Merck. Wat betekent de nieuwe bankenwet voor u? Que signifie la nouvelle loi bancaire pour vous? 6 september mai mei 2014

Merck

Wat betekent de nieuwe bankenwet voor u ? Que signifie la nouvelle loi bancaire pour vous ? 6 september 2011 15 mai 2014

15 mei 2014

Agenda Welkomstwoord

Ivan Peeters

Inleiding

Michel Tison

De bank als schuldenaar na de nieuwe wetgeving

Ivan Peeters

Gouvernance et contrôle des banques

Marc Fyon

KOFFIEPAUZE - PAUSE-CAFÉ De impact van de nieuwe bankenwet op lange-termijn financiering van vennootschappen

Hans Buysse

L‟Union bancaire – les règles du jeu changent pour les banques

Sébastien de Brouwer

Regulier bankieren versus Shadow banking – biedt de bankwet nieuwe opportuniteiten? Zin en onzin van (over-)regulering Opérations bancaires régulières versus Shadow banking – la loi bancaire offre-t-elle de nouvelles opportunités? Sens et contre-sens de la (sur)réglementation

Panel: Michel Tison, Hans Buysse, Sébastien de Brouwer, Ivan Peeters, Marc Fyon

Slotbevinding - Conclusion

Ivan Peeters RECEPTIE - RÉCEPTION

Merck

Belangrijkste wijzigingen aan de bevoegdheden Inleiding van de Raad van State

6 september 2011

Michel Tison, Frederik Vandendriessche Hoogleraar, Financial Law Institute, UGent

DE BELGISCHE BANKENWET TUSSEN WAL EN SCHIP ? Michel TISON

Waarom een nieuwe Bankenwet ? • Verdere uitbouw prudentiële regulering (CRD IV) -> governance, remuneratie

• Omvattend juridisch kader voor “bancair insolventierecht” ‣ early intervention – recovery – resolution

• Structuur van de bankactiviteit (verbod proprietary trading) • Instrumenten voor macro-prudentieel beleid ‣ Aanbeveling ESRB 2011/3

Stibbe Seminar 15 May 2014

La Loi bancaire assise entre 2 chaises • Législateur a voulu transposer certaines mesures européennes (not. CRD IV) tout en anticipant à d‟autres mesures „en chantier‟ (Union bancaire) • Mais: le législateur européen a rattrapé le législateur belge en fin de course (SSM, BRRD et SRM, garantie des dépôts) ‣ Conséquence: Une loi à adapter dès sa promulgation ‧ > habilitations au Roi Stibbe Seminar 15 May 2014

De Bankenwet tussen wal en schip • 1. Bankenwet en Single Supervisory Mechanism ‣ Wet anticipeert op invoering SSM miv 4 november 2014 ‧ ECB: exclusief bevoegd voor vergunning en toezicht betekenisvolle aandeelhouders ‧ ECB: rechtstreeks toezicht op „belangrijke‟ banken (kwantitatieve criteria + in elk geval 3 belangrijkste banken in elke lidstaat) – Enkel voor prudentiële materies, limitatief opgesomd in art. 4 SSM-VO ‧ NBB: toezicht op „minder belangrijke‟ banken (met „evocatierecht‟ voor ECB) ‧ Art. 4.3 SSM-VO: ECB past Unierecht + nationale omzettingswetgeving (bij richtlijnen) toe Stibbe Seminar 15 May 2014

‣ Spanningsveld tussen Belgische bankenwet (generieke regeling voor alle banken) en SSM-VO: taakverdeling tussen ECB en NBB, naargelang omvang bank en toezichtsmaterie Bankenwet hanteert term “toezichthouder” Naargelang het geval, hetzij NBB, hetzij ECB Bankenwet steeds lezen in samenhang met SSM-VO Leesbaarheid van de wet vs rechtszekerheid Belgische wet legt indirect verplichtingen op aan ECB Stibbe Seminar 15 May 2014

• 2. Herstel en Afwikkeling (Recovery-Resolution) ‣ Bankenwet incorporeert „toolkit‟ uit BRRD (art. 255 ev) ‧ Maar: bail-in blijft grotendeels buiten beschouwing ‧ Machtiging aan Koning


• 3. Structuur van de bankactiviteit (artt. 117-133) ‣ Principe: verbod proprietary trading vanaf 1/1/2015 ‧ Noch rechtstreeks, noch via Belgische of buitenlandse dochterondernemingen ‣ Uitz.: bep. Activiteiten toegelaten, binnen risicolimieten en omkadering vastgelegd bij Reglement NBB ‣ Indien niet voldaan: verboden handelsactiviteit ‧ Uitz.: marktrisico blijft beneden bepaalde drempel – Individueel bepaald door NBB voor elke bank – Drempel =max. 1% EV voor marktrisico ‣ Indien verboden handelsactiviteit: ‧ Afbouw ‧ Overdracht aan verbonden „handelsentiteit‟ buiten consolidatieperimeter van bank -> Statuut beursvennootschap Stibbe Seminar 15 May 2014

‣ Anticipeert op ontwerp-”Liikanen”-VO (jan 2014) ‧ Maar: ontwerp-VO lijkt minder streng: enkel voor systeemrelevante instellingen ‣ Regeling niet opgenomen in art. 4 SSM-VO => Toezicht blijft bij NBB, ook voor “belangrijke” kredietinstellingen


Eerste impressies … • Bankwet beoogt rechtszeker kader te bieden voor toezicht op en afwikkeling van kredietinstellingen ‣ -> Juridisch kader is instrumenteel voor (financiële stabiliteit

• Toenemende complexiteit en techniciteit van het toezichtsrecht • “Supervisor” wordt ook steeds meer “regulator” ‣ Technische uitwerking regulering via Reglementen Stibbe Seminar 15 May 2014

Merck

Belangrijkste wijzigingen aan denieuwe bevoegdheden De bank als schuldenaar na de wetgeving van de Raad van State

6 september 2011

Ivan Peeters, Frederik Vandendriessche Advocaat-vennoot Stibbe

Banks as debtors

I. The new banking regulation: a delicate balancing act II. General enhancement of the robustness of banks III. Statutory lien for certain deposits and debts IV. Recovery planning and recovery measures V. Resolution planning and resolution measures VI. Rules to support the effectiveness of resolution actions VII. Rules to safeguard the position of certain creditors VIII. Some general considerations and conclusion

14

Banks as debtors 

I. The new banking regulation: a delicate balancing act 



The financial crisis has unsettled all stakeholders Against the overall objective of systemic stability, the new banking regulations try to balance the position of the key stakeholders: equity holders, creditors and the “public purse” (tax payers) • Tax payers should no longer bear the burden of the stability of banks • Equity holders must be first in line to take losses • The position of creditors is much more delicate

15


I. The new banking regulation: a delicate balancing act 

Differentiated approach to various “classes” of creditors

• • • • 

Deposit guarantee Secured vs unsecured Hybrid creditors vs “ordinary” creditors Systemic relevant creditors vs other creditors

Which rules and instruments are new? How will creditors be affected? Should creditors look differently at Belgian banks now?

16


II. General enhancement of the robustness of banks  

Creditors generally will benefit from more stable and robust banks The new regulatory environment (Belgian and EU) inter alia provides for: • • • • • • •

Reinforcement of own funds Stricter liquidity requirements Enhancement governance rules Enhanced supervision (macro-prudential and micro-prudential) Limitations on proprietary trading Limitations on distributions Publication of information on: solvency, liquidity, risk concentration, risk positions, policy in respect of own funds requirements and the governance memorandum

17


III. Statutory lien for certain deposits and debts 

Covered deposits (Art. 389§1)

• Deposits and debt instruments, guaranteed by the Special Protection Fund for Deposits and Life Insurance up to EUR 100,000 • Recovery claims of the Special Protection Fund for Deposits and Life Insurance • Benefits from a general statutory lien (“voorrecht/privilège”) on all movable assets of the bank

18



Non-covered deposits (Art. 389§2)

• The amounts of such deposits and debts that exceed EUR 100,000 • General statutory lien (“voorrecht/privilège”) on all movable assets of the bank • Of natural persons of SMEs 

Ranking • Covered deposits rank higher than non-covered deposits • Non-covered deposits rank higher than unsecured, unpreferred creditors • Article 108 BRR Directive

19



Are all movable assets encumbered assets?

• EBA: draft “an asset is considered encumbered if it has been pledged or if it is subject to any form of arrangement to secure, collateralize or credit enhance any transaction from which it cannot be freely withdrawn” • Article 2, 3° Royal Decree on encumbered assets: cross reference to EBA technical standards, but limited carve-out only relating to securities lending • A debtor whose assets are subject to a general lien can “freely” dispose of such assets

20



The lien is combined with mandatory maximum thresholds for encumbered assets • Security interests and other encumbrances rank in priority the general statutory lien for deposits • Objective: minimum proportion of un-encumbered assets available as collateral for owners of deposits • … and for other unsecured creditors (“guarantee access to funding sources”)?

21



Impact on covered bonds? • The statutory lien does not affect the cover assets (complete segregation of the cover pool) • Same definition for “vrije activa/actifs libres” (Artt. 3§2,5° and 4 Annex III – Covered Bonds)?



Risk of triggering negative covenants in existing financings?



Impact on other unsecured creditors? Appropriate covenants in respect of total level of unencumbered asset?



Entry into force: date to be set by Royal Decree

22


IV. Recovery planning (“herstelplan/plan de redressement”) and recovery measures (Artt.108-133) 

Recovery planning • Dynamic planning process (updates) of the bank of measures to allow the bank to restore its financial position following a significant deterioration using a range of stress scenarios • Interactive process with the supervising authority, including powers to require adjusting actions as provided in the recovery plan

23



Recovery planning • The plan to include inter alia: − Various stress scenario‟s − Governance rules and procedures for monitoring the financial position and to implement adjusting actions (escalation procedure) − Arrangements and measures to conserve or restore own funds, ensure access to contingency funding sources, to reduce risk and leverage, to restructure liabilities … − A progressing scale of threshold values for encumbered assets (as determined by the supervisory authority)

24



Recovery measures • Expansion of the range of measures and accelerated timing • Trigger: if the bank does not operate according to the legislation and regulations • Measures that can be imposed by the supervisory authority (early intervention): − Additional, mandatory requirements (own funds, liquidity, risks, reporting…) − Implement the recovery plan − Exceptional intervention (management, suspension of activity…)

25



Legal impact on creditors? • Measures in going concern, no suspension or termination rights • No legal impact without consent of creditors (negotiation) • except in case of suspension of (certain) activities which may include the suspension of the further performance of certain ongoing agreements • However, specific creditor protection: Artt. 13-16 Financial Collateral Act (repo‟s, netting) and Artt. 369-375 Banking Act (foreign law agreements).



Entry into force: 7 May 2014

26


V. Resolution planning (“living will”) (“afwikkelingsplan/plan de résolution”) (Artt. 226-232) and resolution measures (Artt. 242-311) 

Resolution planning • Resolution Authority to make a (dynamic) resolution plan for each Belgian bank (and its foreign subsidiaries) • Resolution Authority: resolution committee established within the NBB • Content – Resolution plan includes the measures the Resolution Authority can take in respect of the bank if (ever) the conditions for a resolution (see below) are met • Objectives − Continuity of the critical functions of the bank − Sustain stability of financial system − Protection of covered deposits − Protection of public funds (no exceptional state aid)

27



Write down or conversion of equity instruments (Artt. 250-253) • Conversion of additional tier 1 instruments or tier 2 instruments into tier 1 instruments • Write down of additional tier 1 instruments or tier 2 instruments • Prior to resolution or in conjunction with resolution measure • Position of creditors: − Mandatory for creditors of these instruments (subject to prior judicial review) − No right to terminate or accelerate because of the write down measure(?) (Art. 287) − Protection under Art. 287?

28


V. Resolution planning (“living will”) (“afwikkelingsplan/plan de résolution”) (Artt. 226-232) and resolution measures (Artt. 242-311) Resolution trigger The Resolution Authority considers that: • the competent authority, after consulting with the Resolution Authority (or, if a member state chooses and certain conditions are fulfilled, the Resolution Authority after consulting with the competent authority), determines that the institution is failing or likely to fail; and • there is no reasonable prospect, having regard to the timing and other relevant circumstances, that any alternative private sector measures, (including early intervention measures or the write down or conversion of capital instruments) would prevent the failure of the institution within a reasonable timeframe; and 

29


V. Resolution planning (“living will”) (“afwikkelingsplan/plan de résolution”) (Artt. 226-232) and resolution measures (Artt. 242-311) • a resolution action is necessary in the public interest: it is necessary to achieve, and is proportionate to, one or more of the resolution objectives and a winding up of the institution or parent undertaking under normal insolvency proceedings would not meet those objectives to the same extent. A bank will be deemed to fail (“in gebreke blijft / défaillance”) if: • in breach of the requirements for continuing its banking licence in a way that would justify withdrawal of such licence; or • has or will likely have negative net assets; or • is unable to pay obligations as they fall due; or • requires extraordinary public support.

30


V. Resolution planning (“living will”) (“afwikkelingsplan/plan de résolution”) (Artt. 226-232) and resolution measures (Artt. 242-311) Resolution principles The use of resolution tools must respect certain principles, including: • that shareholders bear the first loss; then creditors, except as provided for in the Banking Act, in accordance with the usual priority of claims upon insolvency with creditors of the same class treated equally; • no creditor should suffer bigger losses than in case the bank had been liquidated; • covered deposits will not suffer any loss; • the resolution measures will be taken in compliance with the safeguard rules (see below); • the management body and senior management are replaced, except if their retention is appropriate and considered necessary to achieve the resolution objectives; 

31


V. Resolution planning (“living will”) (“afwikkelingsplan/plan de résolution”) (Artt. 226-232) and resolution measures (Artt. 242-311) • individuals and entities are made liable under civil and criminal law for their responsibility for the failure; and no creditors shall incur a greater loss than under a liquidation; • before taking resolution action or exercising the power to write down or convert capital instruments, the Resolution Authority needs to ensure that a fair, prudent and realistic valuation of assets and liabilities of the institution is carried out by an independent person, or if this is not possible, a provisional valuation can be carried out by the Resolution Authority itself.

32



Resolution measures – Sale of business tool Power: • to transfer shares (or other instruments of ownership) or all or specified assets, rights or liabilities of an institution to a purchaser • without obtaining the consent of the institution‟s shareholders or any third party and without complying with any procedural requirements of company or securities law that would otherwise apply. • on commercial terms and a Resolution Authority must take reasonable steps to obtain such terms, having regard to the pre- resolution valuation of the institution. • so that proceeds must are for the benefit of the institution‟s shareholders where the sale is effected by transferring shares (or similar) and for the benefit of the institution where effected by transferring some or all of the assets or liabilities.

33



Resolution measures – Bridge institution tool Power: • to transfer shares (or other instruments of ownership) or all or specified assets, rights or liabilities of an institution to a bridge institution temporarily; • without obtaining the consent of the institution‟s shareholders or any third party and without complying with any procedural requirements of company or securities law that would otherwise apply; • so that proceeds must are for the benefit of the institution‟s shareholders where the sale is effected by transferring shares (or similar) and for the benefit of the institution where effected by transferring some or all of the assets or liabilities.

34


V. Resolution planning (“living will”) (“afwikkelingsplan/plan de résolution”) (Artt. 226-232) and resolution measures (Artt. 242-311) • whereby a bridge institution is a legal entity that is wholly or partially owned by one or more public authorities (which may include the Resolution Authority or the resolution financing arrangement) and which is controlled by the Resolution Authority, created to receive or hold some or all of the shares or the assets, rights and liabilities with a view to continuing some or all of the functions, services or activities of an institution under resolution; • the value of liabilities transferred may not exceed the value of rights and assets transferred.

35


V. Resolution planning (“living will”) (“afwikkelingsplan / plan de résolution”) (Artt. 226-232) and resolution measures (Artt. 242-311) 

Resolution measures – Asset separation tool Power: • to transfer assets, rights and liabilities of an institution under resolution to a specially created asset management vehicle; • that is wholly or partially owned by one or more public authorities (which may include the Resolution Authority or the resolution financing arrangement) and which is wholly controlled by the Resolution Authority; • manage the assets transferred with a view to maximising their value through sale or otherwise ensuring an orderly wind down of the business.

36


V. Resolution planning (“living will”) (“afwikkelingsplan/plan de résolution”) (Artt. 226-232) and resolution measures (Artt. 242-311) • assets may only be transferred if the particular market for those assets is of such a nature that liquidation of the assets under normal insolvency proceedings could have an adverse effect on the financial market, if such a transfer is necessary to ensure the proper functioning of the institution under resolution or if such a transfer is necessary to maximise liquidation proceeds; • the consideration for the transfer is set by the Resolution Authority; • the profits of the management will benefit the shareholders of the vehicle; • the asset managers appointed have no duty or responsibility to the shareholders or creditors of the institution under resolution when exercising their functions, save when there is gross negligence or serious misconduct.

37



Resolution measures – Bail-in tool The Banking Act does not yet include a developed set bail-in provisions, these: • will be included based on the now approved BRR by way of Royal Decree • such new provisions may not enter into force prior to 1 January 2016 Bail-in (“instrument van interne versterking/instrument de renflouement interne”) allows the Resolution Authority to write down “eligible liabilities” or to convert such liabilities into shares or other instruments of ownership. For that purpose the additional Royal Decree may require the institution to hold sufficient own funds and eligible liabilities to allow for an orderly resolution.

38


V. Resolution planning (“living will”) (“afwikkelingsplan/plan de résolution”) (Artt. 226-232) and resolution measures (Artt. 242-311)

The Banking Act defines “eligible liabilities” as any liabilities other than: • covered deposits; • secured liabilities, including covered bonds and similarly secured liabilities; • liabilities arising from the holding of client monies or client assets or arising by virtue of a fiduciary relationship, provided the beneficiary is protected under applicable insolvency or civil law; • liabilities with an original maturity of seven days owed to institutions (other than group institutions) or owed to systems or operators of systems designated according to the Settlement Finality Directive, participants of such systems or arising from the participation in such a system;

39



• employee salary and benefit or other fixed (but not variable) remuneration; • liabilities owed to tax or social security authorities; • liabilities for IT services, rent, maintenance and other goods or services necessary for the daily operations; and • liabilities to deposit guarantee schemes (DGS) arising from contributions due under the deposit guarantee legislation. The following descriptions are based on the BRR Directive.

40





The Resolution Authority would be given the power to: • write down or convert relevant capital instruments into shares (or other instruments of ownership) of the institution; • reduce the principal of, or outstanding amount due in respect of, eligible liabilities (down to zero); • convert „eligible liabilities‟ (see below) into ordinary shares (or other instruments of ownership) of the institution, a relevant parent institution or an associated bridge institution; • cancel debt instruments or write down the nominal amount of shares to zero; and • require the issue of new shares or other capital instruments.

41



Once the conditions for resolution are met, the bail-in of relevant capital instruments must be exercised before any further resolution action is taken (see above). The debt write-down may only be applied to meet the resolution objectives, in accordance with the resolution principles and (i) to recapitalise an institution (or financial holding company) to the extent sufficient to restore compliance with the conditions for authorisation (including capital requirements), to carry on its authorised business and to sustain sufficient market confidence in the institution (or entity); or (ii) to convert to equity or reduce the principal amount of claims or debt instruments that are transferred to a bridge institution with a view to capitalising the bridge institution or under the sale of business or asset separation tool. A write-down takes effect immediately and is binding on the institution, affected creditors and shareholders.

42



In exceptional circumstances resolution authorities may exclude (wholly or partially) certain liabilities from the application of the write-down and conversion powers where: • it is not possible to bail-in that liability within a reasonable timeframe; • the exclusion is strictly necessary and is proportionate to ensure the continuity of critical functions and core business lines; • the exclusion is strictly necessary and is proportionate to avoid widespread contagion, with particular regard to eligible deposits from individuals and SMEs; or • the application of the bail-in tool to those liabilities would cause destruction in value such that losses borne would be higher than if these liabilities were bailed-in.

43



Bail-in would be applied in the following order of priority: • common equity Tier 1 instruments; • additional Tier 1 instruments that are liabilities; • Tier 2 instruments; • subordinated debt (that is not Tier 1 or Tier 2); and • remaining eligible liabilities (in the same priority as in normal insolvency proceedings, including deposits that are not covered deposits, whether or not preferential based on the statutory lien of Art. 389).

44



The bail-in tool may be applied from 1 January 2016. Institutions must hold bail-inable capital (own funds and eligible liabilities) that is at least equal to a prescribed percentage of the total liabilities of the institution. For these purposes derivative liabilities will be included in the total liabilities on the basis that full recognition is given to counterparty netting rights (i.e. bail-in after close out).

45


VI.

Rules to support the effectiveness of the resolution actions

Unilateral powers (Artt. 277 and 280): • to obtain the release of security interests or other encumbrances on the assets of the bank; • to change or terminate terms of contract to which the bank is a party; • to suspend performance of payment or delivery obligations of the bank as from the publication of the resolution measure until midnight after such publication; • to suspend the right of secured creditors to enforce their security for the same period; • to suspend, for the same period, any termination rights of a counterparty under an agreement with the bank (or under certain conditions with a subsidiary of the bank).

46


VI.

Rules to support the effectiveness of the resolution actions Such suspension rights do not apply to covered deposits, payment or delivery obligations or security interests in the framework of certain payment or settlement systems or towards central counterparties or central banks.

Effectiveness of transfers of assets and/or liabilities: • continuity - the transferee will be deemed to be the successor for all assets, rights and liabilities (Art. 271); • cannot trigger any amendment, termination, suspension, set-off, close-out or acceleration by the counterparty (Art. 271); • disposals cannot be challenged on the basis of bankruptcy claw-back rules (Art. 274); • effectiveness of the transfers by operation of law as from the date of the publication of the approved disposal decision in the Belgian Official Gazette.

47


VI.

Rules to support the effectiveness of the resolution actions

Bankruptcy No liquidation procedure (“faillissement / faillite”) can be commenced without prior approval of the Resolution Authority (Art. 273). Write down Write down is fully effective and binding on the creditors (Art. 253 and BRR Directive).

48


VII.

Rules to safeguard the position of certain creditors Partial transfer of assets and liabilities Creditors “left behind” must receive at least as much as they would have received in a liquidation prior to such transfer (Art. 282)

Protection of security arrangements • Impossible to effect transfer whereby collateral, secured obligations or the benefit of security would be dissociated in an adverse way (Art. 285) • No power to amend the security agreement so that it would adversely affect the coverage • The above does not apply to security arrangements relating to covered deposits

49


VII.

Rules to safeguard the position of certain creditors Protection of structured finance transactions, financial collateral and netting No power to order the partial transfer, change or termination of (Art. 286): • assets, liabilities, rights that are part of a structured finance transaction to which the bank is a party (incl. covered bonds, securitization) • rights and obligations under an agreement for the assignment for security purposes (including repo‟s) • rights and obligations under netting or close-out netting agreements Such limitation does not apply to arrangements relating to covered deposits

50


VII.

Rules to safeguard the position of certain creditors Financial collateral legislation more generally

• No provision of the Banking Act will allow for a derogation from Artt. 13 to 16 of the Financial Collateral Act (i.e. repo‟s, netting, insolvency protection) • BRR Directive anticipates an amendment to the Financial Collateral Directive to allow for short term suspension as part of resolution measures (see “unilateral powers” above). • The BRR Directive contains more detailed provisions on the effects following such suspension period.

51


VII.

Rules to safeguard the position of certain creditors Protection of payment and settlement systems, central counterparties and central banks • The Resolution Authority must procure that resolution measures do not adversely affect the proper operation of payment and settlement systems (Art. 288) • In particular no transfers, changes, terminations or suspension of rights with adverse effects. Continued performance of essential obligations by the bank • Counterparties are prohibited to terminate, accelerate, suspend performande or do set-off solely for the reason of a resolution measure or similar actions, only to the extent that the bank continues to perform its essential obligations under the relevant contract(s) (Art. 287).

52


VIII.

Some general considerations and conclusions



Most favored creditors: covered deposits



Least favored creditors: unsecured creditors



Immediate impact on existing senior, unsecured funding ?



Further incentives for (i) structured finance funding and (ii) a race for collateral (?)

…..

53

Contactgegevens spreker

Ivan Peeters Corporate & Finance T: +32 2 533 53 17 [email protected]

54

Gouvernancewijzigingen et controle aan des de établissements de Belangrijkste bevoegdheden crédit au regard de la nouvelle loi bancaire van de Raad van State

Merck

6Marc september 2011 Fyon, Avocat-associé Stibbe Frederik Vandendriessche Maître de conférence UCL

Banks governance

I. II. III. IV. V. VI. VII.

Framework of the new banks governance rules Focus on the risks management Focus on the Board of Directors Independent control functions Strategic decisions Compensation policy Some general considerations and conclusions

1.

Banks governance 

I.

Framework of the new banks governance rules 

Framework of the new Banking Act • Overall objective of protecting the systemic stability of the financial sector • Implementation of various new European (CRD, CRR, Regulation USM)



Focus of this presentation on governance matters



Framework of he new banking governance rules : • Various expert reports pointing out the impact of a „weak banks governance‟ on the financial crisis • Negative appreciation of the compensation policy enacted by banks and of the self-regulation within the bank sector on this matter

2.


I.

Framework of the new banks governance rules 

What did the experts mean by „weak banks governance‟ ? • Limited involvement of the banks directors • Limited knowledge, assessment and handling of the operating risks • Doubts regarding the adequacy of the model, structure and organization of certain banks • Implementation of various new European directives or regulations (CRD, CRR, Regulation USM)

3.


II. 

Focus on the risk management Major focus on the knowledge, assessment, handling of and reporting on risks • Definition of a risk management policy – Should cover credit, residual, concentration, securitisation, market, rate, liquidity, excessive leverage risks (Schedule I) – condition for granting of a banking license – risks identification, measurement, handling and reporting • Adequacy of the organizational model with this risk policy – condition for granting of a banking license (Art. 21)

4.


II. 

Focus on the risk management Major focus on the knowledge, assessment and handling of the operating risks • Independent control functions include risk management (Art. 37) – Function entrusted to a member of the executive committee (without any other operational function) – Adequacy of the human and material resources granted to the risk manager for the exercise of his function – Direct reporting to the board (if needs be, by by-passing the executive committee) – Active involvement in any decision having a significant impact on risks

5.


II. 

Focus on the risk management Key role of the board of directors in risks management and assessment • regular review of risks assessment and management policy (Art. 57) • reporting to the supervision authority regarding risk tolerance level definition • risk committee (Art. 29) – non-executive directors – advise the board on risks management strategy and tolerance policy – focus on off-balance assets – assessment of the compensation policy in function of this risk strategy • obligation to approve a liquidities repair plan (Art. 57) • disclosure of risk policy according to rules to be set fort by the supervision authority (Art. 75) 6.


III. Focus on the board of directors 

Review of the rules regarding the composition, tasks and functioning of the board



Focus on two key missions • Risks management policy overview • Overview of the bank activities and regular assessment of the bank structure, organization and control mechanisms • Limited focus of the classical board role regarding strategy • Need for a „more involved and more critical‟ board

7.



Composition of the board

• New rule : any director‟s appointment must be approved by the supervision authority (rule currently limited to executive directors) (Art. 60) • No legal entity as director • Gender policy • Availability requirement • New policy regarding external functions (Art. 62) – No general prohibition of external functions – Limitation of the number of executives mandates for executive directors (2 non-executive mandates) and non executive directors (3 nonexecutive mandates or 1 executive mandate and 1 non-executive mandate) – Rules non applicable to representatives of States 8.



Board committees (Art. 27 to 33)

• • • • 

Audit Committee Risks Committee Appointment Committee Compensation Committee

Derogations for non significant importance credit institutions with respect to compensation and appointment committees

9.



Importance of the work entrusted to the board of directors



Each bank must have (Art. 21) • Adequate and exhaustive management structure • Adequate administrative organization, accountancy systems and control mechanisms • Efficient risk identification, measurement, handling and reporting policy • Adequate compensation policy • Adequate independent control functions • Adequate integrity policy

10.



Extended role of the board in the definition of written policies

• Governance memorandum (Art. 21) (to be updated and assessed at least once a year and to be submitted to the supervision authority) (Art. 56) • Liquidities repair plan (Art. 57) • Risks policy (including risk tolerance level) (Art. 23 and 57) (need to set forth criteria to be taken into account for the definition of major risks operations, which must be submitted to the board in advance and which the board may object to) • Compensation policy

11.



Extended role of the board in the bank policies assessment and review

• Governance memorandum to be updated and assessed at least once a year (Art. 56) • Adequacy of the organizational model • Exercise of the independent control functions • Review of the accounting policies • Control to be organized on a consolidated basis • Annual assessment of the board and board members functioning

12.


IV. Independent control functions 

Three compulsory independent control functions (Art. 35)

• Compliance officer • Risk manager • Internal auditor      

Distinction between front-, middle- and back-office Independence of these functions reiterated and strengthened Remuneration of the persons carrying out these functions, independently from the results of the activities they must control Dismissal of these persons to be decided upon by the board Direct access of and reporting by these persons to the board Appointments to be approved in advance by the supervisory authority 13.


V. Strategic operations and regulated activities 

Strategic and assimilated operations submitted to the prior approval of the supervision authority (Art. 77) • Strategic decision - Art. 3, 63° • 250,000,000 EUR investment or 5% stake acquisition in non-banking companies • Mergers or split-ups • Transfer of portfolios and business branches



Criteria to be taken into account by the supervision authority when refusing such an operation • Impact of this operation on the bank capacity to comply with its obligations arising under the Banking Act • Impact on proper and diligent management of the bank • Significant impact on the stability of the financial system 14.


V. Strategic operations and regulated activities 

Two developments in this area • System extended to all banks (and no longer limited to systemic banks) • NBB effective approval required (where previously the NBB was merely entitled to object to the operation)



New rules regarding loans or assistance to managers or qualifying shareholders (and related persons) (Art. 72) • Operations at arms-length (same rates, limits, conditions and collaterals as for clients) • Operations to be disclosed to the board which can object to them • Prohibition of loans with a view to the acquisition of shares of the relevant bank (Art. 629 of the Corporate Code not applicable to banks)



Trading activities 15.


VI. Compensation policy (Art. 67 to 70 and Schedule 2) 

Highly sensitive political debate



Applicable to (Art. 67) • executive committee, • persons carrying out independent control functions, • persons assuming risks on behalf of the bank • people with equivalent level of compensation



General compensation policy to be defined by taking a.o. the impact of this policy on the risk management of the bank

16.



Focus on variable incomes • Balance between fixed and variable incomes (Schedule 2, art. 1) : Variable income may not exceed the higher amount of (i) 50,000 EUR and (ii) 50% of the fixed income • As a rule, prohibition of guaranteed variable incomes • Variable incomes to be determined in function of pluri-annual performance assessment • Payment of at least 40% of the variable income to be spread over a period of 3 to 5 years • No variable income is due and payable if its amount is not bearable in view of the financial situation of the bank or it its amount is not justified by the performances of the employee, its business branch and the bank (Schedule 2, Art. 8)

17.



Focus on variable incomes • without prejudice to contract and labour law principles, clawback and malus devices • Subject to a possible exception for a crisis manager, no variable compensation authorised for directors of banks benefiting from exceptional financial support from public authorities (Schedule 2, Art. 16) • Additional specific rules regarding variable incomes for banks benefiting from exceptional financial support from public authorities



Termination indemnities (Schedule 2, art. 12) • Termination indemnities must square with effective performances and may not compensate “failure or irregular behaviour” • Except if approved by the shareholders‟ meeting, termination indemnities limited to 12 months compensation or (upon motivated advise by the remuneration committee) 18 months compensatrion 18.


VII.

Some general considerations and conclusions



Entry into force of the Banking Act



General assessment of the new Baking Act



Challenge for the bank directors



Impressive work to be performed by banks in order to comply with the documentation requirements

19.

Données de contact

Marc Fyon Corporate & Finance T: +32 2 533 53 18 [email protected]

20.

De impact van de nieuwe aan bankenwet op langeBelangrijkste wijzigingen de bevoegdheden termijn financiering van vennootschappen van de Raad van State

Merck

6 september 2011 Hans Buysse, Frederik Vandendriessche Senior Partner, SynCap Management EFFAS, ACIIA, ESMA, XBRL

76

De nieuwe bankenwet 







Einde 2013 bereikte het kernkabinet een akkoord over de voorstellen voor een nieuwe bankenwet. Twee centrale doelstellingen:  Stabiliteit bij banken garanderen door het beperken van risicogedrag en,  Herstellen vertrouwen spaarders door de banken stabieler en meer liquide te maken + door de spaarder meer waarborgen te geven m.b.t. zijn spaargeld. Wat wel :  Verbod op speculatieve activiteiten,  Bijzondere kapitaalheffing  Verbod op bonussen  Bescherming spaarder  Encumbrance ratio Wat niet :  Geen splitsing deposito- en zakenbanken  Geen verbod op bonussen  Geen afschaffing fiskaal voordeel op spaarboekje 77

De nieuwe bankenwet 

 

Is indirect belangrijk voor de kredietverlening van de banken aan de bedrijven:  Art 21 : Organisatie en meting risico‟s  Art 35 : Onafhankelijke controlefuncties: compliance, risico beheer en interne audit  Art 46 : Kapitaalstructuur  Art 55 : Garanderen van minimaal eigen vermogen  Art 63 : Risicobeheer : “passende maatregelen om rechten cliënteel te vrijwaren”  Art 66 : Beperken van operationeel risico  Art 94 : Prospectief beheer eigen vermogen en liquiditeit  Art 108: Opmaken en opvolgen van crash scenario‟s  … Febelfin is zeer ongerust dat deze Belgische wet de internationale concurrentiepositie van onze banken aantast. In deze regelgeving zit Basel III vervat, alleen gaat men nog verder.  De limieten zijn zeer strikt bepaald  Er zijn veel bijkomende kosten voor Banken naar Belgisch Recht 78

Bankenwet : antwoord op de crisis? 



Zwakheden uit de crisis  In de bankensector • Onderkapitalisatie of overdreven leverage (schuldfinanciering) • Grotere speculatieve trading portefeuilles (effectisering) • Overdreven risicogedrag  In de financiële supervisie • Transnationale banken, maar nationale supervisie  In het resolutie apparaat • Ongeordende bankfaillissementen • Tussenkomst belastingbetaler Maatregelen  EU : banken unie met centraal toezicht, Capital Requirements Directive 4, Bank Recovery & Resolution Directive, Deposit Guarantee Scheme Directive  Diverse wetten met verbod op speculatieve activiteiten, bijzondere kapitaalheffingen, bescherming spaargeld, alternatief verloningsbeleid, … 79

Basel III implementatie? 



De bankenwet voorziet verregaande aandacht voor “systeem relevante banken” (MSI/BSI)  Inzake organisatie zijn deze onder controle van specifieke internationale controlenormen : • Liquiditeitsnormen • Basel III  Deze zorgen voor een gefaseerde implementatie van • De Capital Requirements Directive IV (CRD IV) • De Capital Requirements Regulation (CRR)  Belangrijke liquiditeitsratio‟s worden opgelegd, de European Single Rule book vervangt de Belgische regels vanaf 1/1/2015 • Liquidity coverage Requirement (LCR) • Net stable Funding Requirement (NSFR) Maar de opgelegde invoering is inzake de Belgische bankenwet nog strikter dan volgens Basel III en CRR. Er is geen “phased in approach” en de “delivery dates” zijn vroeger. 80

Basel III : Waarover gaat dit nu? The Committee, through the three pillars of Basel II, laid the foundation for the regulatory model that promotes safer banks. This framework remains valid today. Basel III is an extension of it – but with critical additions, such as a leverage ratio, a macro prudential overlay and the liquidity framework. Nout Wellink Chairman of the Basel Committee on Banking Supervision St. Petersburg, 24 May 2011 81

Basel III Regulatory capital Min 8.0% RWA

Tier 1 Tier 2 Going-Concern Capital Gone-Concern Capital Min 6.0% RWA

Min 4.5% RWA Capital + prem.

CT1

T1

TC

2.0%

4.0%

8.0%

Basel III – Ignoring capital buffers CET1

T1

TC

4.5%

6.0%

8.0%

Other conv.

Reserves

Subordinated debt  5Y without incentives to redeem

Interim profit Min. int. (-)Surplus

Common Equity T1

Basel II

Basel III – Including capital conservation buffer (2.5% RWA) CET1

T1

TC

7.0%

8.5%

10.5%

incl. other non conv.

Additional T1

∑ RWA

Basel III – Including countercyclical capital buffer (0% – 2.5% RWA) CET1

T1

TC

9.5%

11.0%

13.0% 82

Basel III in het kort Solvency

Liquidity

Solvency ratio 3

Total capital  8% RWA

Liquid assets  100% Net outflows over 30 days

Basel III 2

4

Short term

Risk-based

1

Liquidity coverage ratio (LCR)

1 - Raising quality of capital 2 - Enhancing risk coverage 3 - Reducing procyclicality

6

5

5 - Leverage ratio 6 - Liquidity standard

Tier1  3% Total exposures

Leverage ratio

Available stable funding  100% Required stable funding

Longer term

Non-risk-based

4 - Addressing systemic risk

Net stable funding ratio (NSFR) 83

Basel III verstrengt de bestaande “solvency ratio” Solvency

BIS estimated impact [-14%, -30%] on European banks

Risk-based

Solvency ratio 1

3

Tier1  4% RWA

Total capital  8% RWA

[+112.5%, +175%] (≥ [8.5%, 11%])

4

2

[+4%, +23%]

1 2

Less capital More RWA

≥ Higher minima

1‟ 3

4

84

Basel III legt een “leverage ratio” op

Non-risk-based

Objective LR Constraining the build-up of excessive leverage, using a simple, transparent, non risk based leverage ratio supplementing the risk based solvency ratio

5

2011-2017

Final definition and calibration: mid-2017 Tier1  3% Total exposures

Leverage ratio Solvency

2018 →

Transition period 2011-2012

2013-2017

Monitoring

Parallel run

Pillar 1

2013-2014

2015 →

No disclosures

Disclosures

Transitional arrangements 85

Basel III verplicht een “stressed liquidity ratio” 2011-2014

2015 →

Observation period

Standard 2012 →

No reporting

Reporting towards supervisors

Transitional arrangements

Liquidity coverage ratio Liquid assets  100% Net outflows over 30 days

Final standard: Mid-2013 3 6a

Short term

2011

Liquidity

1

1‟

Objective LCR Promoting short term resilience by ensuring enough high-quality liquid assets to survive a significant stress scenario over one month 86

Basel III maakt “stabiele funding” noodzakelijk Objective NSFR Promoting resilience over a longer term horizon (one year) by creating incentives to fund longer activities (assets) with longer ressources (liabilities) 6b 2018 →

Observation period

Standard

2011

2012 →

No reporting

Reporting towards supervisors

Final standard: Mid-2016 Available stable funding  100% Required stable funding

Longer term

2011-2017

Net stable funding ratio Transitional arrangements

Liquidity 87

De impact voor banken is dan ook groot 

Voorbeeld : impact op Belgische banken



Gevolg :

Hogere bedragen en kost van kapitaal, gecombineerd met extra kost voor liquide activa en LT funding, zullen bankproducten duurder maken en de ROE verkleinen.

88

Impact op risicobeheer:     

Herzien van business modellen die door Basel 3 zwaar worden geïmpacteerd : geen proprietary trading meer, enkel nog investment grade lending, lange termijn is moeilijk, … Back to basics : het traditionele bankieren, alleen nog core activiteiten, splitsen van retail vs investment banking (voorbeeld : UK), vooral bestaande klanten, geen nieuwe Cost cutting en technologie programma‟s -> bank modernization Risico concept verandert compleet : beperktere risico appetijt, evenwicht tussen korte en middenlange termijn performantie, governance, stress tests, … Integratie van CPM, ALM, capital management en thesaurie in 1 centraal balans risico beheer

Risico en return worden samen beheerd op een pro-actieve manier : a) Meer scenario en stress tests b) Centraal beheer van risico appetijt c) Globaal beheer en meer regulartory 89

Impact op kredietverlening De combinatie van risico kapitaal, leverage en liquidity ratio‟s maken een nieuw kader noodzakelijk om de balansen van de banken terug te optimaliseren

    

Infrastructuur : cash-flows capteren van alle activa en passiva Technologie : nadruk op toekomstige cash flows van alle activa en passiva Organisatie en goed bestuur : intern en extern balansbeheer (ALM) moet gesplitst worden van de commerciële activiteit Risico organisatie: “gedaan met silo risicobeheer per risico type” Holistische interne transfer pricing om business en balans performantie van elkaar te scheiden

Begrip en management van gecombineerde effecten voor alle financiële risico‟s op pricing, opbrengsten, kapitaal, liquiditeit en leverage, en Transfer van leningsportefeuilles naar lange termijn investeerders en institutionelen… 90

Impact op kredietverlening? 







Les uit de crisis : “alleen direct en volledig beschikbaar kapitaal is bruikbaar voor het opvangen van verliezen. Daarom moet het grootste deel van het bankkapitaal van de hoogste kwaliteit zijn (Basel III). Deze verstrengde kapitaaleisen hebben een nadeel: “Wanneer het slecht gaat met de economie, stijgt het bankrisico, moet men naar het eigen vermogen grijpen en wordt meer eigen vermogen vrijgehouden. Banken kunnen daardoor minder krediet verlenen. Dit leidt tot de versterking van de laagconjunctuur en zwaardere eisen om krediet te kunnen verlenen. Bovendien wordt krediet duurder. Eind januari versoepelde het Basel-comité de kapitaaleisen voor de bankensector na waarschuwingen dat de eisen activiteiten met een laag risico zouden dwarsbomen en de kredietverstrekking zouden kunnen beperken. De banken krijgen nu meer ruimte door het gebruik van toegestane netting die wordt toegepast om de kapitaalbuffer te berekenen. De vereisten inzake de leverage ratio vormen, naast de kapitaalsvereisten en de liquiditeitsvereisten, slechts één van de standaarden in de Basel III-akkoorden. Na de versoepeling moeten banken nog steeds een leverage ratio van 3 procent aan kapitaal aanhouden. Ze krijgen wel meer ruimte om de grootte van hun activa in te schatten. Hiervoor wordt de accountingmethode „netting‟ gebruikt. 91








Vanaf 2015 moeten alle banken meedelen in welke mate ze aan deze vereiste inzake de leverage ratio voldoen. Vanaf 2018 wordt de regeling bindend. Het Basel Committee on Banking Supervision laat echter nog ruimte om in de toekomst verdere wijzigingen aan deze regeling aan te brengen. Op basis van een in september 2013 gepubliceerd onderzoek door de Bank of International Settlements is vastgesteld dat wereldwijd meer dan een kwart van de banken aan het einde van 2012 niet voldeed aan de voorwaarden die in juni 2013 zouden worden geformuleerd. De banken zouden 200 miljard dollar meer basisfondsen moeten werven om aan deze vereisten te voldoen. In tijden van beperkte economische groei kan zoiets mogelijk negatieve effecten op de kredietverlening in het algemeen hebben. Dit kan de moeizame kredietsituatie van bepaalde ondernemingen, in het bijzonder van kmo‟s, verslechteren. De versoepeling is er dan ook vooral op gericht de kredietsituatie en het algemeen economisch klimaat niet te laten verslechteren. De versoepeling is daarnaast ook deels bedoeld om de verschillen tussen de Verenigde Staten en Europa weg te werken.

92








Afhankelijk van de eigen individuele toestand met betrekking tot kapitaal en leverage ratio, kan de versoepeling voor een individuele bank tot meer ruimte voor kredietverlening leiden. Of dit voor een of meerdere van de Vlaamse of Belgische grootbanken het geval is, valt moeilijk te zeggen. De finale implementatie van de Basel IIIakkoorden is pas tegen 2018 bindend. Maar ook de wijzigingen op het vlak van de liquiditeitsvereisten, in het bijzonder de net stable funding ratio (NSFR), zullen impact hebben op de lange termijn kredietverlening. De NSFR legt de banken de verhouding op tussen de lange termijn activa (kredieten) en hun funding. Op die manier verzekert men de stabiliteit van de financiering van deze kredieten. Beide moeten elkaar in evenwicht houden. Samen met de wijzigingen aan de leverage ratio zijn ook amendementen met betrekking tot de NSFR voorgesteld. Nog tot april 2014 konden wijzigingen worden voorgesteld. Tegen eind 2014 zou het werk met betrekking tot de NSFR moeten worden afgerond. Deze regel zou dan tegen 2018 bindend worden.

93

Impact van deze strictere controle? Is dit strenger risicobeheer een goede manier om de impact van systeemrisico‟s te mitigeren? Jazeker



Financiële instellingen zullen robuuster worden door globale planning van korte termijn inkomsten en middenlange termijn risico‟s met een pro-actief beheer van hun balansen.



Lange termijn investeerders investeren in financieringen die minder gevoelig zijn voor inflatie en souvereign risico



Supervisie zal een stuk strenger worden voort grotere financiële instellingen

Verdwijnt systeemrisico door beter risicobeheer en kapitaalplanning? Helemaal niet

 

Systeemrisico is nu een vast onderdeel geworden van onze financiële samenleving Alternatieve financieringssystemen worden verder uitgewerkt : corporate bonds, shadow banking, … 94

Available

Zijn er alternatieven?

XYZ C’ie

Sub-investment grade

Credit Strength

Investment Grade

Not Available

Commercial paper * Short-term Bilateral Bank loans

Debt

Medium Term Notes

Securitisation

Short Term

Medium-term Bilateral Loans and Club Deals Private Placements

Mezzanine

Public Debt

Sources Of Capital

Convertible financing Long term Bilateral Loans and Club Deals Capital increase by existing shareholders

Long Term Equity

Private Placement of Equity Public Equity (“floatation”)

95

Zijn er alternatieven? 

Snel wijzigende regulator omgeving leidt tot arbitrage tussen de spelers 



Hoewel er vergelijkbare regelgeving is bij banken, verzekeringsmaatschappijen, asset managers en hedge funds : minimum eigen vermogen, strengere governance en transparantie (3 pilaren approach) … … blijven de verschillen tussen banken en verzekeraars groot • • • • •





Risico wordt anders berekend Minimum eigen vermogen wordt anders berekend Verbinding tussen verschillende soorten risico‟s is anders Verschillende kapitaalsvereisten voor dezelfde risico‟s Verschillende geografische dekking

Snel wijzigende boekhoudregimes hebben een verschillende impact op banken vs verzekeringen. De waarderingsregels zijn niet gelijke, de rapporteringsregels ook niet (IFRS9, fair value voor verzekeringscontracten, impairment van leningen via expected loss approach Alternatieven op de markt  

Verlening van kredieten door insitutionelen, loan hedge funds, beleggingen van bedrijven bij ECB Marktalternatieven : effectisering van leningen, covered bonds, LT repo‟s, … 96

En is lange termijn financiering nog mogelijk? 



Lange termijn financiering bij grote projecten is zeker nog mogelijk indien aan bepaalde voorwaarden is voldaan Uitgebalanceerd Consortium

- goede integratie en continuïteit - kan meerdere opdrachten tegelijkertijd

Robuuste contract- en financiële structuur

met optimale risicoverdeling en inclusief ESR95 neutraliteit

Betrouwbare financieringspartners

8 banken, 4x benodigd commitment ook institutionele investeerders

Competitieve lange termijn financiering

geen risico op herfinanciering, geen renterisico

Met voldoende reserves (MRA, DSRA) en een conservatief ratio niveau!

33-66-100% en 6 maanden debt service

Stevig pakket aan structuurgaranties en bankgaranties!

inclusief directe opvang in geval van vertragingen (“liquidated damages”)

Robuust verzekeringspakket op alle niveaus

Gebaseerd op succesvol gefinancierde transacties

Dat was in 2012 niet het geval. Toen was de maximale termijn ook op projectfinanciering gelijk aan 9 à 10 jaar. 97

En is lange termijn financiering nog mogelijk? 

Lange termijn financiering is nog mogelijk maar minder en minder bij Belgische banken.



Veel banken doen aan lange termijn financiering maar werken samen met institutionele beleggers voor het lange termijn deel. Effectisering en verkoop van receivables nemen toe in belang.



98

Is lange termijn duurder geworden? 

Lange termijn 2014

Lange termijn 2012

Term Loan Facility 27j

Term Loan Facility 27j

Gecommiteerd Bedrag

100 m

Gecommiteerd Bedrag

100 m

Duurtijd

27 yrs

Duurtijd

27 yrs

up to AD Step-ups Marge Years A-B A B Marge Years B+1-C B+1 C Marge Years C+1-D C+1 D Marge Years D+1-E D+1 E Marge Years E+1-F E+1 F

185 bps

Arrangement Fee

Commitment Fee Swap marge

up to AD Step-ups Marge Years A-B A B Marge Years B+1-C B+1 C Marge Years C+1-D C+1 D Marge Years D+1-E D+1 E Marge Years E+1-F E+1 F

190 bps

175 bps

Arrangement Fee

185 bps

40%

Commitment Fee

50%

195 bps 1 5 210 bps 6 10 225 bps

11 15 240 16 19 250 20 27

20 bps

Swap marge

230bps 1 4 210 bps 5 7 255 bps

8 10 -

20 bps

99

L’Union bancaire – Belangrijkste wijzigingen aan de bevoegdheden les règles du jeu changent pour les banques van de Raad van State

Merck

6 september 2011 Sébastien de Brouwer, Frederik Vandendriessche Executive Director, European Banking Federation (EBF-FBE)

L’UNION BANCAIRE – LES RÈGLES DU JEU CHANGENT POUR LES BANQUES Sébastien de Brouwer Executive Director European Banking Federation (EBF-FBE) Stibbe, 15 May 2014

About us – the European Banking Federation

Who we are  National Banking Associations from 32 countries  4.500 banks with 2.5 million employees

From  Major cross-border institutions and small regional entities  Wholesale and retail financial institutions

Our Members 32 national member associations: 

28 EU Member States



4 EFTA countries



13 Associates

“We aim to achieve an integrated European financial services market”

About us – Mission & Priorities Our Mission To be the voice of Europe’s banks  To serve the interests of the European banking industry

 To position the European banking industry within the European and global regulatory frameworks Our Priorities Supervision and stability Financing the economy Focus on Consumers

THE BANKING UNION

Single Market & Banking Union How the Banking Union contributes to the Single Market ?

 Breaking the link between banks and sovereigns  Promoting greater integration of cross-border banks  Restoring confidence in banks

Why Banking Union ? – The Doom Loop

Key elements of the Banking Union

Single Supervisory Mechanism EU18+

Single Resolution Board EU18+

Funding Arrangements EU 18+

Single Rulebook EU28 CRR/CRD IV

BRRD

Banking Union and Single Rulebook

Mutually supportive processes

1. SSM and SRM apply same Single Rulebook (capital requirements regulation/directive & bank recovery and resolution directive) for EU17+ as Member States outside Banking Union 2. Banking Union will benefit Euro Area, the entire Single Market and beyond by overcoming destructive economic fragmentation and uncertainty

THE SINGLE SUPERVISORY MECHANISM (SSM)

The Single Supervisory Mechanism (SSM)

 Article 127 (6) of the Treaty on the Functioning of the European Union : specific tasks relating to prudential supervision of credit institutions  From November 2014  Participating countries : Euro Area Countries participate automatically in the SSM + opt-in non-Euro area EU Member States (close cooperation)

Functioning of the SSM

SSM ECB

JST

oversees the system

(ECB/ NCAs staff) Grants/withdraws authorisations, assesses qualifying holdings

Direct supervision

Significant banks

Grants/withdraws authorisations, assesses qualifying holdings

May “call-up” direct supervision

NCAs Direct supervision

Less significant banks

Banking supervision by the SSM Direct supervision by the ECB  Significant banks as defined under the SSMR by: • size • importance for EU or domestic economy • significant cross-border activities



Less significant banks when necessary to ensure consistent application of high supervisory standards

 Banks that have requested or received ESM or EFSF public financial assistance  Three most significant banks in each participating Member State

Direct supervision by the NCAs  Less significant banks

Methodology for assessing significance

Procedures

Size

ECB lists

• assessment and ongoing review of a bank’s significance • determination of the date on which a change of status/supervisor takes effect and its impact on pending procedures • ECB takes decisions on changes in status

•

main criterion

•

Framework Regulation specifies how the total value of assets is determined

•

significance is determined at highest level of consolidation

• • •

of significant banks of less significant banks and their respective NCAs published on the ECB’s website and updated regularly

Supervision of Significant Banks Supervisory Tasks conferred to the SSM:

• Authorization, withdrawal and assessment of qualifying holdings • Passport • Ensure compliance with requirements on capital, leverage, liquidity, and governance • Supervisory review and Supervisory powers (Pillar 2) • Consolidated supervision and supervision of conglomerates • On-site inspection • Early intervention where a bank breaches requirements (coordinating with resolution authorities) • Sanctions • Macro prudential tasks

Micro-prudential tasks

Colleges of Supervisors

Passport issues

Financial conglomerates

•

ECB will chair colleges for any significant groups with branches/subsidiaries outside the SSM and in non-EU countries

•

ECB will participate in the colleges for non-SSM groups with branches/subsidiaries that are significant within the SSM

•

CRD IV procedures no longer apply for the establishment of branches within the SSM

•

for banks within the SSM wishing to establish a branch outside the SSM, the ECB will be the home authority for significant banks and the NCA for less significant banks

•

ECB will act as coordinator if the bank belonging to the financial conglomerate is significant

•

supervision of insurance firms is excluded

Supervision of significant banks

ECB is the entry point for requests (unless expressly provided otherwise)

JST analyses and prepares a draft decision

•

•

NCAs assist the ECB by preparing a draft decision upon request or on their own initiative follow the ECB’s instructions

Decision-making Supervisory Board submits draft decisions to Governing Council

Close cooperation

• General principles

•

Significant institutions

• • •

Less significant institutions

ECB’s position will be comparable to the one it holds in respect of supervised entities and groups established in euro area countries ECB may not act directly vis-à-vis banks but through instructions, requests or guidelines addressed to NCAs establishment of JST for each institution ECB will be consolidating supervisor NCAs adopt decisions in respect of significant supervised entities only upon the ECB’s instructions

•

ECB may issue general instructions, guidelines or requests to the NCA under close cooperation

ECB’s supervisory powers

Request for information

Supervisory Reporting

• ECB may require information that it considers necessary from any person referred to in Article 10(1) SSMR • before making a request, the ECB will take into account the information available to NCAs

• ECB is the competent authority for supervisory reporting by significant banks and NCAs for that by less significant banks

• NCAs are the single entry point and perform initial data checks draft Framework Regulation sets out the procedures for:

On-site inspections

•

the decision to conduct an on-site inspection

•

the establishment of an on-site inspection team

•

the notification of an on-site inspection

Transitional provisions

Start of the ECB supervision

Continuity of existing procedures

• ECB sends a decision to significant banks of their status two months prior to start of supervision • bank has the right to be heard

• supervisory procedures initiated by NCAs will generally continue after the ECB starts supervision •

Countries adopting the euro

Continuity of cooperation agreements

•

• •

transitional provisions will apply to countries that join the euro area after the start of the SSM comprehensive assessment of banks established in countries that join the euro area MoUs and other cooperation agreements will continue to apply ECB may decide to participate

SSM – New Governance Structure Composition of the Supervisory Board: • Chair • Vice-chair (member of the ECB Executive Committee)

• 4 ECB representatives • One representative of every Member State supervisory authority

SSM – New Governance Structure Permanent structure of the SSM with 4 general directions: 1. 2. 3. 4.

Direct micro-prudential supervision of significant banks (I) Direct micro-prudential supervision of significant banks (II) Indirect micro-prudential supervision of less significant banks Horizontal functions of micro-prudential supervision: • Methodologies and standards • Model validation • Quality of supervision • Legal support and sanctions • Crisis management • Analysis of capital markets

ECB as a banking supervisor – institutional impact

Shared Services (IT, Legal, HR, Statistics)

Decision-Making Process

Supervisory Framework : Teams Joint Supervisory teams (JST) • One JST for every banking group.

• Every JST led by a Coordinator and several assistants (all of them ECB employees). • Approx. 20% of JST members will be based in Frankfurt and 80% will belong to national supervisors (depending on the size and profile of the banking group). • JST structure tailored to the size and Risk profile of the supervised banking group, but with a common pattern

Supervisory Framework : Teams Joint Supervisory teams (JST) Example of composition of a JST for a cross-border group Supervisory Board

ECB JST Coordinator + ECB staff (*)

Local Coordinator of consolidating country

Local Coordinator of country A

Local Coordinator of country B

Local team of consolidating country

Local team of country A

Local team of country B 127

Supervisory Framework : Teams Joint Supervisory teams (JST) • JST will hold responsibility over day-to-day supervisory tasks. Nevertheless, a gradual transition process is expected. • On-site supervision to be conducted by the Local Coordinator following the general lines established by the ECB. The JST Coordinator could participate in the on-site supervision as well. • Normally, one general annual on-site inspection whereby the JST will: • Establish a dialogue with the entity including a final meeting to present conclusions • Formulate recommendations • Will follow up progress in the implementation of recommendations • Evaluation to be performed with a common methodology and indicators, leaving a certain room for interpretation (constrained judgment).

Supervisory Framework : Teams Joint Supervisory teams (JST) Key questions :

• How to solve potential discrepancies between the JST Coordinator and the national supervisor? • Could dissenting opinions be presented to the Supervisory Board? • Will agreement mechanisms be set up in advance? • The multiplicity of languages: How to overcome such a significant challenge?

Supervisory Framework : Procedures On-site supervision:

•

No abrupt break with current practice. The SSM will start off by relying on the continuity of current on-site supervisory works and incorporate the new teams and procedures in on-site inspections.

•

Heads of on-site inspection to be appointed at national level (in agreement with ECB).

•

JST to validate on-site inspection reports as well as the proposal for follow-up actions.

• Off-site analysis: •

Capital

•

Assets quality

•

Profitability

Supervisory Framework Regulation Minimum contents of the SSM Supervisory Framework Regulation:

•

Supervisory processes

•

Model validation

•

Risk methodologies

•

Supervisory Review and Evaluation Process (SREP)

•

Macro-prudential oversight

•

Relationship between ECB and national supervisors

•

Penalties, sanctions and inspections

Supervisory Framework

• • •

• • • •

Single rulebook is the remit of EBA. The ECB will follow EBA instructions. ECB will not regulate. National discretions: Legacy national discretions would be respected as long as they exist (single rulebook depends on EBA) National discretions granted to competent authorities will be assigned to the SSM. National discretions granted to designated authorities and Member States: The SSM will respect and duly supervise accordingly. ECB would be expected to issue recommendations as to how to apply national discretions in the capital requirements regulation (CRR) and directive (CRD4). ECB attaches great importance to the communication strategy. It will be a central part of SSM.

ECB Comprehensive Assessment Objectives: Transparency : enhancing quality of info on bank‟s condition Repair : by identifying/ implementing corrective actions Confidence building Scope: * All 128 significant banks in SSM of 18 Member States = 85% of euro area bank assets. * No „Opt-ins‟ (to date). * Final list only compiled in 2014, when up-todate statistics have become available. *

Past

national

exercises

are

not

a

substitute. Starts: Nov 2013 – ends: Oct. 2014 Capital benchmark set at 8% CET1 (as defined at 1.01.2014 for AQR) Min. levels for stress test not yet set

1. Supervisory Risk Assessment (SRA) Risk assessment in the balance sheets (incl. liquidity, leverage and funding) Quantative and qualitative analysis of bank‟s position relative to peers 2. Asset Quality Review (AQR) Assessment will be broad and inclusive, covering credit and market exposures, on- and off-balance sheet positions, domestic and non-domestic exposures. Both banking and trading book. Balance sheets as of 31.12.2013. All asset classes, incl. non-performing loans, restructured loans and sovereign exposures; Referenced to harmonised definitions, 3. Stress test ECB and EBA have agreed to perform the next EUwide stress test in close cooperation. Further details to be agreed and disclosed (in due course).

ECB Comprehensive Assessment Portfolio selection: * Ensure inclusion of highest risk exposures * NCAs will propose portfolios on existing info (bottowm up) * ECB will review and challenge (top-down)

Execution: Key steps include: • Data integrity validation (incl. onsite) • Sampling of portfolio data • Assessments of the adequacy of • Collateral valuations • Provisioning levels • NPL classifications • Recalculations risk weights

Collation: Final consistency analysis to ensure comparability - on-going data quality assurance - Ensure analysis carried out withion guidelines using harmonsied definitions

 Conclusions / corrective actions / measures: •

Before Nov, 2014, the ECB will provide a single disclosure of the integrated outcome of the comprehensive review, incl. any necessary corrective measures, will result from the findings of all three stages, and may lead to a range of follow-up actions (incl. requirements for changes in bank’s provisions and capital).

•

The timelines for implementing any such measures will be part of the outcome of the comp assessment,

•

ECB acknowledges that critical factor will be the ex ante availability of backstops.

•

If and where any capital shortfalls are identified for viable banks:

• •

First and foremost: to be made up with private sources of capital; If private sources insufficient, public backstops may need to step in, in compliance with national & EU rules

THE SINGLE RESOLUTION MECHANISM

Key elements of the Banking Union

Single Supervisory Mechanism EU18+

Single Resolution Board EU18+

Funding Arrangements EU 18+

Single Rulebook EU28 CRR/CRD IV

BRRD

The single Resolution Mechanism

Legal basis • Article 114 TFEU (approximation of laws to improve the Single Market) is taken as the legal basis: • Benefits stability across Single Market • Reinforces coherent application of BRRD, adopted on the same legal basis, in the Banking Union • Ensures Single Market integrity by removing arbitrary geographic distortions for Euro Area banks if supervision and resolution at different levels • Fiscally neutral • Improving the Single Market can involve a subset of EU Member States (Regulation (EC) No 924/2009 on cross-border payments)

Scope of Single Resolution Mechanism

• Mirrors the SSM: all banks established in the Euro area and other participating Member States • As for the SSM, there is a distribution of tasks between the Board and the Nat. Resolution Authorities: • Board is directly responsible for cross-border and significant banks (›30bn EUR) • NRAs are responsible for all other banks (also to adopt resolution decisions, provided no use of the SRFund is required). • But the Board is ultimately responsible for all banks.

Components of the Single Resolution Mechanism

European Commission and Council

A Single Resolution Board

European Central Bank as bank supervisor

Funding arrangements

National resolution authorities x18+

Functioning of the Single Resolution Mechanism

Single Resolution Fund manages

ECB National Supervisors

notify

COM & Council

Single Resolution Board

supervise

instructs National Resolution Authorities

Owners / creditors

contribute

resolve

Failed bank

All banks Internal Market

Triggering Resolution in practice

• Determination that the (i) bank is failing/likely to fail is generally made by ECB • Board may also if it has informed ECB, and the latter has not reacted within 3 days • Board assesses if there is a (ii) systemic threat (public interest) and there is (iii) no alternative private solution • If so, it adopts a resolution scheme in which it sets out the necessary resolution and funding measures • Resolution scheme is submitted to Commission for endorsement or objection.

Tasks of the Single Resolution Board • Coordinate the preparatory work of national resolution authorities (e.g. resolution plans) • Ensure and prepare effective resolution decisions and oversee their implementation by national authorities • An Executive Board for all operative decisions and a General Board for general matters, both led by permanent Executive Director • Relevant Member States involved/consulted in the Executive Board but no veto power; all participating Member States sit in General Board • Board would need 250-300 staff, financed fully by fees on banks

The Single Board: Tasks of the Plenary and Executive Board

• Executive Board decides, as a rule, in specific resolution cases • Plenary Board decides: • By silent procedure, if specific resolution case requires more than EUR 5bn (EUR 10bn for liquidity support) – (by simple majority + 30%) • On guidance to the Executive Board, if the net accumulated use of the Fund in the prior consecutive 12 months reaches EUR 5bn (by simple majority + 30%) • On ex-post contributions and borrowing of the Fund (by 2/3 majority + 50%/30%)

Role of the EU Institutions: Commission and Council

• The Commission is in most cases the last instance deciding on resolution on the basis of the resolution scheme adopted by the Board • The Council is also involved in some cases. • Within 24 hours, the Commission shall either endorse or object to the resolution scheme (except in the cases where Council is competent)

Role of the EU Institutions: Commission and Council • The Council may approve or object to a resolution scheme, on a Commission proposal: • on the ground that the resolution scheme does not fulfil the criterion of public interest • where there is a material modification of the amount of the Fund • Resolution scheme may enter into force only if no objection has been expressed by the Council or the Commission within a period of 24 hours • If the Commission or the Council object, Board shall incorporate reasons into the scheme

Resolution procedure

Bank likely to fail

ECB notifies Board, COM and relevant national authorities

Board assesses situation and proposes resolution decision together with national resolution authorities based on resolution plans COM decides to trigger resolution and instructs Board to execute the measures, checking consistency with State aid rules National resolution authorities implement (e.g. bail-in, bridge bank)

Resolution Scheme: Implementation

• Resolution scheme sets out the resolution tools and provides, where necessary, for the use of a certain amount of the Fund.

• Board instructs NRAs to implement the scheme. • Board adopts general instructions to the attention of NRAs.

Funding arrangements

• A Single Resolution Fund sourced from the banking sector – not the taxpayer – can provide mid-term funding if needed • The fund could borrow from the market • During a build-up period of 8 years, the Fund comprises national compartments corresponding to each participating MS in the SRM • All banks in the participating MS contribute to the Fund • Target level of the Fund is set at 1% of covered deposit within SSM • Individual contributions are calculated at European level but are collected at national level under the IGA and transferred to the Fund • Contributions comprise a flat part and a risk adjusted part

Future Banking Resolution Issues to be addressed • 24 Guidelines, Technical Standards to be drafted by European Banking Authority on BRRD alone • Recovery and Resolution Planning and Banking Structure Reform: will RRPs be sufficient to remove obstacles to resolution and end too big too fail • Going beyond the SRM to create credible cross-border schemes with multilateral agreements between home and host resolution authorities (SPE vs MPE strategy) • Assessing the sufficient level, composition and location of ‘bail-inable’ liabilities • Developing an equitable and fair system for raising contributions to resolution funds for the SRM and wider Single European Market • Harmonising guidelines on the application of recovery and resolution triggers • Educating consumers and investors about benefits of resolution and bail-in

Transition - details

Period

Legal framework

Single Bank Resolution Fund

State aid rules

ESM

Until 2015

National law (which may require bail-in)

National funds, where they exist

Enhanced burden-sharing (shareholders and junior creditors)

Subject to Member States’ decision, possible ESM direct recapitalisation, including bail-in as per State aid rules

2015-2018

SRM & BRRD (enhanced burden-sharing could apply in line with minimum State aid rules in Banking Union, i.e. shareholders and junior creditors) – no bail-in of senior debt SRM & BRRD (including bailin)

Fund would start to build up and could borrow from third parties, recouping by way of ex post contributions from the banking sector

Enhanced burden-sharing (shareholders and junior creditors)

Subject to Member States’ decision, backstop and possible credit line to the Fund, and possible direct recap including bail-in as per State aid rules

Build-up of the Fund, continued To be revised ability to borrow from third parties and recoup by way of ex post contributions from the banking sector, complement to bail-in in resolution

Subject to Member States' decision, possible backstop

SRM & BRRD

Fully built-up

Subject to Member States' decision, possible backstop

2018-2025

2025 onwards

To be revised

Remaining Banking Union Timeline

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