may create

obstacles to cross-border activity

From the depositors’ perspective, a common

scheme, in addition to the national DGSs, is

essential for the protection of deposits and

financial stability in the euro area.

From the credit institutions' perspective, a common

scheme is more cost-effective than the current

national DGSs if the pooling effects of the

increased firepower

are exploited.

From the perspective of the EU Single Market,

EDIS could exceptionally be used in the

nonbanking union Member States as an

extraordinary lending facility in circumstances

such as systemic crises and if justified for financial

stability reasons.

Please elaborate on any of the above statements, including any supporting documentation,

or add suggestions on how to achieve the objective of financial stability in the European

Union and the integrity of the Single Market: [text box]

If prompt corrective action and the principles in the BRRD were applied, the risks to

deposit insurance systems would be very limited.

Question 37

In relation to a possible design of EDIS, which of the following statements do you support?

Agree

Disagree

Do not know /

No opinion

Question 36 of the technical part of this targeted consultation partly corresponds to question 10 of the general public consultation.

The obstacles to cross-border activity may arise because, under Article 8(5)(e) and 14(2) DGSD, cross-border deposits located in

branches are protected in the country of registration of the bank and, in the event of payout, may be subject to reimbursement longer

than 7 working days.

At face value, a common scheme with a target level lower than 0.8% of covered deposits in the euro area can ensure the same level

of protection as the current network of national DGSs. The assessment of the so-called pooling effect could allow to lower the bank

contributions to the national DGSs.

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

As a first step, a common scheme provides only

liquidity support subject to the agreed limits to

increase a mutual trust among Member States.

At least a part of the funds available in national

DGSs is progressively transferred to a central fund.

If the central fund is depleted, all banks within the

banking union contribute to its replenishment over

a certain period.

Loss coverage is an essential part of a common X

scheme, at least in the long term.

Please elaborate on any of the above statements, including any supporting documentation,

or add suggestions concerning a possible design, including benefits and disadvantages as

well as potential costs thereof: [text box]

The above answers reflect that we support a deposit insuance scheme in the Banking Union

and could see merit in a hybrid model as part of a balanced road map for the Banking

Union work streams, relevant to all Member States. The above answers regarding the

specifics in the design of EDIS indicates what we see as sound features in EDIS, but we

are open to further discussions. In addition, we encourage that all Member States may

enter EDIS on equal footing with members of the Banking Union . We acknowledge that

decisions regarding EDIS is primarily a matter for members of the Banking Union.

Question 38

Which of the following statements regarding the possible features of EDIS do you support?

Agree

Disagree

Do not know

/ No opinion

Setting a limit (cap) on the liquidity

support from the central fund is

appropriate to prevent the first mover

advantage.

Any bank that is currently a member of a

national DGS is also part of the common

scheme.

The central fund should be allocated 50%

or more and the national DGS 50% or less

of the total resources.

In this context, the first-mover advantage means that one DGS depletes all funds as an initial beneficiary and, consequently, is better off

than other DGSs.

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

Appropriate governance rules and interest

rates provide the right incentive for the

repayment of the liquidity support, while

taking into account their procyclical

impact.

The central fund also covers the options

and national discretions currently

applicable in the Member States.

A common scheme provides for a

transitional period from liquidity support

towards the loss coverage with a view to

breaking the sovereign-bank nexus.

Please elaborate on any of the above statements, including any supporting documentation, or add

suggestions concerning possible features of such a common scheme: [text box]

In general, in relation to EDIS, we would like to plead that any introduction of the system from an

administrative point of view does not become too burdensome and that no rules are introduced

that make the member states that are not part of the banking union worse off. In addition, we

believe that entry and exit of EDIS should be on fair terms.

Question 39

Under the current Commission’s proposal on EDIS, a common scheme would

co-exist with

the Single Resolution Fund. Against the background of the general macroeconomic and

financial environment for banks and subject to the cost benefit analysis, do you think that

synergies

between the two funds should be explored to further strengthen the firepower

of the crisis management framework and to reduce the costs for the banking sector?

In that respect, which of the following statements do you support?

Agree

Disagree

Do not

know / No

opinion

The Single Resolution Fund and EDIS should be

separate.

The Single Resolution Fund should support EDIS

when the latter is depleted.

Synergies between the two funds should be exploited. X

Synergies between the two funds should be used to

reduce the costs of the crisis management framework

for the banking sector.

Synergies between the two funds should be used to

strengthen the firepower of the crisis management

framework.

Such synergies could take the form of bilateral loan commitments, guarantees, or possibly a merger of the two funds.

EUU, Alm.del - 2020-21 - Bilag 472: Notat samt høringssvar vedr. Kommissionens høring i forbindelse med evaluering af rammerne for krisehåndtering og indskydergaranti

Please elaborate on the above, including any supporting documentation regarding the

benefits and disadvantages of the above options as well as potential costs thereof: [text

box]

Great care should be taken not to misuse funds, in particular deposit insurance funds, with

the aim to avoid bail in.

Additional information

Should you wish to provide additional information (for example a position paper)

explaining your position or raise specific points not covered by the questionnaire, you can

upload your additional document here. Please note that the uploaded document will be

published alongside your response to the questionnaire, which is the essential input to this

targeted consultation.