sou · H7B352 · 2019-12-09 00:00:00 — However, the ECB has some supplementary responsibility re- garding macro-prudential tools harmonised at EU level; i.e. the macro-prudential requirements designed as capital requirements (and therefore not amortisation requirements, for instance). The Supervisory Board consists of a chair, a vice-chair, four other members from the ECB and members from each national supervi- sory authority of Member States participating in the banking union irrespective of whether or not they have the euro as their currency. The Single Supervisory Mechanism is designed to clearly separate monetary policy and supervision of banks. For that reason, the Su- pervisory Board has a significant degree of independence in the ECB. However, it is , as the high- est decision-making body in the ECB, that has the final say in super- visory matters. The Governing Council consists of the members of governors of the national central banks of the euro area Member States. The governors of cen- tral banks of Member States that do not have the euro as their cur- rency do not participate in the meetings of the . takes supervisory decisions through a pro- cedure that enables the to object to a draft deci- sion from . If the does not object, the decision is adopted. As yet, the has never made use of this possibility. So far, the has handled decisions in supervisory matters through a written procedure. Around 2 000 supervisory decisions have been taken each year. Only a few physical meetings have been held, mainly about thematic issues. The Single Resolution Mechanism (SRM) is the banking union’s structure for crisis management, more specifically ‘resolution’, of banks. The Single Resolution Mechanism consists of the Single Res- olution Board (SRB) and the national resolution authorities of par- ticipating Member States. also admin- isters a common fund for financing resolution measures, the (). is, together with national resolution authorities, to apply the single rulebook regarding crisis manage- ment (the Directive, BRRD), in par- ticular resolution of banks, in the banking union. The Single Reso- lution Board is to ensure the uniform enforcement of the rulebook but also apply national law. The main tasks of include preparing and adopting resolution plans, deciding minimum requirements for own funds and eligible liabilities, decid- ing on resolution and applying the ‘resolution tools’. prepares and makes decisions on resolution for the banks that come under the direct supervision the ECB (i.e. the significant banks) and for some smaller banks that have significant cross-border activities. The national resolution authori- ties have corresponding tasks for other banks (i.e. the less significant banks). But it is the national resolution authorities that carry out resolution for all banks. The day-to-day work of takes place in its Executive Session. This consists of a chair, a vice-chair and four board members who are all full-time employees of the Single Reso- lution Board. In addition, the national resolution authority(-ies) af- fected also take part. Its Plenary Session makes decisions on general strategic matters, the budget of and, in certain cases, the use of the . The Plenary Session consists of the members of the Executive Session plus the national resolution authorities of all participating Member States. A decision on the resolution of a bank requires an approval by the Commission and, in certain cases, the Council of Un- ion (the ). Under the EU’s regulatory framework for resolution the bank’s shareholders and creditors – not taxpayers – are responsible for providing financing if the bank is, for example, in need of more cap- ital. Like the Swedish Resolution Reserve, the purpose of the of the banking union is to cover temporary funding needs that may arise in more serious situations where this is not pos- sible or sufficient. The Single Resolution Fund consists of ‘ex-ante contributions’ from the banks of each participating , which correspond to the resolution fees that Swedish banks pay to the Resolution Reserve. In 2024 the Fund is to be fully developed and then also fully mutualised. The target level is expected to corre- spond to roughly (approx. By 2024 the will be supplemented by a backstop administered by Stability Mechanism (ESM). The backstop can be activated if the lacks enough fi- nancial means and is to correspond to the size of the Single Resolu- tion Fund. As regards the euro area Member States, the backstop is to be provided by the ESM in the form of a credit line to . Participating Member States that do not have the euro as their currency provide parallel credit lines to the Single Res- olution Board. The backstop can be used for the same purposes as the may be used for. Close cooperation and Swedish participation The banking union is compulsory for euro area Member States. However, Member States that do not have the euro as their currency may participate by establishing what is called ‘close cooperation’ with the ECB. When close cooperation is established, the participates in the banking union with, in principle, the same rights and obligations as the other participating Member States. A that enters into close cooperation has the same access to the and the backstop as the other Member States. When close cooperation begins, the must pay the a sum of the same size as if the had been a participating from the outset. It is possible for Member States participating through close co- operation to leave the banking union at any time after three years. This safeguard mechanism also includes possibilities of objecting to decisions or draft decisions in supervisory matters. If the close co- operation is ended, the has the right to recover the funds paid into the less any costs for reso- lution regarding a bank that has authorisation in the that is ending close cooperation. Prerequisites for participation of Participation of in the banking union does not require any transfer of competence to the EU since has already ratified the Treaties that include the competence to legislate and adopt deci- sions on supervision and resolution. Therefore, participation does not require any amendments to the Instrument of Government or the Accession Act. However, a new law would need to clarify the division of responsibilities between the EU bodies in the banking union and Swedish authorities. Background to and reasons for the banking union The of the banking union must be viewed against the background of the acute economic crisis in the euro area in 2010– 2012, often called the euro crisis, during which the banking system of the euro area Member States was of great importance. Capital flows in the EU internal market were only fully deregulated in the 1990s and then the euro was introduced in 1999; this was followed by the development of considerable imbalances in the euro area. Ul- timately the euro crisis came to be a question of confidence in the common currency. The banking union and other proposals for a deepening of the Economic and Monetary Union (EMU) were in- tended to re-establish and strengthen confidence in the common currency thereby preventing its break-up. The global financial crisis that preceded the euro crisis exposed deficiencies in bank supervision in many countries and made clear that there were no appropriate arrangements for managing banks in crisis. Until then, the state had in most cases (including in the early 1990s) taken over non-performing loans, injected capital and, in some cases, nationalised banks. After the financial crisis the EU took a number of measures to strengthen both regulatory frame- works and the forms for supervision and crisis management of banks. In addition, cooperation between supervisory authorities in- creased in the EU as well as globally. Questions concerning coordi- nation and harmonisation of, for instance, supervisory requirements in the EU had already been raised in the 1960s but had, thus far, often encountered political resistance. The banking union was also intended to safeguard and deepen the EU internal market for financial services. When rules are applied in a similar way by joint bodies in the banking union, this creates better conditions for competition on equal terms, a ‘level-playing field’ for banks. In the longer term the banking union can be expected to play a greater role for strengthening the internal market. Possibilities of participation on equivalent terms would participate in same terms as the national supervisory authorities of the participating Member States that have the euro as their currency. But account needs to be taken of the fact that the is the ECB’s high- est decision-making body in supervisory matters. Since has not introduced the euro, the Governor of the Riksbank is not a mem- ber of the and therefore has no vote. This means that is not able to participate in the Single Supervisory Mech- anism on the same terms as euro area Member States. There are factors that may offset the absence of equal terms to some extent. For instance, it is reasonable to believe the will invite representatives of Swedish authorities to partici- pate when the has physical meetings in supervi- sory matters. Members of the are not allowed to take account of special national considerations; they may not take any instructions from others, such as the government of their home coun- try. In addition, voting is by simple majority and a system of rotation of voting rights means that there are always four members from cen- tral banks of euro area Member States that do not have voting rights. It is not clear how the will be in supervisory matters in a long-term perspective. So far, they have never objected to a draft decision from . This does not guarantee that the will not object to proposals from . It is not possible to rule out cases where objections may be of importance for financial stability in . The safeguard mechanism enables to leave the banking union, as a last resort, after participating for three years. The very existence of the mechanism may have a restraining effect on any negative discrimination of Member States that do not have the euro as their currency; an exit of a from the banking union could be seen as a loss of credibility for the banking union as such. This does not mean that the political (and possibly also economic) costs for of leaving the banking union are negligible. In summary, there are factors that reduce the potential negative consequences of it not being possible for to participate on the same terms as euro area Member States. In this respect, prereq- uisites exist for to participate on equivalent terms. However, it is not possible to determine on objective grounds whether the countervailing factors, including the safeguard mechanism, are suffi- cient to enable to participate on equivalent terms. Ulti- , this should be a political judgment. Another important con- sideration is the confidence in the ECB’s view of its responsibility to consider the uniformity and integrity of the internal market in its supervisory role. Nonetheless, a decision needs to weigh in the risk of negative discrimination, and the consequences of this. It is that makes decisions in resolution matters regarding significant banks. National resolution authorities are represented in its Executive Session (extended format) when the decision relates to resolution of a bank or part of a banking group established in the . seeks an agreement by consensus on its decision. If this is not possible, the Single Resolu- tion Board can adopt a decision that goes against a National Resolu- tion Authority. This applies both to euro area Member States and to Member States that do not have the euro as their currency. The na- tional resolution authorities of Member States participate in the Ple- nary Session of . This means that the Debt Office would participate in decision-making in same terms as other national resolution authorities. Where required, for example in the case of withdrawals from the , the may approve or object to draft decisions. When these decisions are adopted, the ministers of fi- nance of all participating Member States can attend, receive infor- mation and, when needed, vote. Decisions are then adopted by sim- ple majority. As regards the use of the backstop, the euro area Mem- ber States and the Member States that do not have the euro as their currency have agreed to forms of cooperation on was is deemed to be on equivalent terms. Only euro area Member States can be mem- bers of the ESM, but the same terms apply to Member States without the euro as their currency concerning, for example, loan conditions, disbursements and access to information as apply to euro area Mem- ber States. EU legislation in the area of banking and financial services Irrespective of whether or not participates in the banking union, representatives of the Swedish Government will participate in negotiations on EU legislation in the area of banking and financial services (and banking union regulations) and in preparatory bodies. Even if can refer to its formal influence in negotiations about directives and regulations, it may be more difficult, in practice, for a that does not participate in the banking union to make its voice heard. There is, in general, a risk that Member States that choose to remain outside areas of cooperation in the EU be- come marginalised in negotiations. This is especially the case if a wishes to achieve an exemption from the rules. The Member States that currently participate in the banking union make up a qualified majority in the Council. This means that if they agree to adopt a decision, it is already very difficult, at present, for the other Member States to prevent the decision from being adopted. Discussions about the development of the banking union When it comes to strategic and general discussions about the devel- opment of the banking union, the euro group and the euro summit play an important role, even though they are not formal decision- making bodies. As a general rule, Member States that do not have the euro as their currency have participated in these meetings when the banking union has been discussed. In contrast, the possibility of achieving equivalent terms for participation in the euro group and the euro summits in discussions about the future of the banking un- ion is limited for a that does not have the euro as its currency, irrespective of participation in the banking union. In re- cent years issues related to the banking union have often been dis- cussed in Council instead of at the euro summit. To the extent that this practice continues, would have just as much formal influence irrespective of whether or not par- ticipates in the banking union. It is, however, difficult to foresee how the president of, respectively, Council and the euro summit (who have been the same person up to now) will plan the agenda of these two forms of meetings in the future. Supervisory approach and day-to-day supervision The supervisory approach and the methods used by Finans- inspektionen and the ECB are the same in all essential respects even though there are certain differences. The ECB is uniquely placed to assemble the resources needed to understand and examine large banks with complex business models. In addition to having access to more resources, the ECB also has access to the experience and knowledge held by national supervisory authorities. This can facili- tate the development of new methods or systems for comparisons of banks. From that perspective, participation in the banking union provides both greater possibilities of developing skills and greater understanding of stability risks in the banking union banking systems that may be of importance for financial stability in as well as stability risks in the Swedish banking system. Access to large, common resources can also provide better con- ditions for identifying and handling risks that arise as a result of new vulnerabilities (e.g. cybersecurity threats or climate-related risks). At the same time, national supervision of these risks may enable more flexible ways of working and more efficient cooperation with other relevant authorities (e.g. law enforcement authorities). In some respects, Swedish participation in the banking union would result in more intrusive supervision of Swedish banks. There is, at the same time, a risk, at least in the short term, that supervision in the banking union will become too uniform as a result of the Su- pervisory Board’s efforts to ensure consistent supervision and re- move options and national discretions. There is also a risk of opera- tional inefficiencies in an organisation as large as the ECB. Further- more, one disadvantage of participation in the banking union is that micro-prudential supervision of significant Swedish banks will be sep- arated from the other financial supervision that is responsible for. There are, for instance, synergies between micro-pru- dential supervision and macro-prudential supervision, between stabil- ity-centred micro-prudential supervision and consumer supervision and between bank supervision and supervision of other parts of the financial sector (e.g. securities market supervision and insurance su- pervision). How serious the consequences of this separation will de- pend on ’s access to information and the possibil- ity to share that information with other departments. The fact that the Joint Supervisory Teams are led by senior staff members (from the ECB) who come from Member States other than those where the banks are established may bring different per- spectives on risks in national banking systems. One potential initial challenge when supervision is performed by staff members who are not as familiar with specific risks in banking systems is that supervisory decisions may be based on incomplete information. However, the Supervisory Teams, which would include personnel from , are expected to acquire the necessary knowledge of Swedish banks. The ECB is not responsible for ensuring that banks comply with the EU’s regulatory framework on money laundering. For that reason, participation in the banking union is deemed to not to have any direct consequences for the money laundering supervision carried out by . The ECB does however consider, in its day-to-day supervision, risks that may have links to money laun- dering. Participation in the banking union thus means that the supervision of significant Swedish banks over time also will include these risks. It is not likely that the ECB will be given explicit authority to conduct money laundering supervision in the EU in the future. Capital and liquidity requirements The application of capital requirements by and by the ECB is based on the same regulatory framework. The methods for assessing banks’ overall risk levels are similar and follow detailed guidelines from the . There are certain differences in the application of the bank-specific capital requirements, ‘pillar 2 req- uirements’. These differences are not considered so significant that Swedish participation in the banking union would entail material changes in total capital requirements for banks headquartered in . It is, moreover, likely that the possibilities of applying national requirements will decrease over time since capital adequacy regulation is increasingly being harmonised. Another difference is that , unlike the ECB, publishes banks’ capital requirements, which increases predictability. and the ECB use the same guidelines for calcu- lating banks’ needs of liquidity coverage. In this respect, participation in the banking union is probably not of decisive importance. At present has a separate liquidity requirement in Swedish kronor as well as separate liquidity requirements in euros and US dol- lars. The ECB has not published any corresponding requirements, so it is difficult to assess how the ECB’s stance on such requirements. If participates in the banking union, would continue to be responsible for macro-prudential supervision. However, the ECB would have a supplementary responsibility for har- monised macro-prudential tools; i.e. requirements designed as capital requirements (and therefore not amortisation requirements, for in- stance). The ECB cannot stop the use of macro-prudential tools. The starting point is, however, that changes in the harmonised tools have to be made in joint agreement between the ECB and the national macroprudential supervisory authority. Moreover, the ECB has the authority to apply higher macroprudential requirements and thereby reduce the risk that individual Member States do not take sufficient action against systemic risks. In the event of Swedish participation in the banking union, the ECB’s influence would probably be significant. If the ECB were to oppose ’s assessment, it would be difficult to implement the change in practice. In other words, there is a risk that banking union participation would restrict the discretion in the application of macro-prudential tools to some extent. applies higher buffer requirements than participating Member States, which currently reduces the importance of the ECB’s authority to set higher requirements. Finally, it is not certain how the ECB will be in the design of macro-prudential requirements; no formal decisions about the application of macro-prudential requirements have been made as yet. has been operational since 2015 and has handled few banks in crisis, one of which has been placed in resolution. Against that background, it is uncertain to what extent the conditions for efficient resolution of Swedish banks would change in the event of participation compared with remaining out- side. As is the case with the Single Supervisory Mechanism, the size and scope of the Single Resolution Mechanism is likely to entail bet- ter possibilities for development of skills. For this means, not least, an advantage (over time) in the form of more practical experience of resolution cases than a national author- ity can get. Recovery and Resolution Directive is common to the whole of the EU and therefore also applies in the banking union. This means that the fundamental conditions for efficient resolution of banks are similar in and in the banking union. As in the area of supervision, the regulatory framework for resolution is mov- ing in the direction of greater harmonisation. All the indications are thus that the differences in regulatory application between the Debt Office and will decrease over time. Irrespective of whether participates in the banking union or remains outside, there are other EU rules that restrict national discretion as regards crisis management, not least the State aid rules. Assessment of which banks will be resolved It is a starting point of both the Debt Office and that only systemically important banks are placed in resolution. In that respect Swedish participation is not likely to affect which Swedish banks will be put in resolution or wound up through bankruptcy or liquidation. There ought to be good of consensus between the Debt Office and about whether the condi- tions for resolution have been met. should there be a clear risk of conflicting objectives regarding, on the one hand, financial stability in and, on the other, what benefits stability in the banking union or the internal market. It is, as yet, uncertain how weighs financial stability in individual Member States against financial stability in the banking union as a whole. Representatives of Swedish authorities will be involved in producing draft decisions of if a Swedish bank is to be declared to have failed or is close to failing and will be present when decisions relating to resolution of a Swedish bank are discussed and adopted. Moreover, the Commission has to approve the assessment of whether resolution is in the public interest. Inter-authority cooperation and decision-making