COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITEE AND THE COMMITTEE OF THE REGIONS on the review of the crisis management and deposit insurance framework contributing to completing the Banking Union
Date: 2023-04-18
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU banking union, bank deposit, banking policy, banking supervision, banking system, crisis management, financial institution, financial solvency, financial stability

EN 

  EN 

   EUROPEAN COMMISSION  Strasbourg, 18.4.2023  COM(2023) 225 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITEE AND THE COMMITTEE OF THE REGIONS  on the review of the crisis management and deposit insurance framework contributing to completing the Banking Union   
 
 
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE 
EUROPEAN ECONOMIC AND SOCIAL COMMITEE AND THE COMMITTEE OF 
THE REGIONS  

on the review of the crisis management and deposit insurance framework contributing 
to completing the Banking Union 

Introduction  

The creation of the Banking Union in 2014 was a powerful response to the global financial 
crisis and the ensuing euro-area sovereign debt crisis. By reforming the EU supervisory and 
resolution architecture for banks, the Banking Union  has  reinforced stability in  the banking 
sector allowing it to support businesses and households even through the recent Covid crisis.  
The Banking Union also plays a key role in financing growth and investments, improving the 
EU’s competitiveness1 and reinforcing the Economic and Monetary Union, helping the EU to 
face  major  structural  challenges,  such  as  the  green  and  digital  transitions,  as  well  as  those 
challenges brought about by Russia’s illegal and unjustified aggression against Ukraine.  

Two pillars of the Banking Union - the Single Supervisory Mechanism (SSM) and the Single 
Resolution Mechanism (SRM) - are now fully operational. The Commission has published its 
second  report  on  the  functioning  of  the  Single  Supervisory  Mechanism2,  together  with  this 
Communication. The report finds that the SSM is functioning well overall and has matured as 
a supervisory authority delivering on the objectives set out when it was created.  The Single 
Resolution Mechanism is also well-established. The Single Resolution Board, together with 
the national  resolution  authorities, have developed resolution  plans for the major EU banks 
and  the  Single  Resolution  Fund  is  in  place  to  support  resolution  should  this  become 
necessary. A backstop to the Single Resolution Fund to be provided by the European Stability 
Mechanism  has  been  politically  agreed.  The  SSM  and  the  SRM,  together  with  reinforced 
rules  on  banking  supervision  and  resolution,  have  ensured  that  the  EU  banking  sector  has 
greatly  increased  its  resilience  to  shocks  and  overall,  is  in  good  shape.  The  third  pillar  -  a 
common deposit protection scheme - is also key in reinforcing the resilience of the banking 
sector, but political agreement among the EU co-legislators has not yet been achieved. 

Work to  complete the  Banking Union  continues. The December 2020 Euro Summit invited 
the Eurogroup to prepare ‘a stepwise and time-bound workplan on all outstanding elements 
needed  to  complete  the  Banking  Union’3.  Subsequent  discussions  in  the Eurogroup  did  not 
deliver on such  a workplan, but it was agreed4 that the  common framework for bank  crisis 

1 European Commission (2023), Long-term competitiveness of the EU: looking beyond 2030. 
2  Article  32  of  Council  Regulation  (EU)  No  1024/2013  of  15  October  2013  conferring  specific  tasks  on  the 
European  Central  Bank  concerning  policies  relating  to  the  prudential  supervision  of  credit  institutions  (SSM 
Regulation). 
3 European Council (December 2020), Euro Summit meeting Statement.  
4 Eurogroup (June 2022), Eurogroup statement on the future of the Banking Union. 

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management  and  deposit  insurance  (CMDI)5  should  be  strengthened  as  a  next  step6.  The 
proposal  to  reform  the  CDMI  framework,  adopted  by  the  Commission  today,  begins  that 
process. The Eurogroup also committed to review the state of the Banking Union in the next 
legislative cycle and to identify in a consensual manner possible further measures to complete 
it.  This  commitment  was  restated  by  the  Euro  Summit  on  24  March  20237.  In  parallel,  the 
European  Parliament,  in  its  latest  annual  report  on  the  Banking  Union8,  recalled  the 
importance of completing the  Banking  Union, with the establishment of  a  common deposit 
protection scheme, as its third pillar. 

The Commission proposes to reform the CMDI framework via legislative amendments to the 
Bank recovery and resolution directive, the Single resolution mechanism regulation and the 
Deposit  guarantee  scheme  directive.  The  objective  of  the  reform  is  to  enhance  the  existing 
arrangements for managing failing banks in the EU. In particular, it is proposed to make the 
arrangements for managing the failure of smaller and medium-sized banks more effective in 
terms  of  their  design  and  implementation.  While  the  reform  of  the  CMDI  framework  has 
been under discussion for several years and pre-dates the very recent U.S. and Swiss banking 
crises, these crises underline the importance of ensuring that EU arrangements for managing 
bank failures are as robust and effective as possible. 

The proposed reform of the crisis management and deposit insurance (CMDI) 
framework 

The  key  objectives  of  the  CMDI  framework  are  to  preserve  financial  stability,  depositor 
confidence and protect taxpayers in the context of bank failures9. To meet these objectives, 
the  framework  must  ensure  that  any  losses  related  to  a  bank  failure  can  be  met  while 
minimising the risk of recourse to public funding. Since the global financial crisis, EU banks 
have accumulated a substantial capacity to absorb losses in the event of crises via increased 
holdings  of  capital  and  other  loss-absorbing  liabilities.  In  addition,  industry-funded  safety 
nets  such  as  the  Single  Resolution  Fund  in  the  Banking  Union,  national  resolution  funds 
outside  of  the  Banking  Union  and  national  deposit  guarantee  funds  are  now  available  to 
absorb  losses.  However,  experience  with  implementing  the  CMDI  framework  has  revealed 
difficulties in managing the failure of smaller/medium-sized banks, in particular, where there 
is an implied allocation of losses to depositors, which could affect depositors’ confidence and 
financial  stability.  The  result  has  been  a  reluctance  to  implement  the  CMDI  framework  as 
intended and often a recourse to public funding in managing failures in the banks concerned. 

5 Achieving a stronger framework for the management of failing banks in the EU was one of four workstreams 
that  was  discussed  as  part  of  a  potential  Banking  Union  completion  workplan,  in  addition  to  a  more  robust 
common  protection  for  depositors,  a  more  integrated  single  market  for  banking  services  and  increased 
diversification of banks’ sovereign bond  holdings in the  EU. The Eurogroup also committed to reviewing the 
progress  made  on  strengthening  the  Banking  Union  and  resuming  discussions  on  the  other  workstreams 
following the adoption of the CMDI legislative reform. 
6  In  addition  to  updating  the  Basel  single  rule  book  (the  Capital  Requirements  Regulation  and  Directive  - 
CRR/CRD). 
7 European Council (24 March 2023),  Statement of the Euro Summit, meeting in inclusive format. In its Euro 
Summit meeting statement of 24 March 2023, the European Council called for continued efforts to complete the 
Banking Union in line with the Eurogroup statement of 16 June 2022.  
8 European Parliament (July 2022,), Report on the Banking Union – annual report 2021 (2021/2184(INI)). 
9 The Commission stands ready to provide support to Member States through the Technical Support Instrument 
(COM(2020) 409 final) in further enhancing their crisis management preparedness and operationalisation. 

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Under  the  current  CMDI  framework,  rules  for  accessing  funding  differ  across  the  various 
crisis management tools. This makes the use of these tools less homogenous across Member 
States  and  often  less  effective  by  constraining  access  to  industry-based  funding  without 
imposing  losses  on  depositors.  This  feature  of  the  existing  framework  is  compounded  by  a 
broad discretion of resolution authorities in determining whether the public interest requires 
that  a  bank  failure  should  be  managed  under  EU  harmonised  resolution  rules  or  liquidated 
under  national  insolvency  proceedings.  As  a  result,  there  is  a  risk  of  market  fragmentation 
and suboptimal outcomes in managing bank failures, particularly in respect of the smaller and 
medium-sized banks that may be ‘too big to liquidate’ under national insolvency regimes.  

The  reform  now  proposed  by  the  Commission  seeks  to  address  these  limitations  in  the 
existing CMDI framework. Based on extensive consultation and preparation10, the proposed 
reform  of  the  framework  covers  a  range  of  key  policy  aspects  and  constitutes  a  coherent 
response to the identified problems. The main elements of the proposed reform are: 

- 

- 

- 

A clarification of the public interest assessment in managing bank crises to ensure 
that a full range of crisis management tools, such as  transfer tools11, can also be 
applied  to  failing  smaller  and  medium-sized  banks,  if  this  can  more  effectively 
achieve the objectives of safeguarding financial stability, depositor confidence and 
protecting taxpayers’ money. 

Facilitating the use of deposit guarantee scheme (DGS) funds in the financing of 
crisis management tools as an alternative to the basic pay-out function. Such use 
of the DGS would be enabled by amending the hierarchy of claims in insolvency 
but  must  only  be  a  complement  to  the  banks’  internal  loss  absorption  capacity, 
which  remains  the  first  line  of  defence.  Alternative  use  of  deposit  guarantee 
scheme  funds  in  funding  crisis  management  tools  must  also  be  subject  to  a 
harmonised least cost test.   

Use  of  deposit  guarantee  scheme  funds,  when  applied  to  smaller/medium  sized 
banks  in  resolution,  including  to  access  the  Single  Resolution  Fund,  should  be 
possible  only  (a) when  the  resolution  authority(ies)  deem(s)  it  necessary  to 
safeguard financial stability and protect taxpayers while facilitating the exit from 
the market;  (b) when it  avoids imposing losses  on depositors,  and (c)  when it is 
subject to adequate conditions and safeguards, notably in the case of accessing the 
Single  Resolution  Fund  where  the  bank  concerned  must  have  been  previously 
planned to be resolved. 

These  elements  of  the  proposed  reform  are  highly  inter-linked  and  must  be  considered 
holistically  if  the  reform  is  to  achieve  the  desired  objectives.  The  proposed  reform  also 
includes  other  elements,  which  are  intended  to  make  the  framework  more  predictable  and 
efficient  (e.g.  removing  overlaps  between  early  intervention  and  supervisory  measures, 
facilitating an earlier triggering of resolution) and improve depositor protection (e.g. targeted 
improvements  of  provisions  in  the  Deposit  guarantee  schemes  directive  on  the  scope  of 

10 The proposal drew on a broad range of information sources, detailed in the accompanying impact assessment.  
11 Transfer tools include the sale of the failing bank or parts of it to a viable buyer, the transfer to a bridge bank 
or the use of the asset management vehicle.  

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protection and cross-border cooperation, harmonisation of national options, improvement of 
transparency on financial robustness of DGSs). 

By improving the interaction with national insolvency proceedings, the proposed reform aims 
to make the CMDI framework function even more effectively for all EU banks, irrespective 
of their size, business model and liability structure. In the absence of this reform, there is a 
risk that failing small/medium-sized banks will continue to be managed outside of the CMDI 
framework, under heterogeneous national regimes, often resulting in unnecessarily costly and 
disruptive  insolvencies  that  involve  public  funds.  Such  outcomes  distort  the  level  playing 
field  in  the  single  market,  reduce  the  efficiency  of  crisis  management  and  can  result  in 
unnecessary costs for taxpayers.  

The role of a common deposit insurance scheme in the crisis management and deposit 
insurance (CMDI) framework 

The impact assessment, which accompanies the legislative package adopted today, shows that 
the proposed reform of the CMDI framework would be even more effective if combined with 
a common deposit insurance scheme. Such a scheme would expand the safety net available to 
protect  depositors  by  reducing  the  vulnerability  of  national  deposit  guarantee  funds  to  very 
large local shocks. It would ensure a level playing field across the Banking Union and avoid 
market  fragmentation  due  to  divergences  between  national  deposit  guarantee  schemes.  The 
pooling  of  deposit  guarantee  scheme  funds  would  also  create  efficiency  gains,  making  it 
possible  to  reduce  the  target  level  for  all  contributing  deposit  guarantee  schemes,  reducing 
costs for banks while preserving the same level of protection for depositors12. It would also 
enhance  the  consistency  of  the  decision-making  process  with  a  strengthened  central 
governance  within  the  Banking  Union.  Clearly,  a  common  deposit  insurance  scheme  is  an 
essential complement to the CMDI framework.  

The Commission proposal for a European deposit insurance scheme (EDIS) was adopted in 
201513 and envisages the establishment of a fully-fledged EDIS in three consecutive stages: a 
reinsurance scheme for  participating national  deposit  guarantee schemes  in  a first  period of 
three years, a co-insurance scheme for participating national deposit guarantee schemes in a 
second  period  of  four  years,  and  full  insurance  for  participating  national  deposit  guarantee 
schemes beyond these periods, i.e.  the final and definitive design of EDIS. In all three stages, 
EDIS  would  cover  ultimate  losses  incurred  by  the  participating  national  deposit  guarantee 
schemes. Several intermediate or alternative options such as a ‘hybrid’ model for EDIS have 
also been explored. Unlike the EDIS proposal of 2015 and in line with the ideas put forward 
by the Commission in a 2017 Communication14, such a hybrid model would make it possible 
to  pool  a  portion  of  the  funds  financed  by  the  banking  industry  in  the  Banking  Union  in  a 
Deposit Insurance Fund to coexist with funds remaining within the national deposit guarantee 
schemes15.  During  an  initial  phase,  the  Deposit  Insurance  Fund  would  provide  liquidity 

12  Calibrations  included  in  the  CMDI  impact  assessment  suggest  that  a  rather  ambitious  pooling  of  DGSs 
resources  at  European  level  (75 %  of  the  target  level)  would  deliver  significant  synergies  and  subsequently 
allow a potential reduction of the target level from 0.8 % to 0.6 % of covered deposits for all contributing DGSs. 
13 COM/2015/0586 final. 
14 European Commission (October 2017), Communication on completing the Banking Union (COM(2017) 592 
final). 
15 Further details on the hybrid model are provided in Annex 10 of the impact assessment to the CMDI package. 

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support to a beneficiary deposit guarantee scheme when the latter has exhausted its funds. If 
the Deposit Insurance Fund was depleted, it would be able to borrow from the other national 
deposit  guarantee  schemes  through  a  mandatory  lending  mechanism.  The  final  risk  would 
remain  at  national  level  as  the  liquidity  support  received  from  the  Deposit  Insurance  Fund 
would be reimbursed by the beneficiary national deposit guarantee scheme.  

Political negotiations on EDIS have stalled and the legislative process has now extended over 
almost  eight  years.  Despite  substantial  technical  work  in  the  Council  working  groups16,  no 
tangible  progress  has  been  made  towards  an  agreement  in  Council.  Meanwhile,  the 
Parliament has also not adopted its report. In its latest annual report on the Banking Union17, 
the European Parliament has stated its willingness to revive negotiations on the introduction 
of EDIS and, on 5 December 2022, the Chair of the ECON Committee, and the coordinators 
of six political groups issued a political statement urging the Council and the Commission to 
work  towards  the  establishment  of  a  realistic,  credible  and  solid  EDIS.  Given  the 
complementarity between EDIS and the proposed reform of the CMDI framework, a renewed 
effort to reach a political agreement on EDIS should be a priority. 

Conclusion 

The  completion  of  the  Banking  Union  remains  a  policy  priority  of  the  European  Union. 
Significant  progress  has  been  made  with  the  establishment  of  the  Single  Supervisory 
Mechanism  and  the  Single  Resolution  Mechanism,  which  are  now  fully  operational.  While 
political  agreement  on  a  workplan  for  completing  the  Banking  Union  remains  elusive,  the 
proposal to reform the CMDI framework adopted by the Commission today is an important 
step  forward.  The  proposed  reform  will  enhance  existing  arrangements  for  managing  bank 
failures in a manner that safeguards financial stability and protects depositors and taxpayers, 
allowing the Banking Union to offer an even higher level of financial system resilience and 
competitiveness.  

In  parallel,  the  Commission  is  carrying  out  an  evaluation  of  its  State  aid  framework  for 
banks, which is  expected to  be completed in  the first  quarter of 2024. The outcome of this 
evaluation  will  inform  a  subsequent  potential  review  of  the  State  aid  framework  for  banks. 
Given  the  interlinkages  between  the  CMDI  framework  and  the  State  aid  framework  for 
banks, such potential review would aim at ensuring consistency between the two frameworks, 
taking  into  account  the  regulatory  scenarios  that  will  be  set  out  in  the  renewed  CMDI 
framework.  Within  this  context  and  depending  on  the  results  of  the  evaluation,  the 
Commission  could  assess  whether  a  more  progressive  approach  could  be  adopted  with 
different  criteria  for  assessing  the  compatibility  of  State  aid  in  the  form  of  preventive 
measures,  resolution  measures  or  liquidation  aid  outside  resolution.  In  particular,  the 
Commission could assess whether a more effective use of resolution, including its financing 
with a facilitated access to industry-funded safety nets, in line with today’s CMDI proposal, 
would allow further consistency of requirements.  

16 European Council (June 2021), Portuguese Council Presidency Progress Report on strengthening the Banking 
Union  and  European  Council  (November  2021),  Strengthening  of  the  Banking  Union  –  Slovenian  Presidency 
Progress Report.  
17 European Parliament (July 2022), 2021 Annual report on the Banking Union (2021/2184(INI)). 

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It  is  essential  that  the  effort  to  complete  the  Banking  Union,  including  a  common  deposit 
insurance scheme, should continue and the Commission remains fully committed to this task. 
Accordingly,  the  Commission  invites  the  European  Parliament  and  the  Member  States  to 
reach agreement on the proposed reform of the CMDI framework before the next elections of 
the European Parliament in 2024.  

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