Sven Giegold

Banking Regulation: Rollback for Financial Market Stability and Consumer Protection

Today, the European Parliament’s Economic and Monetary Affairs Committee approved the agreement with Council and Commission on two new banking regulation files. Under the fast track procedure, the Commission had proposed transitional provisions for the accountingv standard IFRS 9 which will enter into force in January 2018. The final text provides for a phase-in of the new accounting rules for financial instruments over a period of five years, responding to concerns of the financial sector about a sudden increase in credit loss provisions for bad loans. In addition, an amendment to the Bank Recovery and Resolution Directive (BRRD) introduces a European framework for the introduction of a new class of liabilities which cover losses in a bank resolution. Financial institutions see the non-preferred senior debt instruments as an opportunity to meet their minimum capital and eligible liabilities (MREL) requirements on favourable terms.

Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group, commented:

“Ten years after the outbreak of the financial crisis, the EU is again giving generous gifts to European banks. The financial industry has successfully lobbied first the Council and then the Parliament to weaken the introduction of the new accounting standard for financial instruments. IFRS 9 requires banks to book provisions for bad loans more timely, but the EU is postponing full application of this sensible rule in general until 2023. There is European consensus that bad loans in bank balance sheets are weakening the recovery of the European economy, but when concrete measures need to be taken, policymakers are shirking. Instead of cleaning up the balance sheets of the European banking sector, politicians are keeping zombie banks alive. Like the ECB and EBA, we Greens had proposed a short transition period mitigating only a sudden fall in equity due to IFRS 9. But the majority of the European Parliament has done the financial lobby a favor worth billions. The new accounting standard IFRS 9 has been known for a long time, new general transitional provisions are thus redundant.

On banking resolution: The new class of debt instruments will improve the resolution of banks without state aid. Unfortunately, we Greens have not succeeded in strengthening consumer protection to the same extent. Against our proposal, the new debt instruments liable for losses in resolution will not automatically be classified as complex products. They can thus be sold without advice and without an appropriateness and suitability assessment. This is bad for consumer protection because, contrary to their name, the new senior bonds are liable for losses in the event of a resolution just as junior bonds are. In addition, the new debt instruments may pose a loophole in future bank bailouts. In order to prevent banks from undermining the principle of liability, the new debt instruments must also be liable in the event of precautionary recapitalisation. The Commission’s Banking Communication needs to be amended accordingly.“

Provisional interinstitutional agreement on IFRS 9:

Provisional interinstitutional agreement to introduce non-preferred senior debt instruments:

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