European Council and Parliament at loggerheads over CMDI Negotiations - National Deposit Guarantee Systems under Fire
Brussels
Intense negotiations ongoing in the settlement of smaller financial institutions
tempers flared in the early stages of negotiations: The representatives of the two European legislatures - the Council and the European Parliament - made no headway towards each other during the initial talks on the resolution rules for small banks (CMDI). In fact, quite the opposite.
An agreement between the European legislatures on the EU rules for the resolution of small and medium-sized banks and the use of funds from national deposit guarantee funds in crises (Crisis Management and Deposit Insurance, CMDI) is shaping up to be a major challenge. This became evident during the initial meeting of the trilogue, a meeting between the European Parliament and the Council in the presence of the European Commission a few days before Christmas. According to the internal summary of the EU Council presidency, which was leaked to the Financial Times, the parties couldn't even agree on the meeting's agenda.
The contentious institution protection systems
The crux of the matter was the divergent positions on handling the issue of institution protection systems in the negotiations on the future EU guidelines. Institution protection systems, like those maintained by large savings and cooperative banks associations in Germany, are liability communities that offer full creditor protection.
Hardline Stances
Both the negotiators of the Council and the European Parliament displayed determination during the trilogue meeting. The Hungarian EU Council presidency made it clear that it disagreed with the European Parliament's desired separate treatment of the issue of institution protection. In turn, Aurore Lalucq, the chair of the trilogue meeting and the chair of the Economic and Monetary Affairs Committee of the European Parliament, emphasized that the EU Council presidency should communicate to the member states that the European Parliament had provided its rapporteurs with a strong mandate. The member states could expect the negotiators of the European Parliament to adopt a firm stance in the negotiations, the French socialist warned. All these diplomatic niceties hint at difficult negotiations ahead.
Stuck in General Exchange
Following the rejection of several proposals for the next steps of the negotiations by the European Parliament, all parties limited themselves to "a general exchange of views on the CMDI legislative proposal", which is the least binding and most general form of negotiation.
The EU Council presidency confirmed that the text on which the national member states had agreed as the basis for the final negotiations with the European Parliament ("General Approach") was "completely in line with the objectives" of the legislative initiative. In the summer, the Council had agreed to propose significant changes to the draft of the European Commission.
Bone of contention: Super-preference
One of the most significant alterations proposed by the Council is the removal of the European Commission's proposed elimination of the "super-preference status" of national deposit guarantee systems. In other words, the European Commission is pushing for banks—not just large financial conglomerates, but also smaller institutions—to be resolved rather than being sent into insolvency during a crisis.
To fund this gentle disposal, European clearing houses should also be permitted access to funds from national deposit guarantee systems. This can only happen if these systems' special status in the creditor hierarchy is removed. The European Parliament supports the EU Commission's idea, but the EU Council vehemently opposes it.
German Banking Associations Support Council's Position
The German Banking Industry Committee (DK), representing associations of savings banks (DSGV), cooperative banks (BVR), private banks (BdB), state, and promotional banks (VÖB), and covered bond banks (VDP), backs the Council's stance on super-preference. The DK encourages the German government to support the Council's position from June 2024, as it corrects "many inconsistencies". From the DK's perspective, maintaining priority for these systems in the creditor hierarchy is "essential" for ensuring the financing stability of these systems and strengthening depositor trust.
Against Communitization
The German Banking Industry Committee also generally opposes the extensive expansion of winding-down rules to small and medium-sized institutions, as this would involve significant regulatory burdens without benefitting consumers or financial stability. The German financial industry associations reject the mixing of deposit insurance and bank resolution, as well as the communitization of national guarantee funds at the EU level.
Overall, the main dispute involves the balance between EU-level integration and national sovereignty in financial regulation. The EU Council advocates for a narrower scope for resolution under Banking Union authorities, potentially favoring national frameworks over harmonized EU procedures, which could reduce available funding for resolution actions. Meanwhile, the European Parliament generally supports a stronger, more integrated European Deposit Insurance Scheme (EDIS) to ensure equivalent deposit protection across the EU, while the Council's stance might limit the scope and effectiveness of such integration. These differing views on CMDI reflect broader tensions between national control and EU-level integration within the Banking Union.
- The European Council and Parliament failed to reach an agreement during the early stages of CMDI negotiations, with the Hungarian EU Council presidency expressing disagreement with the European Parliament's desired separate treatment of institution protection systems.
- Aurore Lalucq, chair of the trilogue meeting and the chair of the Economic and Monetary Affairs Committee of the European Parliament, emphasized that the European Parliament had provided its rapporteurs with a strong mandate, suggesting a firm stance in the negotiations ahead.
- One of the most significant alterations proposed by the Council is the removal of the European Commission's proposed elimination of the "super-preference status" of national deposit guarantee systems, a decision vehemently opposed by the European Parliament.
- The German Banking Industry Committee, representing several banking associations, supports the Council's stance on super-preference, stating that maintaining priority for these systems in the creditor hierarchy is "essential" for ensuring the financing stability of these systems and strengthening depositor trust.
