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European Financial Services Round Table
Publication/Research Document

EFR Response to the European Commission consultation on crisis management
Preliminary remarks

EFR banking members welcome the European Commission's consultation on the recovery and resolution of banks. The EFR response addresses the main issues from the perspective of an EU cross border banking group.

Strong corporate governance and risk management, enhanced supervision and appropriately calibrated prudential requirements are key elements to prevent crises. In addition, deposit guarantee schemes complete the safety net for financial stability by reassuring depositors that their deposits are safe, thereby reducing the risk of a bank run. Ongoing bank-initiated and
regulatory reforms in these areas significantly reduce the risk and scope of banking crises.

Accordingly, these reforms should be taken into account when designing and calibrating the new crisis management framework.
Any such framework should prioritise private sector solutions -i.e. the sale to or merger with a private sector entity of the whole or part of the assets and liabilities. Furthermore, contractually agreed contingent capital arrangements should be possible on a voluntary basis. The same holds true for agreements with bondholders (subordinated and senior), e.g. on voluntary haircuts.
If crisis prevention fails and no private sector solution is possible, an effective crisis management framework is needed to stimulate recovery or allow an orderly resolution of banks, with the aim of
preventing spill-overs to other institutions, ensuring financial stability, and the avoidance of moral hazard and the use of tax payer funds. The crisis management framework should have the following key characteristics: a) to prevent contagion; b) to safeguard against adverse macro economic consequences; c) to stimulate EU market integration; d) to ensure legal certainty; and e) to offer efficient and rapid procedures.

Crisis management should be neutral as regards banking business models

Regulation, including the crisis management framework, should be neutral as regards the banking business model. Two stylised models of cross border banking exist, with a whole range of intermediate forms sharing features of both.