Banco Popular rescue shows why EU Banking Package needs strengthening – New Policy Brief

  • Banco Popular rescue shows resolution mechanism can work for large, domestic banks
  • No room for complacency: still a risk of ‘domino effects’ from large bank failures due to lack of harmonisation and other regulatory shortcomings
  • We publish recommendations to strengthen the Banking Package

Brussels, 7 June 2017 - Finance Watch, the public interest advocacy group working to make finance serve society, commented on today’s rescue of failing Spanish bank, Banco Popular, and published a new Policy Brief “One step forward, two steps back” with comments and recommendations on the EU’s Banking Package. 

Finance Watch Senior Policy Analyst and author of the Policy Brief, Christian M. Stiefmueller, said:

“We congratulate the Single Resolution Board for protecting taxpayers from bearing the losses at Banco Popular. They have proven that resolution can work for a domestic systemically important bank (“D-SIB”) and there is no longer any justification to use taxpayers' money when a D-SIB gets into difficulty.

“But there is no room for complacency. There are some 150 such banks in Europe designated as systemically important, meaning they could trigger a cross-border domino effect if they fail in an uncontrolled manner. Capital add-ons and TLAC/MREL for these D-SIBs are not harmonised at the EU level, unlike for Global Systemically Important Banks (“G-SIBs”). Many D-SIBs are very entrenched at the national level, both politically and economically, and enjoy plenty of support. European taxpayers will suffer again if we do not put our foot down and make resolution work in all circumstances.”

Finance Watch Secretary General, Benoît Lallemand, said:

“Ten years after the global financial crisis started, the EU’s banking system is unfortunately still not resilient. In addition to the D-SIB risks, the EU has 13 G-SIBs, some of which are ten times larger than Banco Popular and more interconnected and complex. If one of them had failed yesterday instead of Banco Popular, the headlines today would be very different. The Policy Briefing we are publishing today highlights some key weaknesses in the Commission’s Banking Package for global and domestic systemically important banks and makes constructive suggestions to remedy them.”

The Policy Briefing includes recommendations on bank capital requirements, leverage ratio, supervision, resolution (and the problematic “precautionary recapitalisation”) and proportionality, among other things.

 

NOTES

The European Commission published its ‘comprehensive package of reforms to further strengthen the resilience of EU banks’ on 23 November 2016, containing legislative proposals to amend the Capital Requirements Regulation (CRR), the Capital Requirements Directive (CRD), the Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR). See Commission press release (23 November 2016)

The European Parliament’s ECON Committee held a public hearing to discuss the banking package on 25 April 2017. See Finance Watch’s evidence at the hearing and the hearing webpage.

Read more about Finance Watch’s positions on bank regulation.