banque de france – secrétariat général de la commission bancaire bruxelles, 19 mars 2010 early...
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Banque de France – Secrétariat général de la Commission bancaire Bruxelles, 19 mars 2010
Early intervention – which new tools for supervisors?Banque de France – Secrétariat général de l’Autorité de Contrôle Prudentiel
European Commission International Conference
Building a Crisis Management Framework for the Internal Market
Brussels, 19 March 2010
Danièle NOUYSecretary General of the French Prudential Supervisory Authority
Early Intervention:Which new tools for supervisors ?
Secrétariat général de l’Autorité de Contrôle Prudentiel - ACP
Banque de France – Secrétariat général de la Commission bancaire Bruxelles, 19 mars 2010
Early intervention – which new tools for supervisors?Banque de France – Secrétariat général de l’Autorité de Contrôle Prudentiel
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• The recent crisis revealed clear shortcomings in resolution frameworks : lack of scope, coordination, and reactivity.
• Two key objectives :
1. Strengthening and harmonizing domestic regulatory powers.
2. Setting up a clear framework for coordination, to enhance supervision of cross-border banking groups.
Introduction
Banque de France – Secrétariat général de la Commission bancaire Bruxelles, 19 mars 2010
Early intervention – which new tools for supervisors?Banque de France – Secrétariat général de l’Autorité de Contrôle Prudentiel
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1- Strengthening domestic regulatory powers
• No clear boundary between “early intervention” and “resolution”.
• What is needed ? A gradual approach that will provide supervisors with a wide range of adequate tools for both early intervention and resolution purposes.
Banque de France – Secrétariat général de la Commission bancaire Bruxelles, 19 mars 2010
Early intervention – which new tools for supervisors?Banque de France – Secrétariat général de l’Autorité de Contrôle Prudentiel
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• Member States should agree on powers and tools available to supervisory authorities in crisis situation
• Replace the management body of the firm and appoint a special representative/administrator in a going concern,
• Limit the scope of the firm’s activities,
• Prohibit / limit the distribution of profits to shareholders,
• Prohibit / limit assets intra-group transfers,
• Ensure active role of DGSs in preventing failure .
1- Strengthening domestic regulatory powers
Banque de France – Secrétariat général de la Commission bancaire Bruxelles, 19 mars 2010
Early intervention – which new tools for supervisors?Banque de France – Secrétariat général de l’Autorité de Contrôle Prudentiel
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• A clear framework should enable supervisors, when dealing with bank crisis, to take decisions which can affect stakeholders’ rights.
• As regards the use of thresholds that would trigger the use of intervention tools in a not insolvent situation:
– No need for automatic / quantitative thresholds,– But a wide set of qualitative thresholds allowing for intervention at
the earliest stage possible of financial distress.
1- Strengthening domestic regulatory powers
Banque de France – Secrétariat général de la Commission bancaire Bruxelles, 19 mars 2010
Early intervention – which new tools for supervisors?Banque de France – Secrétariat général de l’Autorité de Contrôle Prudentiel
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• Early intervention should not go too far:
– Early intervention actions by banking supervisors should aim at restoring the stability and financial soundness of an institution when problems are developing…
– …and not at imposing one particular business model.
• The concept of “living wills” raises some issues:
– Feasibility and benefits remain uncertain, notably because circumstances in the next crisis will be different from previous crises.
– Potential negative impact on bank’s activity/efficiency/profitability and international implications, especially in case of disclosure.
1- Strengthening domestic regulatory powers
Banque de France – Secrétariat général de la Commission bancaire Bruxelles, 19 mars 2010
Early intervention – which new tools for supervisors?Banque de France – Secrétariat général de l’Autorité de Contrôle Prudentiel
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• Possible use of “living wills” as a tool to require a bank to change its business model and/or streamline its corporate organization would be deeply questionable:
– Neither the complexity nor the size of a banking group are in themselves central in the “too-big-to-fail” or “too-big-too-save” issue.
– “Living wills” might have a deep impact on group structures and business models, with far-ranging legal and macroeconomic consequences for the EU (adverse effect on the integration trend in the internal market).
1- Strengthening domestic regulatory powers
Banque de France – Secrétariat général de la Commission bancaire Bruxelles, 19 mars 2010
Early intervention – which new tools for supervisors?Banque de France – Secrétariat général de l’Autorité de Contrôle Prudentiel
2- A clear framework for coordinated supervision of cross-border groups
• Discussions on crisis management and intervention tools relate to discussions on:– The new supervisory framework for the EU,– The model of development for the financial sector,– The future for the Single Market.
• We must reconcile two elements: – Financial integration is developing fast, on the one hand;– Resolution arrangements covering the cross-border banking
groups are still national, on the other hand.
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Banque de France – Secrétariat général de la Commission bancaire Bruxelles, 19 mars 2010
Early intervention – which new tools for supervisors?Banque de France – Secrétariat général de l’Autorité de Contrôle Prudentiel
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2- A clear framework for coordinated supervision of cross-border groups
• We have the choice between two opposite models:
– An «isolation model» which would imply requiring business and economic fragmentation so as to be consistent with the current fragmentation of crisis management framework.
– A« cooperative model » which would consist in aligning legal / institutional / operational frameworks with financial integration, and improving cooperation between authorities.
Banque de France – Secrétariat général de la Commission bancaire Bruxelles, 19 mars 2010
Early intervention – which new tools for supervisors?Banque de France – Secrétariat général de l’Autorité de Contrôle Prudentiel
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2- A clear framework for coordinated supervision of cross-border groups
(A) Facilitating asset transfers as a crisis intervention tool
– Why promoting asset transfers? • In a liquidity crisis, assets transferability may enable an ailing
cross-border group to survive, where ring fencing practices would have forced it into bankruptcy.
• Current legal uncertainty may force authorities to fall back on ring-fencing and non cooperative solutions
– How to improve legal certainty of asset transfers?• By giving a legal existence to the notion of ‘group interest’,• Intra-group arrangements could produce prudential benefits as
well as improve the safety of creditors in case of problems.
Banque de France – Secrétariat général de la Commission bancaire Bruxelles, 19 mars 2010
Early intervention – which new tools for supervisors?Banque de France – Secrétariat général de l’Autorité de Contrôle Prudentiel
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2- A clear framework for coordinated supervision of cross-border groups
(B) Enhancing intervention and resolution on a consolidated basis
– We need to align the scope of the resolution framework with the definition of the financial groups, supervised on a consolidated basis.
– A first step is needed: the inclusion of investment firms in the Directives governing the winding-up of credit institutions and insurance undertakings.
Banque de France – Secrétariat général de la Commission bancaire Bruxelles, 19 mars 2010
Early intervention – which new tools for supervisors?Banque de France – Secrétariat général de l’Autorité de Contrôle Prudentiel
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2- A clear framework for coordinated supervision of cross-border groups
(C) Promoting a “European System of Deposit Guaranty Schemes” -DGS-
• Not a replacement of national domestic schemes but rather a “re-insurance” scheme, actively involved in crisis management.
• Such a system would enhance cooperation between authorities and:
– Facilitate mechanisms of solidarity between national DGSs,
– Limit the risks of run-to-deposits and of contagion to other
countries,
– Intervene as a guarantee in intra-group asset transfers.
Banque de France – Secrétariat général de la Commission bancaire Bruxelles, 19 mars 2010
Early intervention – which new tools for supervisors?Banque de France – Secrétariat général de l’Autorité de Contrôle Prudentiel
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Conclusion
• We have the choice between different early intervention tools and resolution regimes, with different degrees of cooperation between authorities and countries.
• A national approach of resolution regimes would imply fragmentation not only of supervision but also to some extent of financial markets.
• Promoting a cooperative framework is the only way forward, due to the reality of cross-border groups and the objective of the Single Market.