COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the Proposals for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND COUNCIL amending Directive 2014/59/EU as regards early intervention measures, conditions for resolution and financing of resolution action REGULATION OF THE EUROPEAN PARLIAMENT AND COUNCIL amending Regulation (EU) 806/2014 as regards early intervention measures, conditions for resolution and financing of resolution action DIRECTIVE OF THE EUROPEAN PARLIAMENT AND COUNCIL amending Directive 2014/49/EU as regards the scope of deposit protection, use of deposit guarantee schemes funds, cross-border cooperation, and transparency
Date: 2023-04-18
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: aid for restructuring, bank deposit, company in difficulties, credit guarantee, economic stabilisation, financial control, financial institution, financial intervention, financial legislation, financial solvency

EN 

  EN 

   EUROPEAN COMMISSION  Strasbourg, 18.4.2023  SWD(2023) 226 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT  Accompanying the  Proposals for a  DIRECTIVE OF THE EUROPEAN PARLIAMENT AND COUNCIL                   amending Directive 2014/59/EU as regards early intervention measures, conditions for resolution and financing of resolution action                                      REGULATION OF THE EUROPEAN PARLIAMENT AND COUNCIL                   amending Regulation (EU) 806/2014 as regards early intervention measures, conditions for resolution and financing of resolution action                                      DIRECTIVE OF THE EUROPEAN PARLIAMENT AND COUNCIL                   amending Directive 2014/49/EU as regards the scope of deposit protection, use of deposit guarantee schemes funds, cross-border cooperation, and transparency                   {COM(2023) 226-228 final} - {SWD(2023) 225 final} - {SEC(2023) 230 final}  
 
 
Executive Summary Sheet 

Impact  assessment  on  the  review  of  the  bank  crisis  management  and  deposit  insurance  (CMDI) 
framework  (Bank  Recovery  and  Resolution  Directive  (BRRD),  Single  Resolution  Mechanism 
Regulation (SRMR), Deposit Guarantee Scheme Directive (DGSD)) 

Why? What is the problem being addressed?  

A. Need for action 

The crisis management and deposit insurance (CMDI) framework was designed to avert and manage the failure 
of  credit  institutions  of  any  size  or  business  model.  Its  objectives  are  to  maintain  financial  stability,  protect 
depositors, minimise the use of public support, limit moral hazard and ensure a level playing field in the single 
market,  while  avoiding  value  destruction.  Overall,  the  evaluation  concluded  that  the  CMDI  framework  is 
functioning effectively for some objectives (protecting financial stability), but underperforming for other objectives 
(protecting taxpayers' money and depositors, and ensuring a level playing field in the single market). Therefore, 
improvements are needed, in particular to the following issues:  

- 

- 

Legal  certainty  and  predictability  in  managing  bank  failures  remain  wanting.  For  example,  public 
authorities' decision on whether to resort to resolution or insolvency tools can differ considerably across 
EU Member States. 
Industry financed safety nets remain ineffective and divergent access conditions to funding in resolution 
and outside resolution  persist, impacting  incentives and creating arbitrage  opportunities  when deciding 
on the crisis management tool to use in order to better protect deposits. 

-  Depositor  protection  remains  uneven  and  inconsistent  across  EU  Member  States  and  Deposit 
Guarantee Scheme (DGS) funding may prove to be insufficiently robust, in particular in the absence of a 
European Deposit Insurance Scheme (EDIS).  

What is this initiative expected to achieve?  

Taking  into  account  these  issues,  the  CMDI  review  aims  to  better  meet  all  the  fundamental  objectives  of  the 
framework by:  

preserving financial stability and the continuity of banks’ critical functions for society;  
protecting depositors and ensuring consumer confidence; 
safeguarding the functioning of the single market and ensuring a level playing field across the EU; 

- 
- 
- 
-  minimising recourse to taxpayers' money and ensuring market discipline. 

What is the value added of action at the EU level?  

The  review  will  amend  EU  legislation  (the  BRRD,  the  SRMR  and  the  DGSD).  The  proposed  amendments  are 
justified at EU level because of the strong links between national financial sectors and the risk of contagion and 
spillovers;  the  cross-border  nature  of  many  financial  institutions’  business;  and  the  systemic  impact  that  the 
failure  of  any  bank  may  have  on  financial  stability  (even  small  and  medium-sized  banks).  Only  EU  action  can 
provide  national  and  European  resolution  authorities  with  the  appropriate  tools  and  powers  to  manage  failing 
banks of all sizes and business models in an orderly manner. EU action can be taken through the harmonised 
resolution  framework  when  national  insolvency  proceedings  are  deemed  inappropriate  to  protect  depositors, 
taxpayers'  money  and  financial  stability.  EU  action  can  also  ensure  a  level  playing  field,  an  improved  single 
market for banking services and equal treatment for all depositors and banks across the EU. At the same time, 
EU  action  does  not  impose  a  certain  strategy  to  be  chosen  for  failing  banks,  rather  it  provides  national  and 
European authorities with a consistent framework to make the appropriate and proportionate decisions on case-
by-case basis.  

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why?  

Given  the  strong  links  between  the  crisis  management  toolbox  and  its  funding,  the  impact  assessment 
considered packages of policy options. These packages of policy options bundle together the CMDI framework’s 
relevant design features to ensure a comprehensive and consistent approach. Some changes proposed on early 
intervention measures, the triggers to determine a bank failing or likely to fail, and the harmonisation of certain 
features of the DGSD, are common features across the option packages that were considered.  

1 

 
 
The  different  packages  of  policy  options  are  mainly  focused  on  analysing  the  possibilities  to  broaden  credibly 
and  effectively  the  scope  of  resolution,  in  function  of  the  level  of  ambition  in  making  the  funding  in  resolution 
more accessible. In particular, the policy options consider easing the use of DGS funds in resolution, including to 
serve as a ‘bridge’ under the least cost test safeguard, to improve the  proportionality in accessing the national 
resolution funds / Single Resolution Fund (RF/SRF) for banks, in particular smaller and medium-sized banks that 
are  being  subject  to  transfer  strategies  with  market  exit.  They  also  explore  the  possibility  of  using  DGS  funds 
more effectively and efficiently under a harmonised least cost test for measures other than the payout of covered 
deposits in insolvency. This approach seeks to improve the compatibility of incentives for resolution authorities 
when selecting the most appropriate tool to manage a crisis. Unlocking DGS funds for measures other than the 
payout of covered deposits depends on the DGS ranking in the hierarchy of claims. Therefore, the policy options 
also explore different scenarios for the harmonisation of depositor preference in the hierarchy of claims.  

The  policy  options  deliver  outcomes  ranging  from  slightly  improved  resolution  funding,  and  a  commensurate 
resolution scope (Option 2) to more ambitious improvements in the funding equation, opening the possibility for 
a more substantial broadening of the resolution scope to include more smaller and medium-sized banks (Option 
3)  relative  to  Options  1  (baseline)  and  2.  Option  4  consists  of  an  ambitious  reform  of  the  CMDI  framework, 
including  EDIS (an  intermediate, hybrid  EDIS model,  different from the 2015 Commission proposal). While the 
Eurogroup  have  yet  to  reach  a  consensus  on  the  way  forward  on  EDIS,  most  EU  Member  States  and  the 
European  Parliament  acknowledge  the  work  carried  out  at  technical  level  and  the  importance  of  establishing 
EDIS for the robustness of the framework and  the completion  of the Banking Union. It is  therefore  included in 
this option for technical completeness and consistency  of the policy design, although  it has been assessed as 
politically unfeasible at this stage.  

The  ambitious  yet  realistic  improvements  to  the  CMDI  framework  under  Option  3,  in  particular,  its  funding 
equation coupled  with  a commensurate resolution scope  and aligned incentives for deciding on the best crisis 
tool for smaller and medium-sized banks, make this the preferred option (in the absence of political agreement 
on EDIS).  

Who supports which option?  

Most EU Member States support the principle of broadening the resolution scope to certain smaller and medium-
sized banks when resolution would best achieve the objectives of the framework, by clarifying the public interest 
assessment, provided credible access to funding in resolution for these types of banks is ensured. They favour 
integrating more proportionality in the rules to access funding with the help of the DGS under a harmonised least 
cost test and preserving the minimum bail-in access condition to resolution funding.  

Overall,  depositors  and  consumers  support  a  framework  placing  more  banks  in  resolution  and  benefiting  from 
industry-funded safety nets, which would reduce the risk of losses being imposed on deposits, while mitigating 
the recourse to taxpayers' money.  

Banks, in general, see merit in clarifying the CMDI framework; however they also expressed concerns. On one 
hand, some smaller banks are concerned about potential costs that an expanded resolution scope, coupled with 
possible  (proportionate)  MREL  requirements  and  a  broader  use  of  industry-funded  safety  nets  may  entail.  On 
the other hand, larger banks support a broader application of resolution and underline the need to build MREL 
buffers. However, they are critical of the prospect of using the safety nets, especially for resolving  smaller and 
medium-sized banks.  

Most EU Member States are in favour of EDIS and regret the missed opportunity to exploit the synergies with the 
CMDI  framework  in  this  review.  Overall,  the  industry  also  favours  an  EDIS,  in  particular  for  the  potential  cost 
efficiencies that could lead to lower contributions to safety nets.  

What are the benefits of the preferred option (if any, otherwise main ones)?  

C. Impacts of the preferred option 

Each of the three packages of policy options aims to create an incentive-based framework by encouraging the 
application of resolution tools in a more consistent manner, increasing legal certainty and predictability, levelling 
the  playing  field,  facilitating  access  to  common  safety  nets,  while  maintaining  some  alternatives  outside 
resolution  under  national  insolvency  procedures.  However,  by  design,  the  packages  of  options  achieve  these 
objectives to a different extent and their political feasibility differs. 

2 

 
 
What are the costs of the preferred option (if any, otherwise main ones)?  

The different elements of the three policy options would result in different levels of costs and distribution of costs. 

Banks  earmarked  for  resolution  would  continue  to  comply  with  the  requirement  to  ensure  adequate  levels  of 
internal  loss  absorbing  capacity  and  become  more  resolvable. Whether  the  expansion  of  the  resolution  scope 
would  translate  into  higher  costs  for  banks  that  would  transition  from  being  considered  for  liquidation  to  being 
earmarked for resolution is a case-by-case assessment. A mitigating factor for the public and society as a whole 
would be the preservation  of asset value (due to the  facilitation of transfer strategies with orderly market exit), 
reduced  recourse  to  taxpayer  money  and  avoiding  the  bail-in  of  depositors  by  a  more  extensive  use  of  DGS 
under  the  least  cost-test  safeguard.  However,  using  the  DGS  funds  and  the  RF/SRF  may  also  trigger 
replenishment needs through ex post contributions from the industry, which, in the absence of EDIS, would not 
be compensated by any discounts in banks’ contributions to the safety nets.  

For  consumers  and  depositors  (including  small  and  medium-sized  enterprises  (SMEs))  the  costs  should  be 
limited  and  clearly  outweighed  by  the  benefits.  In  particular,  through  increased  depositor  protection,  financial 
stability,  better  preservation  of  value  through  safeguarding  banking  critical  functions  and  reduced  use  of 
taxpayers' money.  

How will businesses, SMEs and micro-enterprises be affected?  

Given banks’ central role in providing funding and financial services to consumers and SMEs, improved stability 
of  the  banking  sector  through  the  CMDI  reform  should  benefit  these  groups,  both  as  regards  their  access  to 
financing as well as their protection as depositors. 

Will there be significant impacts on national budgets and administrations?  

An objective of the CMDI reform is to further reduce recourse to taxpayers' money when handling the failure of 
banks.  On  one  hand,  the  administrative  burden  might  increase  somewhat  for  administrations  (resolution 
authorities i.e., preparation of more resolution plans and issuing of more administrative decisions). On the other 
hand, administrations would benefit from more legal certainty and  predictability  of outcomes when carrying out 
resolution actions or in the application of the appropriate crisis management tools outside resolution.  

Will there be other significant impacts?  

No. 

When will the policy be reviewed?  

D. Follow up 

The legislation will undergo a full evaluation five years after its implementation deadline to assess how effective 
and  efficient  it  has  been  in  terms  of  achieving  the  objectives  presented  in  this  report,  and  to  decide  if  new 
measures or amendments are needed.  

3