The Council of the EU and the European Parliament have announced they have reached a political agreement on the legislative package to reform the crisis management and deposit insurance framework for banks in the EU. The package includes targeted amendments to the Bank Recovery and Resolution Directive, the Single Resolution Mechanism Regulation and the Deposit Guarantee Schemes Directive. The reform aims to strengthen the EU's ability to manage bank failures, including small and medium-sized banks, by facilitating access to industry-funded safety nets, such as national resolution funds and the Single Resolution Fund. These tools are intended to supplement a failing bank's own loss-absorbing capacity, thereby reducing reliance on taxpayer-funded bailouts, referred to as the "bridge the gap" mechanism.
Key elements of the agreement include:
- Clarifying how the existing public interest assessment (PIA) should be conducted to prioritise resolution over liquidation.
- Providing for resolution authorities to focus on both national and regional levels when assessing disruption to the economy.
- Harmonising the "least cost test" to determine whether using DGS resources is more cost-effective than insolvency proceedings.
The co-legislators will now work to finalise the legal text, after which the new framework will be formally adopted and enter into force.
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