Lecture 6

Question 1

Pillars of the baking union

Answer 1

1st pillar
Single supervisory mechanism (SSM)
Together with the national competent authorities

Joint supervisory team ,eu central bank -Recovery

2nd pillar
Single resolution mechanism (SRM)

Together with national resolution authorities (NRA)

International resolution team, single resolution board -Resolution

3rd pillar
European deposit scheme (EDIS)
Under construction

Question 2

European banking union

Answer 2

SSM- European Central Bank as the central prudential supervisor of financial institutions in the euro
ECB supervises largest banks
National supervisor do the rest

Main task is to check banks comply with eu rules and tackle problems early on

SRM - purpose to insure orderly resolution of failing banks with minimal costs for tax payers and to deal economy

• single resolution board manage bank resolution
• single resolution fund approx 55bn

European deposit scheme - harmonised deposit scheme <= 100,000 euro

Single rule book
Foundation if banking union

Three main legislations :
Capital requirements
Bank recovery and resolution directive
Deposit guarantee scheme directive

Objectives :
A resilient European banking sector
A more transparent European banking sector
A more efficient European banking sector

Question 3

Recovery plan

Answer 3

The requirement for financial institutions to draw up and maintain recovery plans

The measures to be taken up as part of the recovery process need to be developed and prepared in these recovery plans upfront

Question 4

Resolution

Answer 4

Banks can fail in an orderly manner, the expectation is that there will be better alignment between risk taking and losses, and banks and regulators will be able to prevent systematic crises

Tools

Sale of business tool -total or partial disposal of the entities business

Bridge institution tool - part or all of the entity is transferred to a temporary entity which is totally or partially owned

Asset separation tool - assets

Bail in tool