COMMISSION STAFF WORKING DOCUMENT 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) 225 final  COMMISSION STAFF WORKING DOCUMENT  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) 226 final} - {SEC(2023) 230 final}  
 
 
 
 
Table of contents 

GLOSSARY ...................................................................................................................... III 

1. 

INTRODUCTION: POLITICAL AND LEGAL CONTEXT ................................... 12 

2.  PROBLEM DEFINITION ........................................................................................ 19 

2.1.  Problem  1:  Insufficient  legal  certainty  and  predictability  in  the 

management of bank failures ............................................................................. 23 

2.2.  Problem 2: Ineffective funding options and divergent access to funding 

conditions in resolution and outside resolution ................................................. 28 

2.3.  Problem  3:  Uneven  and  inconsistent  depositor  protection  and  lack  of 

robustness in DGS funding ................................................................................ 33 
2.4.  How will the problems evolve? ......................................................................... 35 

3.  WHY SHOULD THE EU ACT? .............................................................................. 36 

3.1.  Legal basis ......................................................................................................... 36 
3.2.  Subsidiarity: Necessity and added-value of EU action ...................................... 36 

4.  OBJECTIVES: WHAT IS TO BE ACHIEVED? ..................................................... 41 

4.1.  General objectives .............................................................................................. 41 
4.2.  Specific objectives ............................................................................................. 41 

5.  WHAT ARE THE AVAILABLE POLICY OPTIONS? .......................................... 41 

5.1.  Approach to design of policy options ................................................................ 41 
5.2.  Review of the 2013 Banking Communication on State aid rules ...................... 42 
5.3.  What is the baseline from which options are assessed? ..................................... 43 
5.4.  Overview of the policy options .......................................................................... 45 
5.5.  Common elements across the packages of options ............................................ 45 
5.6.  Options discarded at an early stage .................................................................... 46 

6.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS AND HOW DO 

THEY COMPARE? .................................................................................................. 46 

6.1.  Assessment of policy options ............................................................................ 47 
6.2.  Comparison and choice of preferred options ..................................................... 82 
6.3.  Common elements across the packages of options ............................................ 84 

7.  PREFERRED OPTION ............................................................................................. 85 

8.  HOW  WILL  ACTUAL 

IMPACTS  BE  MONITORED  AND 

EVALUATED? ......................................................................................................... 92 

ANNEX 1: PROCEDURAL INFORMATION ................................................................ 95 

ANNEX 2: STAKEHOLDER CONSULTATION ......................................................... 101 

ANNEX 3: WHO IS AFFECTED AND HOW? ............................................................. 113 

ANNEX  4: 

‘ZOOM-IN’  ON  CORE  ELEMENTS  OF  THE  CRISIS 

MANAGEMENT AND DEPOSIT INSURANCE FRAMEWORK ...................... 126 

ANNEX 5: EVALUATION OF THE CMDI FRAMEWORK ....................................... 140 

I 

 
 
 
ANNEX  6:  OVERVIEW  OF  DEPOSIT  INSURANCE  ISSUES  COVERED  IN 

THE IMPACT ASSESSMENT ............................................................................... 215 

ANNEX 7: ANALYTICAL METHODS ........................................................................ 237 

ANNEX 8: IMPACT ASSESSMENT OF TECHNICAL TOPICS THAT WERE 
NOT  EXHAUSTIVELY  COVERED  IN  THE  MAIN  BODY  OF  THE 
IMPACT ASSESSMENT ....................................................................................... 315 

ANNEX  9:  SELECTED  CASES  OF  APPLICATION  OF  THE  CMDI 

FRAMEWORK SINCE 2015 ................................................................................. 349 

ANNEX  10:  RATIONALE  AND  DESIGN  FEATURES  FOR  A  COMMON 

DEPOSITOR PROTECTION IN THE BANKING UNION .................................. 358 

ANNEX 11: EBA RESPONSE TO THE CALL FOR ADVICE ................................... 384 

ANNEX 12: ANALYTICAL WORK BY THE JOINT RESEARCH CENTRE ........... 385 

ANNEX 13: OTHER QUANTITATIVE ANALYSES .................................................. 386 

ANNEX 14: OPTIONS DISCARDED AT AN EARLY STAGE .................................. 413 

II 

 
 
 
 
GLOSSARY 

Please note: All acronyms and relevant terms used in this impact assessment are 
explained in this glossary. In order to avoid duplication these are not repeated in the 
main body. The reader should revert to the glossary when needed.  

Term or acronym 

Meaning or definition 

Alternative funding arrangements 

Member States must ensure that DGSs have adequate alternative 
funding arrangements in place to enable them to meet any claims 
against them (Article 10(9) DGSD). These alternative funding 
arrangements can, for instance, include temporary State financing 
(which will ultimately be repaid by the DGS). DGSs can also raise 
extraordinary contributions from those institutions covered by the 
DGS where they do not have enough money immediately available 
in their fund. DGSs can also choose to establish borrowing 
arrangements between themselves, provided the respective 
national law provisions allow them to do so. 

Alternative measures (in insolvency)  DGS have in some Member States in the context of national 
insolvency proceedings the capacity to intervene with other 
modalities than direct payout as allowed in Article 11(6) DGSD. 
Such measures intend to preserve the access of depositors to 
covered deposits, including transfer of assets and liabilities and 
deposit book transfer. A condition for such measures is that the 
costs borne by the DGS do not exceed the net amount of 
compensating covered depositors at the credit institution 
concerned. 

AML/CFT 

AMLD 

Asset encumbrance 

AT1 

Bail-in 

Bail-out 

Banking Package 

Anti-Money Laundering/Combating the Financing of Terrorism 

Anti-Money Laundering Directive 

An asset is encumbered if it has been pledged or if it is subject to 
any form of arrangement to secure, collateralise or credit enhance 
any transaction from which it cannot be freely withdrawn. 

Additional Tier 1 
AT1 is a component of Tier 1 Capital and it encompasses 
instruments that are perpetual in nature and may be automatically 
written-down or converted into CET1. 

A bail-in is a legal procedure that may be used in bank resolution. 
Carrying out a bail-in means that the claims of shareholders and 
certain creditors in a bank are written-down or converted into 
capital, meaning that they are forced to accept losses incurred by 
the bank and to contribute to its recapitalisation.  

A bail-out involves the rescue of a financial institution through the 
intervention of the government using taxpayers’ money for 
funding.  

The 2019 Banking package (also referred to as the “risk reduction 
package”) amends the BRRD as regards the ranking of unsecured 
debt instruments in insolvency hierarchy. It also implements in the 
CRR II, the SRMR II and the BRRD II the minimum Total Loss-
Absorbing Capacity (TLAC) requirement for EU G-SIIs and 
includes a revision of the MREL requirement for all banks with 
strengthened eligibility and subordination criteria. These 
amendments were adopted in 2019. 

III 

 
bn 

BRRD 

billion 

Bank recovery and resolution Directive 
A directive establishing a common framework of rules and powers 
for EU Member States to intervene in the case of failing banks. 
The directive gives broad powers to national authorities to 
prevent, intervene early and conduct the resolution of troubled 
banks. Such powers include selling the bank (in whole or in 
parts), setting up a temporary bridge bank, and bailing-in 
shareholders and creditors of the bank. 

Burden sharing 

Burden sharing is generally referred to when losses in a bank are 
borne by the bank’s shareholders and creditors.  

CCU 

CDS 

CEPS 

CET1 

CET1 depletion 

CfA 

CMDI 

CMDI framework 

CMU 

Common backstop 

Central Credit Union 

Credit Default Swap 
A CDS is a financial swap agreement that the seller of the CDS 
will compensate the buyer in the event of a debt default (by the 
debtor) or other credit event.  

Centre for European Policy Studies 

Common Equity Tier 1 
CET1 is a component of Tier 1 Capital, and it encompasses 
ordinary shares and retained earnings. 

The level of CET1 equity absorbing losses prior to the 
determination of a bank as FOLF 

Call for advice 

Crisis management and deposit insurance 

References to the CMDI framework in the impact assessment 
relate to the harmonised EU rules in the BRRD/SRMR and DGSD, 
while national insolvency proceedings, which are unharmonized, 
are outside of the framework. However, the decision by the 
resolution authority whether to place a failing bank in resolution 
or in national insolvency proceedings is part of the CMDI 
framework (public interest assessment). The CMDI framework, 
through the DGSD, also encompasses preventive measures (under 
Article 11(3) DGSD) and alternative measures in insolvency 
(under Article 11(6) DGSD) as national options, which are only 
available in national laws in a minority of Member States and 
regulates the access conditions for these measures (such as the 
least cost test)  

Capital markets union 
The capital markets union is a Commission initiative to create a 
single market for capital, in order to get investments and savings 
flowing across the EU so that they can benefit consumers, 
investors and companies, regardless of where they are located. 

In the event that the Single Resolution Fund is depleted, the 
European Stability Mechanism can act as a common backstop. It 
can lend the necessary funds to the SRF to finance resolution by 
providing a revolving credit line. The aim of the common backstop 
is to strengthen the resilience and crisis resolution capacity of the 
Banking Union. 

Covered deposits 

The part of the eligible deposits that can be repaid by the DGS (as 
a rule, up to EUR 100 000).  

IV 

 
CRD 

Capital Requirements Directive 

Creditor hierarchy in insolvency 
(hierarchy of claims) 

CRR 

CWP 

DG FISMA 

DGSD 

DIF 

EBA 

EBA CfA report 

ECB 

EDIS 

EDIS liquidity support 

EEA 

EGBPI 

EIM 

ELA 

The order according to which creditors must be repaid in the 
context of the insolvency proceedings (in accordance with 
national insolvency laws). While some elements of the creditor 
hierarchy have been harmonised at EU level, this order is largely 
determined by national law. 

Capital Requirements Regulation 

Council working party on financial stability and Banking Union 
The CWP is a preparatory body created by the Council in January 
2016 (previously named Ad-hoc working party) following the 
Commission’s proposal to establish a European Deposit 
Insurance Scheme (EDIS). Its functions are to address initiatives 
and legislative proposals to the objective of strengthening the 
banking union and to establish Council’s position on the EDIS. 
The European Central Bank and the Single Resolution Board are 
invited as observers to its meetings.  

Directorate General for Financial Stability, Financial Services and 
Capital Markets Union 

Deposit guarantee scheme Directive 

Deposit Insurance Fund 
The hybrid EDIS model is built around the idea of a coexistence of 
a deposit insurance fund at central level (DIF) and funds 
remaining within the national DGSs. 

European Banking Authority 

EBA’s reply to the Commission’s Call for Advice on the review 
of the CMDI framework. 

European Central Bank 

European deposit insurance scheme 

EDIS would provide liquidity support to a beneficiary DGS, once 
the latter has exhausted its funds (following one or multiple 
interventions). Liquidity support is an essential element to avoid 
that possible shortfalls in DGS funding would have to be financed 
by governments. Liquidity support is eventually reimbursed by the 
beneficiary DGS (on the basis of recoupments or replenishment 
contributions from the banks in its remit). 

European Economic Area  

Expert Group on Banking, Payments and Insurance 
The EGBPI is a consultative entity composed of experts appointed 
by EU countries that provides advice and expertise in the 
preparation of draft delegated acts in the area of banking, 
payments and insurance for the Commission and its services. 

Early intervention measures 
Early intervention measures are taken by competent authorities to 
avert a bank failure when a bank shows signs of distress 
(Articles 27-30 BRRD).  

Emergency Liquidity Assistance  

Eligible deposits 

Deposits that are protected by the DGS, i.e. deposits that are not 

V 

 
excluded from the repayment guaranteed by the DGS. 

ESM 

EU 

European Stability Mechanism 

European Union 

Ex ante contributions to DGS 

Ex post contributions to DGS 

F4F Platform 

FOLF 

Franchise value 

These are regular financial contributions by the industry to build 
up and maintain the fund, to ensure that depositors in all Member 
States enjoy a similarly high level of protection. 

These are extraordinary financial contributions to the DGS that 
are collected, in case the fund does not accommodate the needs, 
e.g. after a bank failure to replenish the fund.  

Fit for the Future Platform 
The F4F platform is a high-level expert group that provides input 
for the REFIT part of the ‘Better Regulation’ agenda of the 
Commission for stepping up the efforts on simplification, 
modernisation and burden reduction of EU legislation. 

Failing or likely to fail 
The first condition for resolution, relating to the imminent or 
inevitable inability of the bank to continue operating under 
normal conditions. It takes into account the financial situation of 
the bank as well as compliance with the requirements for 
authorisation.  
In case there is no public interest in its resolution, a failing bank 
will normally be expected to be wound up under national 
insolvency proceedings. 

‘Franchise value’ means the net present value of cash flows that 
can reasonably be expected to result from the maintenance and 
renewal of assets and liabilities or businesses and includes the 
impact of any business opportunities, as relevant, including those 
stemming from the different resolution actions that are assessed 
by the valuer. Franchise value may be higher or lower than the 
value arising from the contractual terms and conditions of assets 
and liabilities existing at the valuation date.  

FSB 

Financial Stability Board 

Fully-fledged EDIS 

G20 

Going concern  

Gone concern 

The term “fully-fledged EDIS” is generally used when referring to 
final shape of EDIS as proposed by the Commission in 2015. In 
this steady state, EDIS would also progressively cover potential 
losses. Potential losses could emerge if the DGS intervention is 
not fully recouped from the insolvency estate. In 2018, the 
Commission proposed to reach this so-called coinsurance phase 
of EDIS, after a reinsurance phase, in which EDIS would only 
provide liquidity coverage to national DGS.  

The Group of 20 (i.e. G20) is a group formed in 1999 of finance 
ministers and central bank governors from 19 of the world's 
largest economies, along with the European Union. The G20 has 
the mandate to promote global economic growth, international 
trade, and regulation of financial markets. 

‘Going concern’ is an accounting term for a bank that is assumed 
it will meet its financial obligations when they fall due.  

‘Gone concern’ is an accounting term for a bank that has already 
failed to meet its financial obligations or is expected to do so in 
the near future.  

VI 

 
G-SIIs 

Global systemically important institutions 

Hierarchy of claims (or creditor 
hierarchy in insolvency) 

HLWG 

The order according to which creditors must be repaid in the 
context of the insolvency proceedings (in accordance with 
national insolvency laws). While some elements of the creditor 
hierarchy have been harmonised at EU level, this order is largely 
determined by national law. 

High Level Working Group 
The High Level Working Group (HLWG) on EDIS is an inter-
governmental forum mandated by the Eurogroup in 2018 to 
discuss the progress on EDIS and which later broadened its scope 
of analysis beyond EDIS (the CMDI review, market integration 
and the regulatory treatment of sovereign exposures and financial 
stability). Representation in this group is at the level of Directors 
in Finance ministries. In 2020, the HLWG was mandated to 
develop a time-bound and concrete work plan on reaching the 
steady stated in the Banking Union. 

Home and host resolution authorities  These are the resolution authorities in charge of group level or 
subsidiary level entities.  

Home Member State 

Member State hosting the group/parent level of a cross-border 
banking group. 

Home-host 

Host Member State 

Hybrid EDIS 

IPS 

JRC 

LCT 

Limbo situation 

The term is generally used to describe the relationship between 
Member States from the point of view of the cross-border 
coordination and collaboration regarding policies affecting 
parent level entities and subsidiaries. 

Member State hosting subsidiaries of banking groups established 
in another Member State. 

The so-called hybrid EDIS model refers to a concept of EDIS 
where a new central fund and funds remaining within the national 
DGSs coexist. A central fund and possible mandatory lending 
among DGSs would provide liquidity support to DGSs to cover 
the shortfall on a given intervention. The design of hybrid EDIS is 
evolutionary and could in a second phase gradually evolve 
towards a loss-sharing phase. 

Institutional protection scheme 
IPSs are defined in the Capital Requirements Regulation 
(Article 113(7)) as a contractual or statutory liability 
arrangement, which protects its member institutions and in 
particular ensures that they have liquidity and solvency needed to 
avoid bankruptcy where necessary. IPSs referred to in this 
document are to be understood as IPSs recognised as DGS. 

Joint Research Centre 

Least cost test 
The least cost test assesses whether a DGS may intervene through 
other actions than payout of depositors (e.g. in resolution or 
through the use of alternative measures). The DGS may only 
intervene in resolution if the cost of such intervention does not 
exceed the net amount of compensating covered depositors of the 
failing member institution. There are no detailed rules on the least 
cost test and Member States apply it differently.  

A situation where a failing bank for which there is no public 
interest in using resolution, can also not be placed in insolvency 
because the requirements for the latter are not met. 

VII 

 
m 

million 

Market-conform measures 

These are measures carried out by a public body at normal 
market conditions, therefore are not considered to constitute State 
aid. 

MiFID II 

MIS 

ML/TF 

MREL 

NCA 

NCWO 

Markets in Financial Instruments Directive 

Management information systems 

Money laundering or terrorist financing  

Minimum requirement for own funds and eligible liabilities  
MREL is the minimum amount of equity and debt that a bank is 
required to meet so as to be able to absorb losses and restore its 
capital position, allowing them to continuously perform their 
critical functions during and after a crisis. MREL is one of the key 
tools in enhancing bank’s resolvability. 

National Competent Authority 
NCA means a public authority or body officially recognised by 
national law, which is empowered by national law to supervise 
institutions as part of the supervisory system in operation in the 
Member State concerned. 

No creditor worse off 
A general principle governing resolution, it provides that 
creditors cannot receive a worse treatment in resolution than the 
treatment they would have received had the bank been wound up 
under insolvency proceedings instead of being resolved.  

Non-preferred, non-covered deposits  Eligible deposits, in the amount exceeding the coverage level 

NRA 

OJ 

OND 

provided by the DGS, that are not preferred in the creditor 
hierarchy in insolvency at EU level pursuant to Article 108(1) 
BRRD. These generally refer to the part of the deposits of large 
enterprises whose repayment is not guaranteed by the DGS, and 
which currently rank below preferred non-covered deposits.  

National resolution authority 

Official Journal of the EU 

Options and national discretions 
EU legislation tries to accommodate for national specificities 
through options and national discretions. These are provisions 
that Member States may choose to implement/apply if they deem it 
appropriate to reflect their respective national circumstances.  

Open bank bail-in resolution strategy  The application of the bail-in resolution tool, in combination with 

Ordinary unsecured claims 

O-SII 

the restructuring of the failing bank, in a way that allows that 
bank to meet the conditions for its authorisation and to continue 
carrying out its activities without requiring its exit from the 
market. 

Claims that, in the creditor hierarchy in insolvency, are neither 
secured, preferred nor subordinated. Also referred to as ‘senior 
claims’. 

Other Systemically Important Institutions 
O-SIIs are institutions that, due to their systemic importance, are 
more likely to create risks to financial stability.  

VIII 

 
Pari passu 

Payout 

Pay-box function (of the DGS) 

PIA 

Precautionary measures 

Preferred, non-covered deposits 

Pre-positioned resources 

When claims hold the same ranking in the hierarchy of claims 
according to the applicable insolvency law.  

Repayment by the DGS of the covered deposits with a bank, once 
they have been determined unavailable. 

The key task of the DGS is to protect depositors against the 
consequences of the insolvency of a credit institution. This 
protection implies a direct reimbursement of depositors and is 
called pay-box function.  

Public interest assessment 
Resolution authorities perform the public interest assessment to 
examine whether the resolution of a particular bank that is failing 
or likely to fail would be necessary to maintain financial stability, 
to protect covered depositors and/or safeguard public funds by 
minimising reliance on public financial support. If the PIA is 
negative, no resolution actions would be taken and national 
insolvency proceedings would apply.  

Capital or liquidity support provided to solvent banks through the 
use of public funds that may be exceptionally allowed by the 
BRRD without triggering the declaration that the bank is failing 
or likely to fail. 

Eligible deposits, in the amount exceeding the coverage level 
provided by the DGS, and that are preferred in the creditor 
hierarchy in insolvency at EU level pursuant to Article 108(1) 
BRRD. These generally refer to the part of the deposits of natural 
persons and micro, small and medium-sized enterprises whose 
repayment is not guaranteed by the DGS. 

In integrated banking groups, resources such as liquidity, capital 
and internal MREL are pre-positioned by the parent entity on the 
balance sheet of subsidiaries, i.e. provided or subscribed by the 
parent, to comply with such requirements on an individual level as 
required by legislation. Pre-positioning is not required where 
waivers are granted by competent or resolution authorities.   

Preventive measures 

Option in Article 11(3) DGSD that allows the use of DGS funds to 
prevent the failure of a bank, subject to certain safeguards. 

Ranking of liabilities 

See creditor hierarchy in insolvency 

Resolution authorities 

Resolution framework 

Resolution of a bank 

RF/SRF 

National authorities set up in each Member States, in compliance 
with the BRRD and the Single Resolution Board created by the 
SRMR in the Banking Union, with the objective to plan, prepare 
and execute the orderly resolution of banks in case of failure.  

References to the resolution framework in the impact assessment 
relate to the harmonised EU rules in the BRRD/SRMR. 

Application of resolution tools and powers to a failing bank with 
the aim of ensuring the continuity of its critical functions while at 
the same time minimising the impact of the failure on the financial 
system and the real economy. It can lead to the restructuring of 
the failing bank or the transfer of its activity to a third party and 
subsequent exit from the market.  

Resolution Fund/Single Resolution Fund 
Arrangements funded by the industry through contributions paid 
before or following the resolution of a bank (so-called ex ante and 

IX 

 
ex post contributions) to provide financial support to the 
resolution of a bank in case its internal loss absorption capacity is 
not sufficient. The SRF is the resolution fund for the banks in the 
Banking Union and is financed by all banks in the Banking Union. 
For non-Banking Union Members States, the national resolution 
fund that has been established in each Member State is financed 
by the domestic industry/banks.  

Risk reduction package 

See banking package 

Safety nets 

Single-tier depositor preference 

Single Rulebook 

SME 

SNP 

SPE 

SRF 

SRMR 

SSMR 

Super preference of DGS 

Industry funded safety nets, such as the national resolution funds 
outside the Banking Union, the Single Resolution Fund in the 
Banking Union and the national DGS funds, created to underpin 
the crisis management and deposit insurance framework to avoid 
or minimise the usage of taxpayer money.  

Possible option to further harmonise the ranking of deposits in the 
hierarchy of claims entailing removing the super-preference of 
covered depositors and the DGS, preferring all deposits (general 
depositor preference) meaning that all deposits as well as the 
DGS would rank above ordinary senior unsecured claims and all 
deposits rank at the same level amongst themselves (single-tier 
approach). 

The Single Rulebook is the backbone of the Banking Union and of 
the financial sector regulation in the EU in general. It consists of 
legal acts that all financial institutions in the EU must comply 
with. The Single Rulebook lays down a single set of harmonised 
prudential rules (among other things) governing the capital 
requirements for banks, ensuring better protection for depositors 
and regulating the prevention and management of bank failures.  

Micro, small and medium-sized enterprises 

Senior non-preferred debt 
Senior non-preferred debt is a type of subordinated instrument 
issued by banks which ranks junior to ordinary unsecured debt 
and senior to classical subordinated debt in the hierarchy of 
claims. Created as part of the 2019 Banking Package to assist 
banks in raising MREL-subordinated eligible liabilities.  

Single point of entry resolution strategy 
Resolution strategy whereby resolution tools are applied to one 
resolution entity in a resolution group, while other non-resolution 
entities upstream their losses to the parent entity and are not 
being placed in resolution themselves.  

Single resolution fund 
See RF/SRF  

Single resolution mechanism Regulation 

Single supervisory mechanism Regulation 

In the creditor hierarchy in insolvency, the higher priority ranking 
of the claims of covered deposits, and of the DGS subrogating to 
the claims of covered deposits in insolvency following a payout, 
than the ranking of preferred, non-covered deposits and non-
preferred, non-covered deposits. The claims of covered deposits 
and of DGS must be repaid before the claims of all other deposits. 

TFEU 

Treaty on the Functioning of the European Union 

X 

 
THB 

Tier 2 

TLAC 

TLOF 

Too big to fail 

Temporary high balances 

Layer of a bank's capital composed of items such as revaluation 
reserves, hybrid instruments and subordinated term debt. 

Total Loss-Absorbing Capacity 
International standard published by the FSB to ensure that G-SIIs 
have sufficient internal capacity to absorb their losses and 
contribute to their recapitalisation in the event of resolution in a 
way that ensures they can continue performing their critical 
functions without endangering public funds or financial stability. 
It was implemented in the EU for the EU G-SIIs through the 
Banking package. 

Total liabilities, including own funds 

Financial institutions, which, due to their size, complexity and 
interconnectedness, would cause serious harm to the financial 
system and to the real economy in case of failure. During the 
global financial crisis, the bail-out of several banks was needed to 
prevent their disorderly insolvency and contagion risks. As a 
consequence, financial reforms to increase the resilience of the 
financial system were promoted at the international and EU level, 
with the creation of the resolution framework being a key 
outcome. 

tr 

trillion 

Transfer resolution strategies 

Resolution action entailing the transfer of the activity and the 
critical functions of the failing bank to a private purchaser or to a 
bridge institution controlled by the resolution authority, ultimately 
leading to its exit from the market. The transfer of the shares of 
the failing bank is also possible. 

TREA 

Total risk exposure amount 
Calculated in accordance with Article 92(3) CRR. 

Three-tier depositor preference 

Two-tier depositor preference 

Current situation in the hierarchy of claims, where covered 
deposits are super-preferred and rank above preferred deposits 
(natural persons and SMEs above EUR 100 000) which in turn 
rank above other (non-preferred) deposits. According to 
applicable national laws in some Member States, these non-
preferred deposits rank pari passu (i.e. at the same level) with 
ordinary unsecured claims. In other Member States, these non-
preferred deposits rank above ordinary unsecured claims. See 
Annex 8, section 2.  

Possible option to further harmonise the ranking of deposits in the 
hierarchy of claims, where all deposits rank above ordinary 
senior unsecured claims (general depositor preference) and in 
terms of deposits ranking relative to each other, some deposits 
would rank above others (e.g. covered deposits/DGS could rank 
above non-covered deposits or covered deposits/DGS and 
preferred deposits could rank above non-covered non-preferred 
deposits) 

XI 

 
 
 
1.  INTRODUCTION: POLITICAL AND LEGAL CONTEXT 

In  the  aftermath  of  the  global  financial  and  sovereign  crises,  the  EU  took  multiple 
decisive  actions,  in  line  with  international  calls  for  reform1,  to  create  a  safer  financial 
sector for the EU single market and provide the tools and powers to handle the failure of 
any bank in an orderly manner, while preserving financial stability, public finances and 
depositor protection. The Banking Union was created in 2014 based on a blueprint laid 
out in 20122, relying on a Single rulebook3 for the EU: a Single Supervisory Mechanism 
(SSM)  and  a  Single  Resolution  Mechanism  (SRM)  equipped  with  a  Single  Resolution 
Fund (SRF) (Error! Reference source not found.). In November 2020, the Eurogroup 
agreed on the creation and early introduction of a common backstop to the SRF by the 
European Stability Mechanism (ESM)4. However, the Banking Union is still incomplete5 
and  misses  its  third  pillar:  a  European  Deposit  Insurance  Scheme  (EDIS).  The 
Commission proposal adopted on 24 November 2015 to establish EDIS is still pending. 

Figure 1: State of play of the implementation of the Banking Union 

Notes: Green = implemented, blue = pending. Implementation of the common backstop 2022-24. 
Source: European Commission, Banking Union infographic. 

The  EU  bank  crisis  management  and  deposit  insurance  (CMDI)  framework  consists  of 
three  EU  legislative  texts  adopted  in  2014  acting  together  with  relevant  national 
legislation: the Bank Recovery and Resolution Directive (BRRD), the Single Resolution 

1 G20 (September 2009), Leaders’ Statement. 
2  European  Commission  (12  September  2012),  Communication  from  the  Commission  to  the  European 
Parliament and Council: A Roadmap towards a Banking Union. All non-euro area Member States can opt 
to participate the Banking Union before joining the euro area. 
3  The  most  relevant  legal  acts  of  the  Single  rulebook  are:  the  Capital  Requirements  Regulation  (CRR  – 
Regulation (EU) 575/2013), the Capital Requirements Directive (CRD – Directive 2013/36/EU), the Bank 
Recovery  and  Resolution  Directive  (BRRD  –  Directive  2014/59/EU),  the  Single  Resolution  Mechanism 
Regulation (SRMRM – Regulation (EU) 806/2014) and the Deposit Guarantee Schemes Directive (DGSD 
–  Directive  2014/49/EU).  The  winding  up  Directive  (Directive  2001/24/EC)  is  also  relevant  to  the 
framework. 
4  Eurogroup  (30  November  2020),  Eurogroup  conclusions  and  statement.  The  implementation  will  take 
place over 2022-2024.  
5  Furthermore,  there  is  still  no  agreement  on  a  credible  and  robust  mechanism  for  providing  liquidity  in 
resolution in the Banking Union, in line with the standard set by international peers. 

12 

 
 
                                                           
Mechanism Regulation (SRMR) and the Deposit Guarantee Schemes Directive (DGSD)). 
The  2019  Banking  package  (so-called  “risk  reduction  package”)  included  measures 
delivering  on  Europe's  commitments  made  in  international  fora6  to  take  further  steps 
towards completing the Banking Union by providing credible risk reduction measures to 
mitigate threats  to  financial stability,  as  published in  the European Commission’s 2015 
Communication7. 

The objectives of the CMDI framework 

The CMDI framework was designed to avert and manage the failure of credit institutions 
of  any  size,  while  protecting  financial  stability,  depositors  (households  and  businesses) 
and  aiming  to  avoid  the  risk  of  excessive  use  of  taxpayer  money  (see  Annex  4  for  a 
description of the fundamental elements of the CMDI framework).  

The  CMDI  framework  provides  for  a  set  of  instruments  that  can  be  applied  in  the 
different  stages  of  the  lifecycle  of  banks  in  distress:  early  intervention  measures, 
measures to prevent the failure of a bank, a resolution toolbox when the bank is declared 
failing  or  likely  to  fail  (FOLF)  and  it  is  deemed  that  the  resolution  of  the  bank  (rather 
than  its  liquidation)  is  in  the  public  interest  in  order  to  avoid  financial  instability. 
Conversely,  national  insolvency  proceedings,  which  are  outside  of  the  CMDI8 
framework, continue to apply for those failing banks, where insolvency proceedings are 
deemed  more  suitable  than  resolution  without  harming  public  interest  or  endangering 
financial stability.  

The  CMDI  framework  is  intended  to  provide  a  combination  of  funding  sources  to 
manage  failures  in  an  economically  efficient  manner,  protecting  financial  stability  and 
depositors, maintaining  market  discipline, while  reducing recourse to  the public budget 
and ultimately the cost to the taxpayers. The cost of resolving the bank  is first covered 
through  the  bank’s  own  resources,  i.e.  losses  are  allocated  to  the  shareholders  and 
creditors  of  the  bank  (constituting  the  bank’s  internal  loss  absorbing  capacity),  which 
also reduces moral hazard and enhances market discipline. If needed, these resources can 
be  complemented  by  funds  from  deposit  guarantee  schemes  (DGS)  and  resolution 
financing  arrangements  funded  by  the  industry  (national  resolution  funds  (RF)  or  a 
Single  Resolution  Fund  (SRF)  in  the  Banking  Union).  These  funds  are  built  through 
contributions by  all banks irrespective of their size and business model. In the Banking 
Union,  these  rules  were  further  integrated  by  entrusting  the  Single  Resolution  Board 
(SRB) with the management and oversight of the SRF, which is funded by contributions 
from the industry in the participating Member States of the Banking Union.  Depending 
on  the  tool  applied  to  a  bank  in  distress  (e.g.  preventive,  precautionary,  resolution  or 

6  The  Basel  Committee  on  Banking  Supervision  and  the  Financial  Stability  Board  (FSB).  Financial 
Stability  Board  (2014  updated  version),  Key  Attributes  of  effective  resolution  regimes  for  financial 
institutions. 
7 European Commission communication (November 2015), Towards the completion of the Banking Union. 
8 National insolvency proceedings are unharmonized and are outside of the CMDI framework. However, 
the  decision  by  the  resolution  authority  whether  to  place  a  failing  bank  in  resolution  or  in  national 
insolvency  proceedings  is  part  of  the  CMDI  framework  (discretionary  assessment  by  the  resolution 
authority  of  the  public  interest  assessment).  If  the  resolution  authority  decides  to  place  a  failing  bank  in 
insolvency,  the  latter  will  be  treated  at  national  level,  where  the  assessment  of  initiation  of  insolvency 
proceedings takes place, according to specificities of national insolvency regimes.  

13 

 
                                                           
alternative measures  under national  insolvency proceedings) and the specificities of the 
case,  State  aid9  control  may  be  necessary  for  interventions  by  a  RF,  a  DGS  or  public 
funding from the State budget. 

The  CMDI  framework  also  fosters  depositor  confidence  by  requiring  that  deposits  are 
protected up to EUR 100 000 per depositor and per bank, regardless of whether the bank 
is put into resolution or liquidation under national insolvency proceedings. In insolvency 
under  national  proceedings10,  the  primary  function  of  a  DGS  is  to  payout  covered 
depositors within seven days of a determination of unavailability of their deposits. Under 
the  DGSD,  DGSs  may  also  have  other  functions.  The  latter  are  aimed  at  preserving 
depositor confidence, provided they are less costly than a payout of covered deposits in 
insolvency,  such  as:  financing  preventive  measures,  contributing  financially  to  the 
resolution  of  a  bank  or,  in  insolvency,  financing  measures  other  than  payout,  i.e.  a 
transfer of assets and liabilities to a buyer, to preserve the access to covered deposits. 

A resolution framework to overcome the shortcomings of insolvency proceedings 

National  insolvency  proceedings  are  not  always  suited  to  handle  bank  failures  because 
banks  cannot  be  liquidated  like  any  other  corporate  business  due  to  their  unique 
vulnerability to deposit/bank runs, their impact on financial stability and their role in the 
functioning  of  the  economy  through  financial  intermediation  (deposit-taking,  provision 
of credit), monetary policy transmission and their role in the payment system. In view of 
these elements, any bank failure as opposed to ordinary corporate failures (see references 
in Box 6 in Annex 4) is more likely to give rise to public policy concerns, which would 
often  lead  to  bail-out  actions  to  limit  the  fallout  of  piecemeal  liquidation.  Resolution 
offers an alternative to disorderly insolvency, where there is a public interest in resolving 
a  bank,  instead  of  using  existing  insolvency  proceedings.  The  introduction  of  the 
resolution framework, in line with the international key attributes for effective resolution 
regimes  published  by  the  Financial  Stability  Board  in  the  aftermath  of  the  global 
financial  crisis11,  aimed  to  fill  an  important  gap  in  the  management  of  banking  crises, 
reducing risks for financial stability, depositors and taxpayers.  

The  resolution  framework  brings  a  number  of  very  important  benefits.  Contrary  to 
liquidation  under  normal  insolvency  proceedings,  resolution  increases  the  efficiency  in 
handling  bank  failures  in  terms  of  costs,  by  preserving  the  franchise  value  of  bank’s 
assets  and  the  client  relationship  through  restructuring/  sale  of  business  to  a  buyer  and 
avoiding  cutting  access  of  the  bank’s  customers  to  their  client  accounts  and  loans  (i.e. 
individuals/households,  small  and  medium  enterprises  (SMEs),  corporates,  public 
institutions,  other  financial  institutions  which  may  include  other  banks,  insurance 
companies,  other  industry  players).  This  way,  it  avoids  any  public  perception  of 

9 State aid rules are intrinsically interconnected with  and complementary to the CMDI framework. These 
rules are not subject to this review and this impact assessment. In order to ensure consistency between the 
two frameworks, the Eurogroup invited the Commission in November 2020 to conduct a review of the State 
aid  framework  for  banks,  and  to  complete  it  in  parallel  with  the  CMDI  framework  review,  ensuring  its 
entry into force at the same time with the  updated CMDI framework. 
10 Insolvency proceedings across the EU are unharmonised; some allow for certain transfer tools similar to 
resolution financed by DGSs, others only allow for piecemeal liquidation proceedings.  
11  Financial  Stability  Board  (October  2011,  updated  in  2014),  Key  attributes  for  effective  resolution 
regimes for financial institutions. The key attributes represent the foundation on which jurisdictions around 
the world built their resolution regimes following the global financial crisis. 

14 

 
                                                           
discontinuity in the operations of the bank, thereby stemming the propagation of adverse 
effects on broader confidence and financial stability. Resolution also better redistributes 
costs  by  shifting  away  losses  from  taxpayers  to  the  failing  bank’s  shareholders  and 
creditors  and  the  industry  overall,  where  industry-funded  safety  nets  are  used.  It  also 
fosters  consumer  confidence  in  the  banking  sector  by  significantly  reducing  the  risk  of 
spiralling  contagion  to  other  banks  and  mitigating  the  risks  that  bank  clients  may  start 
questioning  the  solidity  of  the  system  and  its  safety  nets  as  it  could  happen  under 
insolvency proceedings.  

Another merit of the resolution  framework is  providing predictability and level  playing 
field when handling failing banks and enhancing preparedness  (recovery  and resolution 
planning)  for  crisis  times,  including  by  imposing  requirements  on  banks  to  absorb 
possible losses internally or via the safety nets. Lastly, resolution may lower the impact 
of  a  bank’s  failure  on  DGS  financial  means  in  a  liquidation  under  normal  insolvency 
proceedings, which requires the DGS to payout all covered deposits (up to EUR 100 000) 
and  bears  a  high  risk  of  depleting  the  national  DGS  funds.  Notwithstanding  its  overall 
benefit, another downside of the payout of covered deposits is that it can be disruptive to 
depositor  confidence  because  of  its  impact  on  uncovered  deposits  (leaving  uncovered 
deposits above EUR 100 000 to take losses). All these benefits of resolution strengthen 
financial stability, preserve value, reduce moral hazard and the risk of inflicting the cost 
of failure on citizens. 

A resolution framework applicable to any bank 

In  terms  of  scope  of  application,  the  determination  of  the  resolution  or  liquidation 
strategy  is  not  automatically  driven  by  bank  size  or  structure  of  banking  sectors  but, 
instead, is made by the resolution authority on the basis of the public interest assessment 
on  a  case-by-case  basis.  From  its  inception  in  2014  and  rooted  in  the  international 
experience  of  dealing  with  bank  crises  over  decades,  the  resolution  framework  was 
created  with  the  intention  to  cater  for  the  orderly  management  of  any  bank  failure, 
irrespective  of  its  geographical  footprint  (i.e.  domestic  or  operating  across  borders),  its 
size  or  business  model,  when  this  best  serves  the  objectives.  Of  course,  resolution  is 
widely expected by all stakeholders to be the only credible option to manage the failure 
of large systemic banks, because it provides a clear set of tools and adequate funding (in 
the  form  of  high  buffers  of  own  funds  and  eligible  liabilities  to  absorb  losses  through 
bail-in,  and commensurate access  to  resolution  funds) to  avoid  further  contagion  to  the 
real economy or financial markets.  

However, as recital 29 of the existing BRRD points out, it is crucial, in order to maintain 
financial stability, that resolution authorities have the possibility to resolve any bank due 
to their critical functions or potential systemic nature. While the idiosyncratic failures of 
large  banks  tend  to  be  more  disruptive  to  the  financial  system  than  failures  of  small 
banks,  this  is  justified  by  the  risks  to  financial  stability  (especially  in  the  case  of 
concomitant  failures  of  several  small/mid-sized  banks  during  times  of  crisis),  the 
destruction  of  economic  value  locally/regionally  or  the  disruption  of  depositors 
confidence  in  particular  for  small  jurisdictions  (see  Box  6  in  Annex  4  for  references 
regarding the impact of failing small/mid-sized banks on financial stability). For similar 

15 

 
reasons, all banks contributing to the safety nets should be able to benefit from them, if 
the conditionality to access these safety nets is fulfilled.  

In  practice,  except  for  the  120  banks  under  direct  SRB  remit12,  national  authorities 
remain responsible for the application of the resolution framework and the discretionary 
choice between using a resolution or a liquidation strategy to manage a failing bank. The 
public  interest  assessment  takes  into  account  considerations  that  go  beyond  the  size  of 
the  bank,  such  as  its  functions  that  are  critical  for  the  broader  economy  (e.g.  deposit 
taking, lending, payments) and their substitutability, interconnectedness to other actors in 
the financial system, risk profile, nature of activity, which are important when assessing 
the  impact  of  a  bank  failure  on  financial  stability.  For  these  reasons,  it  is  necessary  to 
ensure a coherent application of the framework, which has not been the case until now. 

Insolvency  proceedings  remain  available  for  those  banks,  where  no  contagion  risks  or 
other significant risks to financial stability exist and where there are no critical functions, 
provided that the authorities assess that these banks are not in the public interest. 

The test of time and the need for a reform 

Notwithstanding the progress achieved since 2014, the application of resolution has been 
scarce,  especially  in  the  Banking  Union  and  areas  for  further  strengthening  and 
adjustment  were  identified  with  regard  to  the  CMDI  framework  in  terms  of  design, 
implementation and most importantly, incentives for its application. These issues concern 
in  particular  the  category  of  small  and  medium-sized  banks  that  are  often  “too  big  to 
liquidate” under normal insolvency regimes. 

To  date,  and  as  shown  in  Chapter  2,  Annex  5  (evaluation)  and  evidenced  in  Annex  9, 
most  failing  small  and  mid-sized  banks  were  managed  under  national  regimes  often 
involving  the  use  of  taxpayer  money  (bailouts)  instead  of  the  required  bank’s  internal 
resources (bail-in)13. This goes against the intention of the framework as set up after the 
global  financial  crisis,  which  involved  a  major  paradigm  shift  from  bail-out  to  bail-in 
(required amount of burden sharing) and industry-funded safety nets, such as the SRF in 
the Banking Union, so far unused in  resolution. In this context,  the opportunity cost  of 
the resolution funds financed by all banks is considerable. 

The  resolution  framework  underperformed  with  respect  to  key  overarching  objectives, 
notably facilitating the functioning of the EU single market in banking by ensuring level 
playing  field,  handling  cross-border  and  domestic  crises  and  minimising  recourse  to 
taxpayer money.  

The reasons are mainly due to misaligned incentives in choosing the right tool to manage 
failing banks, leading to the non-application of the harmonised resolution framework, in 
favour of other avenues. This is overall due to the broad discretion in the public interest 
assessment,  difficulties  in  accessing  funding  in  resolution  without  imposing  losses  on 

12  As  of  1  January  2021,  the  SRB  was  directly  responsible  for  120  banks  (significant  banks  and  cross 
border less significant banks) in the Banking Union. National resolution authorities in the Banking Union 
deal  with  about  2.200  less  significant  institutions  (SRB,  Annual  Report  2021).  In  total,  there  were 
approximately  4.600  banks  in  the  European  Union  in  2020  (European  Banking  Federation,  Facts  and 
Figures 2021). 
13 Burden sharing by shareholders and subordinate debt holders was implemented under State aid rules, but 
not corresponding to the 8% total liabilities and own funds required by the BRRD/SRMR. 

16 

 
                                                           
depositors  and  easier  access  to  funding  outside  of  resolution,  raising  risks  of 
fragmentation  and  suboptimal  outcomes  in  managing  banks’  failures,  in  particular  of 
those  smaller  and  mid-sized  banks  that  are  often  too  big  to  liquidate  under  normal 
insolvency regimes.  

The  review  of  the  CMDI  framework  (BRRD/SRMR/DGSD)  and  the  interaction  with 
national  insolvency  proceedings  should  provide  solutions  to  address  these  issues  and 
enable  the  framework  to  fully  achieve  its  objectives14  and  be  fit  for  its  purpose  for  all 
banks  in  the  EU  irrespective  of  their  size,  business  model  and  liability  structure,  if 
required  by  prevailing  circumstances.  The  revision  should  aim  at  ensuring  a  coherent 
application  of  the  rules  across  Member  States,  delivering  level  playing  field,  while 
protecting financial stability and depositors, containing contagion and reducing recourse 
to  taxpayer  money.  In  particular,  the  CMDI  framework  could  be  improved  to  facilitate 
the resolution  of small  and medium-sized  banks as initially expected, by  mitigating the 
impacts  on financial stability and the real  economy  without recourse to  public funding, 
but also fostering confidence of their depositors that consist primarily of households and 
SMEs15.  

The objectives of the reform would bring the EU framework closer to the frameworks of 
international  peers,  especially  the  United  States  (US).  The  extensive  experience  and 
excellent  track  record  of  the  US  Federal  Deposit  Insurance  Corporation,  spanning  over 
many decades,  where failing smaller and mid-sized banks are  routinely  transferred to  a 
buyer with the support of a common fund financed by the contributions of the industry, 
can reveal how some features of the CMDI framework could be improved (see Annex 8, 
section 11)16. 

The CMDI reform and the broader implications for the Banking Union 

Together  with  the  CMDI  reform,  a  complete  Banking  Union,  including  its  third  pillar, 
EDIS,  would  offer  a  higher  level  of  financial  protection  to  Europe’s  households  and 
businesses,  foster  trust  and  strengthen  financial  stability  as  necessary  conditions  for 
growth,  prosperity  and  resilience  in  the  Economic  and  Monetary  Union  and,  more 
generally,  in  Europe.  The  Capital  Markets  Union  complements  the  Banking  Union  as 
both  initiatives  would  help  finance  the  twin  transition  (digital  and  green),  enhance  the 
international  role  of  the  euro  and  strengthen  Europe’s  open  strategic  autonomy  in  a 
changing  world,  particularly  considering  the  current  challenging  economic  and 
geopolitical environment.  

14 See Chapter Error! Reference source not found. on the objectives. 
15 As such, the reform envisaged does not have a direct impact on households and businesses such as SMEs 
e.g.  on  the  credit  supply  and  lending  behaviour  of  banks.  However,  to  the  extent  that  the  reform  would 
improve  the  crisis  management  for  smaller  and  medium-sized  banks  with  a  view  to  strengthen  depositor 
protection,  depositors  such  as  households  and  SMEs  could  indirectly  benefit  from  a  more  efficient  bank 
crisis framework that would limit the impact of a bank failure on financial stability and the real economy. 
See also section 8 of Annex 8.  
16  Between  2000  and  2020,  the  FDIC  intervened  through  transfer  tools,  with  deposit  insurance  fund 
support,  to  preserve  access  to  deposits  in  failed  banks  in  95%  of  cases  and  paid  out  covered  deposits  in 
piecemeal liquidation in  only 5%  of cases. The FDIC  estimates that, between 2008 and 2013, the use of 
transfer  tools  saved  USD  42  bn,  or  43%,  compared  with  the  estimated  cost  of  using  payout  of  covered 
deposits in insolvency.  

17 

 
                                                           
On the one hand, European banks have proven robust so far, including in terms of capital 
adequacy and liquidity buffers. Moreover, the reforms undertaken to implement the first 
pillars  of  the  Banking  Union  in  the  aftermath  of  the  2008  global  financial  crisis  have 
helped in strengthening the position of European banks. Any fallout was managed with 
the  available  toolkit  (either  provided  by  the  CMDI  framework  such  as  moratoria, 
resolution  tools,  or  tools  under  national  insolvency  frameworks)  even  when  the 
circumstances of the failure were particularly unusual17.  

On  the  other  hand,  the  profitability  and  cost-efficiency  of  European  banks  is  arguably 
structurally  weak  and  asset  quality  concerns  may  resurface  amid  increased  credit  risk 
fuelled by the deterioration in the macroeconomic outlook and the energy crisis triggered 
by geopolitical tensions.  

Therefore, more adverse conditions are possible in the future, making the need to proceed 
with  the  current  reform  of  the  CMDI  framework,  improve  its  use  and  to  step-up  the 
efforts  for  the  completion  of  the  Banking  Union  more  pressing  and  compelling.  Under 
the status  quo, a large proportion of failing banks  would continue to  be restructured or 
liquidated  outside  the  harmonised  resolution  framework,  under  existing  heterogeneous 
national regimes, where in some cases only disorderly and costly insolvency proceedings 
or solutions involving taxpayer money exist. This would weaken consumer confidence in 
the EU banking sector and the predictability and level playing field of our single market 
for banking, and of the Banking Union in particular. 

In  June  2022,  the  Eurogroup  was  not  able  to  reach  a  political  agreement  on  a 
comprehensive  work  plan  to  complete  the  Banking  Union18.  Instead,  the  Eurogroup 
invited  the  Commission  to  table  legislative  proposals  for  reforming  the  EU  framework 
for  bank  crisis  management  and  national  deposit  insurance.  This  was  one  of  four 
workstreams  discussed  in  the  context  of  the  Banking  Union  completion  workplan  (in 
addition  to  EDIS,  the  regulatory  treatment  of  exposures  to  sovereigns  and  enhanced 
cross-border market integration). The other workstreams have been put on hold until the 
next institutional cycle.  

In  parallel,  the  European  Parliament  also  stressed  in  its  2021  annual  report  on  the 
Banking Union, the importance of completing it with the establishment of an EDIS and 
supported the Commission in putting forward a legislative proposal on the CMDI review.  

This  impact  assessment  covers  the  analysis  of  policy  measures  for  the  review  of  the 
CMDI framework. While EDIS was not explicitly endorsed by the Eurogroup, it would 
have made the CMDI  reform  more robust  and delivered synergies and  efficiency  gains 
for  the  industry.  Some  of  these  elements  are  included  in  this  impact  assessment  for 
technical completeness and illustration of the internal consistency among the elements of 
a  robust  framework,  also  reflecting  technical  discussions  which  took  place  on  EDIS  in 
the past years in expert groups, Council working parties and inter-governmental fora.  

Such a legislative package would be part of the agenda for the completion of the Banking 
Union,  as  emphasised  in  President  von  der  Leyen’s  Political  Guidelines,  which  also 
included the implementation of EDIS.  

17 See information on the Sberbank case in Annex 9, section 5. 
18 Eurogroup (16 June 2022), Eurogroup statement on the future of the Banking Union. 

18 

 
                                                           
This impact assessment report reflects analyses based on information and data up until 31 
January 2023 and does not include references to subsequent developments.  

2. 

PROBLEM DEFINITION 

This section outlines the problems identified in the evaluation of the current framework. 
It explains how the problems have been identified, what their drivers are, and why action 
is  necessary.  More  details  are  available  in  the  evaluation  in  Annex  5,  including  an 
assessment of the CMDI functioning against various criteria.  

The  most  relevant  evidence  underpinning  the  analysis  of  problems  and  their  drivers  in 
this chapter includes, among others: analysis of past cases of bank failures, quantitative 
analysis  illustrating  banks’  difficulty  to  access  safety  net  funding,  the  divergent 
approaches  to  the  public  interest  assessment,  the  issues  with  the  creditor  hierarchy, 
divergences between failing or likely to fail and insolvency triggers or the shortcomings 
regarding early intervention measures. These are complemented by references to external 
analyses pointing to the lack of clarity regarding the least cost test for DGS uses and the 
inability of DGS funds to  intervene in  resolution  (EBA opinions), other assessments of 
business  model  specificity  of  small  and  mid-sized  banks  (ECB)  and  DGS  funds 
robustness  (Joint  Research  Centre).  This  evidence  is  referenced  throughout  the  impact 
assessment and in the relevant annexes. A complementary, more exhaustive summary of 
the evidence used in the impact assessment is also provided in Annex 1, sections 3 and 4. 

Main considerations related to the limited use of resolution and why it is a problem 

The evaluation of the current rules shows that the introduction of the CMDI framework 
in  2014  brought  important  benefits  in  terms  of  maintaining  financial  stability, 
significantly  improving  depositor  protection  and  contributing  to  boosting  consumer 
confidence  in  the  EU  banking  sector  (illustrated  by  a  reduction  in  bank  runs  and  an 
overall increase in depositing money in banks). However, its practical application failed 
to  achieve  some  important  objectives  or  achieved  them  only  partially,  namely, 
simultaneously, protecting taxpayer money and depositors, while ensuring level playing 
field and a fair treatment of creditors across the EU single market (see Annex 5). 

In particular, recent experiences show that the resolution framework is not entirely fit to 
handle  the  failure  of  small  and  medium-sized  banks,  whose  business  model, 
predominantly  funded  with  deposits,  may  affect  authorities’  incentives  to  use  the 
resolution  framework  as  initially  intended.  This  problem  is  particularly  relevant  when 
external  funding  (e.g.  RF/SRF)  is  necessary  to  support  the  failure  of  the  bank,  for 
instance  to  facilitate  a  sale  to  a  buyer,  and  when  this  access  to  funding  is  not  possible 
within  the  resolution  framework  without  imposing  losses  on  deposits.  Managing  these 
bank  failures  outside  resolution  is  not  a  problem  per  se.  However,  the  concern  is  that 
these  choices  were  driven  by  the  difficulty  to  access  appropriate  funding  in  resolution 
(despite  its  availability),  while  on  the  contrary,  other  avenues  entailed  a  recourse  to 
public funding to avoid disorderly failure.  

The evidence in this chapter as well as in Annex 5 (evaluation) and Annex 9 (list of past 
cases) shows that, most failing small and mid-sized banks were managed under national 
regimes  (preventive  and  alternative  measures  in  insolvency)  often  involving  the  use  of 
19 

 
taxpayer money (bailouts, sometimes by local public authorities), instead of the industry-
funded  safety  nets,  such  as  the  SRF  in  the  Banking  Union,  which  will  amount  to 
approximately EUR 80 billion by 2024. In total, more than EUR 58 bn were provided by 
national or regional governments to bail-out banks (as shown in Chapter 2, section 2.2) 
since 2015, when the resolution framework started to apply. More than 60% of banks in 
distress in the EU were managed outside of the resolution framework. For banks within 
the Banking Union, this number exceeds 70%. When considering only cases from 2016 
onwards,  when  the  bail-in  tool  started  to  apply,  the  proportion  of  measures  other  than 
resolution  rises  to  75%  of  the  cases  for  the  EU  and  to  84%  for  the  Banking  Union 
(Chapter 2, section 2.1).  

The scarce application of resolution, and the preference by resolution authorities to look 
for  alternative  avenues  often  with  the  support  of  public  money,  are  mainly  due  to  the 
misalignment of incentives to choose the appropriate tool to address a bank failure. 

Major  concerns  have  been  raised  about  imposing  losses  on  depositors,  such  as 
households and owners of small businesses in a region and the impact this would have on 
financial  stability,  depositor  protection,  thereby  creating  incentives  to  find  alternative 
solutions (see Box 1 below, Annex 8, section 1 and Annex 4, Box 6). The prevalence of 
deposits  in  the  liability  structure  of  these  banks  increases  the  likelihood  of  imposing 
losses on depositors to comply with the conditions to access RF/SRF when the resolution 
avenue is chosen. Many stakeholders (Member States, citizens/depositors)  consider that 
imposing  losses  on  depositors,  beyond  the  protection  of  EUR  100  000  granted  by  the 
DGS,  would  have  financial  stability  implications  which  may  fuel  concerns  on  the 
protection of deposits in the system as a whole. It may lead to bank runs and increase the 
risk  of  contagion  to  other  institutions.  Resolution  authorities  have  therefore  been 
reluctant to use measures, such as the bail-in tool in resolution that aims to absorb losses 
through the bank’s shareholders and creditors, when it would lead to imposing losses on 
depositors (such as households and SMEs). This may particularly be the  case for  small 
and mid-sized banks that are anchored in the local/regional economy and where the bail-
in of depositors could inflict substantial damage to the (local) real economy. Faced with a 
trade-off  between  preserving  financial  stability  and  limiting  the  impact  on  the  real 
economy  on  one  hand,  and  using  taxpayer  money  on  the  other  hand,  authorities 
(European,  national  or  regional)  may  therefore  have  delayed  the  start  of  the  crisis 
management  procedures  in  search  of  alternatives  causing  the  financial  situation  of  the 
bank  in  distress  to  further  deteriorate.  The  choice  of  such  alternatives  often  resulted  in 
preferring certain objectives (protecting financial stability and depositor protection) over 
others  (avoiding  the  use  of  public  funds  and  level  playing  field  and  fair  treatment  of 
depositors  and  taxpayers  in  the  single  market).  This  shows  that,  for  certain  small  and 
mid-sized  banks,  the  CMDI  framework  cannot  simultaneously  fulfil  all  the  four 
objectives agreed by co-legislators in the framework at its inception in 2014, and which 
are  in  line  with  the  international  consensus  on  the  attributes  of  effective  resolution 
regimes.  Resolution  authorities were faced with  choosing  which objectives  to  protect  – 
financial stability and depositors over public budgets and level playing field, leading to a 
sub-optimal  performance  of  the  framework  and  risks  to  its  credibility.  Therefore,  the 
CMDI  framework  needs  to  be  amended  to  avoid  such  trade-offs  in  the  future  and 

20 

 
facilitate the simultaneous achievement of the objectives of protecting financial stability, 
depositors as well as taxpayer money and level playing field for all banks. 

Box 1: Why resolution has not been applied in some cases  

This stylised example shows how the business model of a bank can impact its ability to 
meet  the  minimum  conditions  to  access  the  resolution  fund,  in  cases  where  external 
funding is needed to support the execution of the resolution strategy. 

The  higher  prevalence  of  deposits  in  the  balance  sheet  of  small/medium-sized  banks 
amplifies  the  risk  that  the  depositors  would  have  to  be  bailed-in  to  fulfil  the  minimum 
access conditions (in the form of a bail-in of at least 8% of the bank’s total liabilities and 
own funds). 

The possible impacts on financial stability and depositor confidence may incentivise the 
search  by  the  supervisory  and  resolution  authorities  for  other  avenues  than  resolution. 
Importantly,  the  counterfactual  of  resolution  would  be  the  piecemeal  liquidation  and 
payout of the covered deposits, which can be  very  costly for a DGS, while at the same 
time not fully averting impacts on depositor confidence and the real economy because all 
other uncovered deposits would be exposed to losses, until a possible (partial) recovery 
under the prevailing insolvency proceeding. 

Figure 2: Stylised example – bail-in of depositors 

Source: Commission services 

The evaluation shows that the misalignment of incentives when deciding which tools to 
apply to  a failing bank  can be explained by several  drivers  ranging from the flexibility 
and  room  for  arbitrage  that  exist  when  choosing  the  right  tools,  the  divergences  in 
conditions to access financing by the safety nets (DGS, RF/SRF) or benefit from public 
support and the resulting vulnerabilities of the depositor protection in the EU.  

21 

 
 
 
 
 
These drivers directly affect the predictability of the framework, creating inefficiencies in 
the management of bank failures. On this basis, the framework does not appear adequate 
to  handle  the  failure  of  certain  institutions  in  respect  of  all  the  objectives,  be  it  on  an 
idiosyncratic basis or under a systemic scenario with multiple bank failures, where these 
problems would be exacerbated. 

The problem tree 

Figure  3  displays  the  problem  tree,  covering  the  three  main  high-level  problems 
identified as well as the problem drivers and their related consequences. 

Figure 3: The problem tree19 

Source: Commission services 

The first problem groups together all issues related to the current lack of legal certainty 
and predictability in the application of the framework. Most importantly, the decision of 
public  authorities  whether  to  resort  to  resolution  or  insolvency  tools  for  failing  banks 
may differ considerably depending on the solutions available for a specific failing bank 
in  the  national  framework.  The  second  problem  focuses  on  unresolved  funding  issues 
(sources,  access  conditions)  and  is  central  to  the  application  of  the  framework20.  The 

19 The focus here is on the main problem drivers, but other relevant causes for the scarce application of the 
CMDI framework are detailed in Annex 8 (e.g. inadequate early intervention framework and timeliness of 
determining the bank as failing or likely to fail and diverging triggers for national insolvency proceedings).  
20 The problems are presented following the lifecycle of events taking place in a bank in distress but such a 
sequence is not indicative of the relative importance of each problem in relation to the others.  

22 

 
 
                                                           
third problem highlights the need to improve depositor protection, including the potential 
lack of sufficient resources in case several banks in a Member State were to fail.  

The persistence of these problems suggests that the CMDI framework in its current form 
is unable to ensure adequate and proportionate solutions for all bank failure regardless of 
the  size  and  business  model,  while  preserving  overall  consistency  of  outcomes  and  a 
level  playing-field,  aligning  incentives  and  limiting  risks  to  financial  stability,  moral 
hazard,  and  exposure  of  taxpayer  funds.  Also,  the  problems  related  to  depositor 
protection  and  handling  of  the  failure  outside  the  harmonised  framework  impair  the 
functioning  of  the  single  market  and  affect  depositor  confidence,  which  could  lead  to 
bank runs and undermine financial stability.  

2.1.  Problem 1: Insufficient legal certainty and predictability in the 

management of bank failures 

The  resolution  framework  introduced  strategies,  powers  and  tools  to  restructure  failing 
banks  while  protecting  depositors,  financial  stability  and  taxpayers.  However,  so  far 
resolution has only been scarcely applied, in particular in the Banking Union under the 
SRMR.  Instead,  other  tools  have  been  more  frequently  used  such  as  insolvency 
proceedings involving DGS funds, precautionary recapitalisation or measures to prevent 
the  failure  and  the  exit  of  the  bank  from  the  market  altogether.  These  measures  often 
involved the use of taxpayer money (bail-outs), instead of the bank’s internal resources 
(bail-in) to the extent required by the resolution framework21 and industry-funded safety 
nets,  such  as  the  Single  Resolution  Fund  (SRF)  in  the  Banking  Union  (EUR  80  bn  by 
2024),  so  far  unused.  Since  2015,  more  than  60%  of  banks  in  distress  in  the  EU  were 
managed outside of the resolution framework. For banks within the Banking Union, this 
number increases to more than 70%. When considering only cases from 2016 onwards, 
when the SRMR and the bail-in tool started to apply, the proportion of tools other than 
resolution  rises  to  75%  of  the  cases  for  the  EU  and  to  84%  for  the  Banking  Union. 
Error! Reference source not found. depicts the tools applied in past cases of banks in 
distress in the EU from 2015 to date. For a complete list of cases, please see Annex 9. It 
is worth noting that a number of these cases dealt with “legacy issues” which occurred 
since the start of the financial crisis in 2008 or before22.  

21 Burden sharing by shareholders and subordinate debt holders was implemented under State aid rules, but 
not corresponding to the 8% TLOF required by the BRRD/SRMR. 
22 While legacy issues may have played a role in past cases and can be expected to have a lesser impact 
going  forward, this does  not  impair the  validity of the considerations  made in  this chapter, nor puts into 
question the need to reform the framework to ensure efficacy in managing potential future crises. 

23 

 
 
 
                                                           
Figure 4: Variety of tools applied in bank crises cases from 2015 to date in the EU (as 
a percentage of all cases and absolute number) 

Notes: Banks that received different support measures throughout the time are counted for every tool 
applied. Out of the 13 FOLF banks that went into resolution (positive public interest assessment), seven 
were Banking Union cases (out of which four occurred before the entry into force of the minimum 8% 
TLOF bail-in requirement and before the SRB became responsible for the handling of these cases). In ten 
out of those 13 cases national resolution funds were used. Beyond these 13 cases, most other cases of 
support measures encountered (18 out of 20 cases) were Banking Union cases. 

Source: European Commission 

Although certain aspects of the framework are still in a transitional period23 and despite 
the  variety  of  tools  to  manage  failing  banks  or  to  intervene  before  failure,  its  scarce 
application  can  be  linked  to  the  conditions  to  activate  such  measures  that  vary 
substantially across Member States, are subject to discretion and sometimes lack clarity 
or leave room for arbitrage, increasing legal uncertainty, uneven protection of depositors, 
ineffective and inefficient use of funds available.   

In  particular,  a  number  of  problem  drivers  emerge:  (i)  lack  of  clarity  and  adequate 
framing  of  the  application  of  DGSD  preventive  measures  and  BRRD  precautionary 
measures, (ii) broad legal discretion in the application of the public interest assessment to 
place a bank in resolution (under the EU framework)  versus insolvency (under national 
rules) and (iii) divergence in the hierarchy of claims in national insolvency laws24. 

The variety of tools allowed are preserving a margin of manoeuvre to account for legacy 
situations25.  This  ensures  that  the  framework  remains  flexible  and  proportionate  to 
address  various  types  of  bank  failures.  At  the  same  time,  the  divergences  mentioned 
above  create  a  risk  of  inconsistent  solutions  across  Member  States  and  reduce  the 
predictability  of  the  framework.  Moreover,  the  possibility  to  use  public  budgets  (i.e. 
taxpayers’  funds)  outside  resolution,  which  in  principle  should  be  avoided  or  strictly 
limited to  avoid  risks of moral  hazard, begs the  question whether the framework  could 
better  achieve  its  objectives.  This  would  promote  a  more  consistent  approach  to  the 

23 For example, the build-up of resolution buffers is expected to be completed on 1 January 2024 according 
to the revised BRRD/SRMR. 
24  Throughout  this  document,  the  terms  ‘hierarchy  of  claims’,  ‘creditor  hierarchy  in  insolvency’  and 
‘ranking of liabilities’ are used as synonyms and describe the same concept (see glossary).  
25  In  particular,  certain  banks  had  accumulated  over  the  years  a  significant  amount  of  non-performing 
loans, largely as a legacy of the financial crisis.  

24 

 
 
                                                           
management of bank failures, including in  terms of increased level  playing field  at  EU 
level. 

2.1.1.  Lack of clarity and framing of the BRRD precautionary measures and the 

DGSD preventive measures 

The current  set  of DGSD rules provides for measures to  support a bank before it faces 
serious  deterioration  in  its  financial  situation  and  the  triggering  of  resolution  or 
insolvency, the so-called preventive measures.  

Currently, Article 11(3) DGSD enables the use of DGS funds for preventive measures as 
a  national  option  and  discretion  (OND).  Not  all  Member  States  have  transposed  it  into 
national law26.  

These measures to prevent the failure of a bank are subject to conditions ensuring their 
sufficient  soundness  from  a  financial  perspective,  and  that  the  DGS  resources  are  not 
used  excessively.  The  safeguards27  should  also  ensure  the  correct  interaction  with  the 
FOLF determination. However, the current legislative text provides insufficient clarity on 
such conditions  and safeguards28.  In past  interventions,  DGSs granted support to  banks 
which were rather close to a situation of failure implying an inefficient use of DGS funds 
or a circumvention of resolution/liquidation. While the current rules do not prevent this, 
there  is  scope  to  reflect  on  possible  improvements  in  the  legislative  framework  to 
reinforce  the  role  of  these  measures  as  preventive  actions,  which  should,  in  principle, 
intervene when a bank’s financial conditions deteriorate but still far from a failure. 

Moreover,  the  DGS  intervention  could  be  qualified  as  either  private  or  public  for  the 
purpose of State aid control by the Commission. Such an assessment is made on a case-
by-case  basis,  taking  into  consideration  elements  such  as  the  governance  and  decision-
making  procedure  of  the  DGS  and  circumstances  relating  to  the  measure.  The 
determination whether a DGS intervention constitutes State aid or not, has an impact on 
the  legal  treatment  of  the  DGS  intervention,  under  the  BRRD.  In  particular,  the 
qualification  of  the  intervention  as  State  aid  would  de  facto  impede  the  intervention  of 
the DGS in a preventive capacity, as this would trigger a determination of FOLF under 
the  BRRD,  i.e.  the  bank  would  have  to  be  resolved  or  put  into  insolvency.  Evidence 
shows that some preventive measures were assessed as being  private (i.e. EUR 5.35 bn 
funded  by  the  private  arm  of  a  DGS  fund  or  through  market  conform  measures)  and 
therefore neither qualified as State aid (see section 3.2.13 of Annex 6 and Annex 9) nor 
triggered FOLF under BRRD.  

The  BRRD  further  provides  for  a  set  of  precautionary  measures29  (in  the  form  of 
recapitalisation or guarantees/liquidity) which can be granted to solvent banks to address 
hypothetical  financial  issues  identified  in  a  stress  test  or  equivalent  exercise.  BRRD 
provides for strict conditions and safeguards to grant support in this form, to ensure that 

26 See Annex 5 (evaluation), section 7.1.3.3, nine Member States transposed these provisions.  
27 These include the requirement that the cost of the measure does not exceed that of fulfilling the mandate 
of the  DGS as  well as a requirement that the  DGS  has appropriate procedures in place for selecting and 
implementing the measures and to monitor affiliated risks.   
28 See Annex 5 (evaluation), section 7.1.3.3. 
29 Which are also mirrored in the SRMR. 

25 

 
                                                           
the  support  does  not  benefit  a  bank  that  is  too  close  to  failure  and  to  avoid  (for 
precautionary recapitalisation) that the support is used to cover losses that were already 
incurred by the bank or are likely to be incurred. 

Past  practice  in  the  application  of  these  measures  has  provided  the  opportunity  for  the 
Commission  to  identify  issues  which  may  require  an  interpretative  effort  and  hence 
would require legal clarification, particularly with respect to the concept of solvency, the 
determination  of  the  amount  of  support  allowed  (by  virtue  of  distinguishing  between 
incurred, likely and unlikely losses) as well as to the additional clarity needed as to the 
use  of  precautionary  recapitalisation  to  support  impaired  asset  measures  (see  section 
7.1.3.3  in  Annex  5  (evaluation)  and  section  9  in  Annex  8  for  more  information  on  the 
legal clarity issues identified for precautionary measures). 

Improving  the  clarity  of  the  legal  provisions  would  help  limit  the  risk  that  support  for 
preventive and precautionary measures would allow existing creditors to exit their claims 
on the bank shortly before FOLF is triggered and resolution/insolvency is applied, which 
may  in  turn  result  in  a  higher  use  of  financing  sources  (RF/SRF  in  resolution  or  DGS 
funds under insolvency proceedings). 

2.1.2.  Discretionary application of the public interest assessment 

As  highlighted  in  the  evaluation  (see  Annex  5,  section  7.1.3.4),  the  BRRD  and  SRMR 
leave a margin of discretion to resolution authorities when carrying out the public interest 
assessment  (PIA).  While  a  certain  degree  of  flexibility  when  assessing  the  different 
factors relevant for the PIA is needed, the divergent applications and interpretations may 
not fully reflect the logic and intention of the legislation. In the Banking Union, the test 
was  so  far  applied  rather  restrictively  and  resolution  action  was  taken  only  on  three 
occasions30.  Resolution  was  used  more  frequently  outside  the  Banking  Union  and  in 
some Banking Union Member States when it took place under the direct governance of 
national resolution authorities (ten out of 13 cases)31. 

In essence, the PIA compares resolution and the normal insolvency proceedings available 
at  national  level  against  a  set  of  objectives  which  include  (i)  the  impact  on  financial 
stability (a wide-spread crisis may yield a different PIA than an idiosyncratic failure), (ii) 
the assessment of the impact on the bank’s critical functions and (iii) limiting the use of 
extraordinary public financial support32.  

Regarding the notion of  critical  function, there are divergences in  interpretation  among 
resolution authorities on whether the impact of its interruption should be assessed for the 

30 Two of these cases concern the resolution of entities under the Sberbank Europe AG group which was 
carried out by the SRB. As further explained in Annex 9 due to the very special circumstances the group 
was  faced  with  (experiencing  significant  deposit  outflows  due  to  the  reputational  impact  of  geopolitical 
tensions) there was a deviation from the resolution plan (which provided for the  preservation of the group 
structure) and different solutions (resolution/liquidation) where applied to different banking entities of the 
group. 
31  Out  of  the  ten  cases:  (i)  six  cases  concern  non-Banking  Union  Member  States  and  (ii)  four  cases 
occurred,  within  Banking  Union  Member  States,  before  the  entry  into  force  of  the  minimum  8%  TLOF 
bail-in requirement and before the SRB became responsible for the handling of these cases. 
32 This notion includes any support granted to preserve or restore a bank’s viability, solvency or liquidity 
and which is qualified as State aid. It also extends to support granted at supranational level which, if it was 
granted at national level, would be qualified as State aid (for example from the SRF). 

26 

 
                                                           
economy of an entire Member State or at local/regional level. However, the BRRD and 
SRMR  (particularly  if  read  in  conjunction  with  the  relevant  delegated  act)33  are  not 
meant to exclude the impacts within a Member State (i.e. in a region/locally) or to restrict 
the assessment of the financial stability to (at least) an entire Member State.  

Moreover, with the objective of an efficient use of external sources of funding in mind, 
the requirement to compare the use of funding in resolution and in insolvency could be 
clarified as this would help deliver a broader choice of resolution tools which are often 
more  cost-effective  compared  to  insolvency.  In  particular,  when  resolution  provides  a 
possibility to use DGS resources more effectively and efficiently than in insolvency (for 
example  because  it  would  be  cheaper  for  the  DGS  to  contribute  to  resolution  than  to 
insolvency,  where  the  only  possible  use  of  a  DGS  would  be  to  pay  out  covered 
depositors), this element should provide additional grounds for a positive PIA finding via 
the  application  of  the  framework.  Furthermore,  the  objective  to  limit  the  cost  for 
taxpayers could benefit from a further distinction between the use of public funds from 
the State budget and the use of the RF/SRF or the DGS, which are financed by all banks. 

2.1.3.  Divergence in the hierarchy of claims in national insolvency laws 

The BRRD harmonised at EU level certain rules concerning the order according to which 
creditors must be repaid (hierarchy of claims) in national laws governing bank insolvency 
proceedings, especially regarding covered deposits, preferred non-covered deposits34 and 
subordinated  classes  of  instruments.  However,  certain  divergences  in  the  hierarchy  of 
claims remain, in particular, when it comes to the ranking of ordinary unsecured claims, 
other deposits and exclusions from bail-in. This creates the potential for uneven treatment 
of creditors, including depositors, in resolution and in insolvency, across Member States. 
Such divergences have the potential to create an uneven playing field in the single market 
and  complicate  the  no  creditor  worse  off  (NCWO)  assessment,  which  ensures  that 
creditors are not worse off in resolution than under insolvency proceedings, especially for 
cross-border  groups  including  across  Member  States  participating  in  the  Banking 
Union35.  

More precisely, the NCWO principle imposes that the allocation of losses to shareholders 
and  creditors  under  the  resolution  scenario  should  not  exceed  the  losses  that  those 
shareholders  and  creditors  would  otherwise  have  incurred  under  a  normal  insolvency 
proceeding,  which  would  be  counterfactual.  If  it  does,  those  shareholders/creditors 
should  be  compensated.  Hence,  when  applying  resolution  tools,  the  outcome  of  the 
NCWO  assessment  together  with  the  identification  of  the  relevant  counterfactual, 

33  Commission  Delegated  Regulation  (EU)  2016/778  of  2  February  2016  supplementing  Directive 
2014/59/EU  of  the  European  Parliament  and  of  the  Council  with  regard  to  the  circumstances  and 
conditions  under  which  the  payment  of  extraordinary  ex  post  contributions  may  be  partially  or  entirely 
deferred, and on the criteria for the determination of the activities, services and operations with regard to 
critical functions, and for the determination of the business lines and associated services with regard to core 
business lines, OJ L 131, 20.5.2016, p. 41. 
34 The part of deposits from natural persons and micro, small and medium-sized enterprises (SMEs) that is 
eligible  for  DGS  protection  but  that  exceeds  the  DGSD  coverage  level  (Article  108(1)(a)),  as  well  as 
deposits  that  would  be  eligible  deposits  from  natural  persons  and  SMEs  were  they  not  made  through 
branches located outside the Union of banks established within the Union.  
35 See Annex 8, section 2 for more details on the issue pertaining to the divergences in depositor ranking.  

27 

 
                                                           
depending on the specific national insolvency regime, can lead to varying conclusions in 
terms  of treatment  of creditors across Member States, which is  especially relevant  as it 
could create difficulties and creditors’ unequal treatment in cases of cross-border group 
resolution. 

2.2.  Problem 2: Ineffective funding options and divergent access to funding 

conditions in resolution and outside resolution 

The  evaluation  of  the  framework  identified  a  second  problem,  i.e.  the  divergent 
conditions for accessing funding in resolution and outside resolution. When funding from 
the  safety  nets  (RF/SRF  and  DGS)  is  used  to  complement  the  bank’s  internal  loss 
absorbing  capacity,  the  requirements  to  access  such  funding  are  very  different  (i.e.  the 
least cost test to access the DGS fund in and outside resolution as well as the minimum 
8% bail-in rule to access the RF/SRF are very divergent and impact creditors, including 
deposits  differently).  More  specifically,  funding  outside  resolution  is  generally  more 
easily accessible than in resolution, in particular for certain banks, as explained more in 
detail in section 2.Error! Reference source not found.36. Funding issues are driven by 
(i)  structural  difficulties  in  fulfilling  the  minimum  conditions  to  access  the  RF/SRF  by 
certain banks37, (ii) divergent requirements to access funding from the resolution fund as 
compared  to  other  sources  of  funding  outside  resolution,  and  (iii)  the  lack  of  clear, 
adequate  and  consistent  rules  in  accessing  DGS  funding  in  resolution  and  insolvency. 
Based on available information, there are indications that this second problem led to the 
use of public money in crisis management38. 

2.2.1.  Difficulty in fulfilling the conditions to access resolution funds for certain 

banks 

To  facilitate  the  execution  of  resolution  strategies  and  the  application  of  resolution 
tools39,  banks  are  required  to  hold  sufficient  loss-absorbing  capacity  composed  of  own 
funds  and  eligible  liabilities  (MREL).  More  specifically,  they  are  required  to  hold  a 
sufficient  and  proportionate  amount  of  liabilities,  which  are  easily  bail-inable.  The 
resolution  authority  determines  the  MREL  requirement  on  a  bank-by-bank  basis 
depending on the chosen resolution strategy and envisaged resolution tools. For instance, 
in the case of open bank bail-in, the MREL requirement is calibrated to ensure that bank 
is able to bear the losses and, to get recapitalised and restructured so it can continue its 

36 See also the evaluation in Annex 5, in particular section 7.1.2.3. 
37 See Annex 7 on the data underlying the difficulties to reach the minimum target of bailing in 8% of the 
bank’s total liabilities including own funds. 
38 See Annex 5 (evaluation), section 7.1. 
39  The  CMDI  framework  created  several  resolution  tools  that  define  the  resolution  strategy,  which 
resolution  authorities  may  use  as  stand-alone  or  in  combination  when  dealing  with  failing  banks  with  a 
positive PIA: (i) open bank bail-in (activities are restructured and the bank is recapitalised via the bail-in of 
shareholders and creditors to continue its activity on the market) and transfer strategies including (ii) sale 
of business strategy (part or the entire business is sold to a/several buyer(s) and any  remaining part could 
be liquidated or transferred to an asset management vehicle), (iii) bridge bank strategy (part of the activities 
are  temporarily  transferred  into  a  different  bridge  entity  until  a  buyer  is  found)  and  (iv)  asset  separation 
vehicle used in combination with another tool (problematic assets/liabilities are transferred into a vehicle 
that  manages  their  work-out  to  generate  proceeds). The  MREL  requirement  needs  to  be  proportionate  to 
the chosen resolution strategy and tools, e.g. MREL requirements for open bank bail-in strategies may be 
higher than requirements for transfer strategies.   

28 

 
                                                           
activity. Resolution authorities may provide complementary financing support, if needed, 
through the use of the RF/SRF, provided that certain conditions are met. Among these, 
key  conditions  to  access  the  RF/SRF  for  solvency  support  are:  imposing  losses  on 
shareholders  and  creditors  for  not  less  than  8%  of  total  liabilities  including  own  funds 
(TLOF)  and  a  limitation  on  the  contribution  from  the  fund,  which  cannot  exceed  5% 
TLOF40 per bank. While not clearly mentioned in the legal text and remaining subject to 
legal interpretation, it is considered that accessing the RF/SRF for liquidity support does 
not require a minimum bail-in of 8% TLOF. 

As  developed  in  the  evaluation  in  Annex  5,  the  need  to  access  resolution  funding  may 
arise  for  any  bank  (whether  executing  an  open  bank  bail-in  or  a  transfer  as  resolution 
strategy)  and  the  conditions  to  access  the  RF/SRF  under  the  current  framework  do  not 
sufficiently account for distinctions on grounds of proportionality based on the resolution 
strategy, size and/or business model. The ability of banks to fulfil the access conditions 
to  the  RF/SRF  depends  therefore  only  on  the  stock  and  the  type  of  bail-inable 
instruments  available  in  their  balance  sheets  at  the  time  of  the  intervention,  while  it 
should be based on a case-by-case assessment of the bank and the resolution strategy.  

Overall, banks have considerably increased their MREL capacity and, by 2024, they will 
be expected to comply with the requirements set in BRRD II. The build-up of MREL is 
gradual  and  a  necessary  transition  to  address  the  legacy  risks.  However,  evidence  (see 
analyses in Annexes 7 and 13) suggests that, for some (smaller) banks in certain markets, 
the  difficulty  to  build  up  MREL  is  of  a  structural  rather  than  of  a  transitional  nature41. 
Analyses underpinning this conclusion focused on: (i) the structure of banks’ liabilities, 
in particular assessing the amount of liabilities that are bail-inable and whether deposits 
would need to be subject to bail-in in order for the bank to be able to reach the 8% TLOF 
and access the RF/SRF  42 (ii) the level of MREL shortfalls and (iii) market information 
on issuances by certain smaller/medium-sized banks43. For some banks, considering their 
specific liability structure, certain deposits44 would need to be bailed-in in order to access 
the  RF/SRF,  which  may  raise  concerns  of  financial  stability  and  operational  feasibility 
considering  the  economic  and  social  impact  in  a  number  of  Member  States.  This  is 
particularly  the  case,  for  example,  where  banks  are  relying  significantly  on  deposit 
funding  and  where  bail-in  may  have  a  profound  impact  on  certain  portions  of  the  real 
economy.  

40  Article  44(5)  BRRD  requires  a  minimum  bail-in  of  8%  TLOF  and  provides  for  a  maximum  RF 
contribution of 5% TLOF (unless all unsecured, non-preferred liabilities, other than eligible deposits, have 
been written down or converted in full) when a resolution authority decides to exclude or partially exclude 
an  eligible  liability  or  class  of  eligible  liabilities,  and  the  losses  that  would  have  been  borne  by  those 
liabilities have not been passed on fully to other creditors, or when the use of the RF indirectly results in 
part of the losses being passed on to the RF (Article 101(2) BRRD). 
41  Nevertheless,  it  needs  to  be  kept  in  mind  that  the  non-issuance  of  MREL  instruments  by  such  banks, 
which  are  presently  earmarked  to  be  placed  in  insolvency  rather  than  resolution,  may  be  an 
active/deliberate choice of the institution. 
42 This point (i) is developed in Annex 7. 
43 These points (ii) and (iii) are developed in Annex 13. 
44  Such  as  deposits  not  covered  and  not  preferred,  i.e.  deposits  of  large  corporates,  governments,  other 
financial institutions, other institutions.  

29 

 
                                                           
According  to  the  empirical  evidence  presented  in  Annex  7  (section  3.2.1),  out  of  a 
sample of 187 banks that would go into resolution if they failed as of Q4 2019, deposits 
in 44 banks in 18 Member States would have to bear losses for an aggregate amount of 
EUR 14.16 bn under the baseline scenario (status quo) in order to reach 8% TLOF and be 
able  to  access  the  RF/SRF.  As  explained  in  section  8  of  Annex  8,  retail  and  SME 
deposits  are  predominant  in  smaller  and  medium-sized  banks  across  the  EU.  Such 
considerations may explain the reluctance of some resolution authorities to impose losses 
on  depositors,  leading  to  sub-optimal  crisis  management  choices  outside  resolution 
financed by public budgets. 

2.2.2.  Divergent access requirements for the resolution fund and for funding 

outside resolution 

Precautionary  measures,  preventive  measures  and  liquidation  aid  under  national 
insolvency proceedings are different forms of public support available outside resolution. 
In past cases, these measures have been used quite extensively (see Annex 9).  

Following  the  entry  into  force  of  the  resolution  framework  in  2015,  available  evidence 
shows  that  European  banks  benefitted  from  public  support  amounting  to  over 
EUR 58.2 bn mainly under insolvency proceedings and in the form of precautionary aid 
measures45, in addition to the burden sharing required by the State aid rules (Figure 5).  

All  these  measures  are  subject  to  burden  sharing  requirements46  pursuant  to  State  aid 
rules,  requiring  that,  after  losses  are  first  absorbed  by  equity,  contributions  by  hybrid 
capital  holders  and  subordinated  debt  holders  may  be  necessary.  This  requirement  is 
generally  less  demanding  for  bank  debt  holders  than  the  corresponding  requirements 
under  BRRD,  which  entails  that  losses  are  absorbed  by  shareholders  and  creditors, 
potentially including depositors (e.g. through bail-in) for a minimum of 8% TLOF before 
the resolution fund can be accessed. 

45  EUR 28.1 bn  were  provided  as  precautionary  liquidity  measures  in  the  form  of  guarantees  under  the 
BRRD,  and  EUR 30.1 bn  as  capital/guarantee  measures,  of  which  EUR  10.8 bn  as  precautionary 
recapitalisation  under the BRRD, EUR 17.5 bn as liquidation aid under national  law in  the  form of cash 
injection and guarantees, and EUR 1.8 bn as public aid in resolution under the BRRD (the latter public aid 
measure  concerns  a  case,  which  occurred  before  the  entry  into  force  of  the  minimum  8%  TLOF  bail-in 
requirement). 
46 With the exception of liquidity support measures, which are meant to be of temporary nature and have a 
less distortive effect, and as a result are subject to more lenient State aid requirements (including as regards 
the  requirements  for  adequate  burden  sharing)  compared  to  more  permanent  measures  such  as 
recapitalisation or impaired asset measures.   

30 

 
 
 
                                                           
Figure  5:  Sources  of  complementary  external  funding  in  crisis,  cases  between  2015 
and 2022 (in EUR bn) 

Notes:  The  contribution  from  the  RFs  amounting  to  EUR  6.9  bn,  includes  the  amount  of  EUR  1.4  bn 
contributed jointly by the Polish RF and DGS in the case of resolution of Getin Noble bank SA (see Annex 
9 for more details on this case). Information on the amounts contributed by RFs and DGSs in some of the 
bank cases are not publicly available. 

Source: European Commission calculations  

In the case of preventive and precautionary aid (such as precautionary recapitalisation or 
preventive measures), the framework provides for specific conditions to be met to ensure 
that these are granted to banks which are in financial difficulties but are still solvent and 
not  failing.  These  conditions  are  well  intended  to  ensure  consistency  with  the  overall 
logic of the resolution framework and to avoid that the burden sharing rules under State 
aid,  in  cases  where  they  lead  to  a  lower  requirement  create  an  opportunity  to  resort  to 
these measures to “escape” the more demanding bail-in requirement under BRRD.  

However, as mentioned  in  section 2.1.1, some banks were declared  FOLF shortly  after 
receiving precautionary support on grounds, inter alia, of being solvent as confirmed by 
the competent supervisor.  

Liquidation aid in national insolvency proceedings can also be useful to provide financial 
support  to  banks  to  the  extent  necessary  to  ensure  their  orderly  exit  from  the  market. 
However, the issue observed is that the availability of such support under different and 
generally more advantageous conditions from the point of view of the bank’s creditors47 
may create room for arbitrage and incentivise resolution authorities to look for solutions 
outside the resolution framework, particularly in light of the discretionary nature of the 
PIA48.  This  effect  is  exacerbated  by  the  fact  that,  resolution  authorities,  when  applying 
the  PIA,  rarely  compare  the  need  for  external  funding  in  resolution  (through  the 
resolution  fund  or  DGS)  and  in  insolvency  (liquidation  aid),  leading  to  the  choice  of 
inefficient tools to manage the bank’s failure. 

47 Paragraphs 40-42 of the 2013 Banking Communication set out the minimum burden-sharing requirement 
for equity, hybrid capital holders and subordinated debt holders in those cases. 
48 See also the Box 9 in Annex 5 (evaluation), section 7.1.2.3 point b, explaining the differences between 
the CMDI framework and the Banking Communication.  

31 

 
 
                                                           
2.2.3.  Limited scope to grant DGS funding in resolution and insolvency 

Under the current framework, DGS funds can be used to finance some interventions both 
in resolution and in insolvency. Article 109 BRRD provides for the use of DGS funding 
in resolution, in addition to the resolution fund. The provision sets out several conditions 
for the DGS intervention. The DGS support in resolution is limited to an amount equal to 
the losses borne by covered deposits if they were exposed to bail-in or if they could bear 
losses under another resolution strategy. In addition, the DGS’s liability is limited to the 
amount  of  losses  that  the  DGS  would  have  borne  when  paying  out  covered  deposits 
under  an  insolvency  counterfactual  (least  cost  test).  The  combination  of  these  rules, 
coupled with the limitations posed by the super-preference for the DGS in the ranking of 
liabilities in  insolvency  (which entail  that  in  most  cases DGS would not  be exposed to 
losses  in  the  counterfactual  insolvency49)  makes  the  use  of  DGS  in  resolution  more 
costly, creating several issues in applying the framework concerning the use of DGS in 
resolution. The DGS can only provide an amount up to the losses it would bear in case of 
a hypothetical payout in insolvency. These losses are given by the difference between the 
amount  disbursed  by  the  DGS  in  case  of  a  payout  and  the  amount  the  DGS  would 
recover from the sale of the bank’s assets in insolvency. Given the very high ranking of 
the  DGS  in  the  hierarchy  of  claim  (super-preference  of  DGS  claims),  the  DGS  has  the 
possibility  to  recover  part  or  all  of  its  expenditure  in  the  hypothetical  insolvency, 
depending  on  circumstances  (i.e.  nature  and  features  of  insolvency  regimes,  quality  of 
assets being liquidated). As a result, and as explained in the evaluation, this provision has 
never been used in practice50. 

The  DGS  may  also  finance  a  transfer  of  business  in  insolvency  proceedings  (Article 
11(6) DGSD), to the extent that this is necessary to preserve access to covered deposits 
and if it complies with the least cost test and State aid rules. The conditions to grant DGS 
funding  in  resolution  and  insolvency  are  not  entirely  aligned,  which  makes  the  use  of 
DGS  funds  subject  to  uncertainty.  Also  in  this  case,  the  DGS’  super  preference 
substantially limits the possibility for the DGS to provide funding. 

Finally,  the  opportunity  to  use  DGS  funding  in  resolution  or  insolvency  produces 
different  consequences depending on whether the potential intervention is in a Banking 
Union  or  non-Banking  Union  context.  For  non-Banking  Union  Members  States,  both 
resolution and DGS funds are financed by the domestic industry, possibly facilitating a 
combined use of these funds. However, in the case of Banking Union Member States, the 
SRF is financed by all banks in the Banking Union while the financing of DGS fund is 
national,  hence  only  by  domestic  banks,  creating  an  “asymmetry”  in  the  burden  of  the 
costs  in  case  DGS  would  “substitute”  the  SRF.  Moreover,  a  risk  of  shortfall  in  DGS 
funds  (see  problem 3  below)  may  occur  and  illustrates  the  potential  benefits  possible 
through pooling DGS funds at central level. 

49 See section 6.1.1.4 in Chapter 6 and sections 4.1.1 in Annex 7. 
50 It should however be mentioned that, in an effort to tackle some these limitations under the current text, 
the Commission services have supported a more extensive reading of the provision in Article 109 BRRD. 
See more details in the Annex 5, Section 7.1.2.3.  

32 

 
 
                                                           
2.3.  Problem 3: Uneven and inconsistent depositor protection and lack of 

robustness in DGS funding 

The  third  problem  identified  in  the  evaluation  relates  to  discrepancies  in  depositor 
protection  across  Member  States  both  in  terms  of  scope  of  protection  and  payout 
processes  and  in  terms  of  vulnerability  to  shortfalls  due  to  a  lack  of  a  robust  and 
central/common safety net in the absence of EDIS51. The DGSD, recast in 2014, includes 
a  high  number  of  national  options  and  discretions,  which  entitles  depositors  in  certain 
Member States to different levels of protection. Beyond this inconsistent application52 of 
the rules, depositor protection and confidence in the Banking Union could be undermined 
by the lack of an appropriate common safety net to national DGSs and equal treatment of 
all depositors. National DGSs still remain vulnerable to asymmetric shocks, which may 
put DGS funds at risk and create pro-cyclical effects for the banking sector as additional 
contributions may need to be raised in some Member States depending on the shock. By 
contrast, pooling national resources at a central level would deliver diversification effects 
and increase the robustness of depositor protection, possibly even lowering the burden on 
the industry in terms of replenishment needs. 

The drivers behind this problem can be summarised as follows: (i) discrepancies in 
national depositor protection across Member States and (ii) insufficient means of national 
DGS to weather the impact of a large financial shock. 

2.3.1.  Discrepancies in national depositor protection across Member States 

Gaps  and  fragmentation  in  the  deposit  protection  and  in  the  functioning  of  national 
deposit guarantee schemes persist due to the inconsistent application of the DGSD across 
Member  States  and  various  ONDs.  This  creates  divergences  in  the  robustness  of  DGS 
funds  and  uneven  playing  field  in  the  protection  that  depositors  enjoy  in  different 
Member  States.  The  EBA  published  four  opinions53  highlighting  the  need  for 
clarification in the DGSD54 and reducing discrepancies in national depositor protection. 
The  main  discrepancies  –  also  assessed  in  the  evaluation  and  Annex 6  –  are  explained 
below. 

In terms of scope of protection, the main problem relates to the divergence in coverage of 
temporary high balances  (deposits  above EUR 100 000) which are also  protected under 
the  DGSD.  The  coverage  level  varies  among  Member  States  and  ranges  from 
EUR 200 000  to  an  unlimited  amount,  creating  uneven  playing  field.  Other  ONDs 
leading  to  discrepancies  refer  to  the  types  of  depositors,  such  as  client  funds  of  other 

51 This was for example indicated by some speakers at the High-level conference on the CMDI review in 
March  2021  as  well  as  by  some  respondents  of  the  consultations.  See  also  Annex  5,  Section  7.1.4  and 
Annex 6. 
52 See Annex 6 for further details on the inconsistent application of the DGSD and the recommendations 
developed by EBA in this regard. 
53  EBA  opinions  on  DGS  payout  (30  October  2019),  on  the  eligibility  of  deposits,  coverage  level  and 
cooperation between DGS (8 August 2019), on funding and uses of DGS funds (23 January 2020) and the 
interplay between the AMLD and DGSD (11 December 2021). 
54  The  EBA  opinions  were  discussed  with  Member  States  in  the  EGBPI  and  many  suggestions  were 
supported (see Annex 6).  

33 

 
                                                           
financial institutions or public authorities which are protected differently across Member 
States55.  

In  addition,  the  robustness  of  the  DGS  funding  varies  across  Member  States  due  to 
differences  in  the  national  implementation  of  alternative  funding  arrangements,  which 
could be relied on in case the DGS funds were depleted. The lack of additional resources 
in  some  Member  States  could  impact  the  ability  to  pay  out  depositors  (or  conduct 
alternative  interventions  to  support  a  bank)  and  endangers  consumer  confidence  and 
financial stability. 

Furthermore, when it comes to  the use of preventive and alternative measures foreseen 
under Articles 11(3) and 11(6) DGSD, divergences in the least cost tests applied across 
types  of  intervention  and  Member  States,  hamper  the  predictability  of  the  framework. 
They create inconsistencies around the requirements for the various possible uses of DGS 
funds  (including  in  resolution),  which  are  unclear  and  differently  interpreted  among 
Member  States.  As  regards  preventive  measures,  Article  11(3)(c)  DGSD  provides  that 
costs  of  fulfilling  the  statutory  or  contractual  mandate  of  the  DGS  should  not  be 
exceeded.  Some  Member  States  use  the  same  least  cost  test  for  both  preventive  and 
alternative  measures,  while  others  did  not  develop  a  least  cost  test  methodology  for 
preventive measures (see Annex 6, section  Error! Reference source not found.). This 
has  the  potential  of  creating  an  uneven  playing  field  in  depositor  protection  across  the 
EU.  

As also identified in the evaluation (see Annex 5, section 7.4), the interplay between the 
DGSD  and  other  pieces  of  EU  legislation  raised  coherence  issues.  As  regards  the 
interplay  with  the  Anti-Money  Laundering  (AML)  Directive,  the  EBA  highlighted  the 
need to clarify the roles and responsibilities of the DGS and other stakeholders during a 
payout and strengthen their cooperation and exchange of information to minimise the risk 
of payout to depositors suspected of money laundering. As regards the Payment services 
and  E-money  Directives,  the  DGS  protection  of  client  funds  of  non-bank  financial 
institutions such as payment and e-money institutions or investment firms, varies across 
Member States and requires further clarification and harmonisation. 

2.3.2.  Insufficient means of national DGSs 

Member States are steadily building up their DGS means to reach 0.8% of total covered 
deposits by 2024, as required under the DGSD. Despite this continuous build-up, DGSs 
remain vulnerable to asymmetric shocks. Such shocks may put a national scheme under 
stress, making it difficult to settle individual depositor claims within the statutory time or 
to intervene through other possible use of DGS funds. In such situations, a DGS may find 
it difficult to call upon pro-cyclical extraordinary ex post contributions from its members 
to  make up for the shortfall. Alternative  funding arrangements could  include private or 
public sources, making eventually the sovereign the ultimate guarantor to national DGSs. 
Some  national  DGSs  faced  in  the  past  considerable  funding  needs,  representing  a 
significant  share  of  their  available  financial  needs,  resulting  in  continued  reliance  by 

55 For example, Member States may ensure that the deposits of small local authorities (Article 5(2) DGSD) 
or deposits held by personal pension schemes and occupational pension schemes of small or medium sized 
enterprises (Article 6(1) DGSD) are protected up to EUR 100 000. 

34 

 
                                                           
national DGSs on the state as a backstop for depositor protection, which strengthens the 
bank-sovereign nexus (see Annex 5, section Error! Reference source not found.).  

There is a high risk that DGS interventions could be impaired under a severe crisis56. The 
lack  of  consumer  confidence  in  this  context  may  also  trigger  deposits  outflows, 
conducive to bank runs. Under a severe crisis in one bank or Member State, depositors 
could  be  incentivised  to  transfer  their  funds  in  another  bank  or  even  another  country, 
potentially  exacerbating  financial  difficulties  of  the  initial  bank  or  national  banking 
sector57.  

The absence of a common deposit guarantee scheme (i.e. EDIS) at Banking Union level 
which  would  optimise  the  allocation  of  financial  means,  represents  a  significant 
drawback  for  DGS  resilience  and  an  all-encompassing  depositor  protection.  Failing  to 
unlock the unused benefits inherent in the pooling of funds at a central level and larger 
firepower  for  industry-funded  safety  nets  represents  a  lost  opportunity  to  significantly 
increase the efficiency of national DGS protection and lower the burden on the industry 
in terms of ex ante contributions or ex post replenishment requirements. The absence of 
EDIS also deprives depositors from a seamless guarantee of protection regardless of the 
bank  and  country  where  they  are  located,  potentially  weakening  consumer  confidence. 
As  experienced  in  the  2008  financial  crisis,  a  strong  bank-sovereign  nexus  may  create 
risks  to  financial  stability  through  contagion  and  negative  consequences  for  the  single 
market.  The  costs  of  an  incomplete  Banking  Union  lacking  EDIS  are  high,  while  the 
benefits for taxpayers and the industry are not materialising to their full potential. 

2.4.  How will the problems evolve? 

As the problem analysis shows, there is a need to improve several aspects of the current 
framework to address the inconsistencies, improve clarity and predictability of outcomes, 
foster the use of industry-funded sources  (RF/SRF and DGS), avoid using public funds 
for  the  orderly  handling  of  bank  failures,  to  ensure  that  the  original  objectives  of  the 
CMDI  framework  of  preserving  financial  stability,  minimising  the  use  of  public  funds 
and strengthening depositor confidence are reached. The improvement of the framework 
is particularly relevant, at this juncture, for better preparing the European banks for the 
adverse  conditions  that  may  potentially  arise  in  the  medium  term,  such  as  the  ones 
stemming  from  asset  quality  deterioration  as  a  result  of  a  weaker  macroeconomic 
outlook.   

Failing to address the above shortcomings, as also analysed in the evaluation, exposes the 
framework to  the risk of unbalanced outcomes,  without exploiting its full  potential and 
the possibility to  resolve any  credit institution, when  this  would  yield a better outcome 
than insolvency. If solutions based on the use of industry-funded safety nets are not made 

56  See  Annex  10,  section  Error!  Reference  source  not  found.,  presenting  the  findings  from  the  Joint 
Research Center (JRC) analysis. There is a probability of 87% at aggregate level in the Banking Union that 
DGSs would not have available funds to fully reimburse all covered depositors in at least one bank in case 
of a crisis comparable to the one of 2008 (see also JRC’s report (Annex 12, Tables 16 and 18)).  
57 Depositor outflows were experienced in the 2008 global financial crisis due to uncoordinated increases 
in coverage levels across the Union, leading the co-legislators to introduce a harmonised coverage level in 
the DGSD adopted in 2009 (see recital 19 DGSD). Outflows continued to be observed e.g. in  the case of 
Cyprus following the financial crisis, see Annex 8.1.  

35 

 
                                                           
more proportionate and accessible, these resources will remain idle, even though banks 
will continue to raise contributions and issue MREL eligible liabilities. At the same time, 
this  may  lead  to  prolonged  recourse  to  public  finances  (which  at  this  juncture  face 
competing priorities), persisting bank-sovereign links and risks of moral hazard.  

Ensuring  the  coherent  and  cost-effective  application  of  the  framework  is  even  more 
important,  given  the  continued  absence  of  EDIS  means  risks  to  the  robustness  and 
resilience of depositor protection (including under large economic shocks) as well as to 
the funding toolkit of the framework. It deprives the European consumer of a mutualised 
safety  net  financed  by  industry  contributions,  which  would  also  reduce  the  continued 
tension on public finances. 

Ultimately, the Banking Union is not complete without reforming the crisis management 
and  deposit  insurance,  its  second  pillar,  and  implementing  EDIS,  its  third  pillar.  An 
incomplete  Banking  Union  bears  costs  and  risks,  including  risks  in  terms  of  financial 
stability,  market  fragmentation,  under-performing  banking  sector,  where  failing  banks 
are not always exiting the market, leading instead to regular calls for public support. The 
completion  of  the  Banking  Union  together  with  the  deepening  of  the  Capital  Markets 
Union  are  pivotal  to  ensure  financial  stability,  foster  market  integration  and  support  a 
genuine  Economic  and  Monetary  Union.  The  latter  two  are  fundamental  steps  towards 
enhancing the EU’s open strategic autonomy and the international role of the euro. 

3.  WHY SHOULD THE EU ACT? 

3.1.   Legal basis 

The regulatory requirements for crisis management and deposit insurance are already set 
at  EU  level  (both  via  Regulation  and  Directive).  Consequently,  the  legal  basis  for  the 
CMDI  review  is  the  same  as  the  legal  basis  of  the  original  legislative  acts,  namely 
Article 114 TFEU for the BRRD and SRMR, and Article 53(1) TFEU for the DGSD.  

3.2.  Subsidiarity: Necessity and added-value of EU action 

The rationale for a specific and harmonised EU resolution regime for all banks in the EU 
was  laid  out  at  the  inception  of  the  framework  in  201458  and  its  main  features  reflect 
international  guidance and the key attributes  for effective resolution  regimes developed 
by the Financial Stability Board in the aftermath of the global financial crisis.  

The  principle  of  subsidiarity  is  embedded  in  the  existing  CMDI  framework,  as  its 
objectives  could  only  be  achieved  at  Union  level  through  EU  action  –  the  harmonised 
resolution and deposit insurance framework. This is underpinned by recital 131 of BRRD 
I,  which  stipulates  that  the  effect  of  a  failure  of  any  institution  in  the  whole  Union 
justifies  action  at  EU  level:  “Since  the  objective  of  this  Directive,  namely  the 
harmonisation  of  the  rules  and  processes  for  the  resolution  of  institutions,  cannot  be 
sufficiently achieved by the Member States, but can rather, by reason of the effects of a 
failure of any institution in the whole Union, be better achieved at Union level, the Union 
may adopt measures, in accordance with the principle of subsidiarity as set out in Article 

58 See Chapter 1, Annex 4 and Annex 5 (evaluation). 

36 

 
                                                           
5 of the Treaty on European Union. In accordance with the principle of proportionality, 
as set out in that Article, this Directive does not go beyond what is necessary in order to 
achieve that objective.”  

The  intention  of  the  existing  CMDI  framework  has  always  been  to  provide  a  common 
toolbox to deal effectively with any bank failure, irrespective of its size, business model 
or location, in an orderly way, preserving financial stability of the EU, the Member State 
or  the  region  in  which  it  operates,  and  protecting  depositors  without  relying  on  public 
funds. In this context, recital 29 of BRRD I outlined that ‘due to the potentially systemic 
nature  of  all  institutions,  it  is  crucial,  in  order  to  maintain  financial  stability,  that 
authorities have the possibility to resolve any institution’. 

The review aims to  amend certain provisions of the BRRD, SRMR and DGSD and for 
technical completeness, also considers one policy option including EDIS (see Chapters 5 
and  6).  The  problems  identified  in  Chapter  2,  unveiled  that  the  European  CMDI 
framework  should  be  improved,  in  particular  when  it  comes  to  its  application  to  small 
and medium-sized banks, as otherwise it may not reach its objectives (see Chapter 4).  

The  following  considerations  justify  the  need  for  EU  action  with  regard  to  the  CMDI 
reform and highlight that the review fully complies with the principle of subsidiarity.  

First,  the  merits  of  having  in  place  a  resolution  framework  that  could  potentially  be 
applied to any bank, irrespective of its size, remain unchanged. Placing small and mid-
sized  banks  under  national  insolvency  proceedings  (also  applicable  to  non-financial 
corporates)  may  not  always  be  appropriate  for  managing  their  failure,  as  explained  in 
Chapter  2.  Moreover,  a  system  where  the  EU  harmonised  resolution  framework  would 
only cover larger banks with cross border activities, while national regimes would cover 
domestic, small/mid-sized banks  would not  be  conducive  to  a level  playing field  in  the 
single  market  as  it  would  risk  creating  a  two-tier  system  for  banks  in  the  EU,  making 
small  and  domestic  banks  that  are  too  big  to  liquidate  more  risky/unattractive  for 
consumers and businesses relative to larger ones, because their failure would be managed 
under  national  insolvency  laws,  which  do  not  guarantee  the  continuation  of  critical 
functions, the protection of client relationship and of the bank’s franchise asset value and 
may inflict losses on uncovered deposits.  

Second,  the  non-application  of  the  harmonised  resolution  framework  in  one  Member 
State may have cross border repercussions. In the EU single market, and in particular in 
the  Banking  Union,  it  is  key  to  enhance  preparedness  for  crisis  time  and  to  equip 
resolution authorities with a common toolbox and harmonised set of powers to preserve 
the  level  playing  field  and  competitiveness  among  industry  players,  depositors  and 
taxpayers  across  the  single  market.  The  value-added  of  EU  action  also  consists  in 
enhancing preparedness for crisis – thanks to the requirement for banks to set-up internal 
loss  absorbing  buffers,  remove  impediments  to  resolution  and  the  set-up  of  industry-
funded  safety  nets  complementing  these  internal  bank  buffers  –  to  avoid  recourse  to 
public funds for all banks and not only cross-border ones. The possibility to access the 
EU harmonised CMDI framework acts as a safeguard at the level of each Member State, 
but also for the EU as whole, to ensure that the management of a bank’s failure does not 
put  at  risk  financial  stability,  the  integrity  of  the  single  market,  the  resilience  of  the 
European Monetary Union. Risks to financial stability, depositor confidence or the use of 

37 

 
public  finances  in  one  Member  State  may  have  far-reaching  impacts  on  a  cross  border 
basis  and  may  ultimately  contribute  to  a  fragmentation  of  the  single  market  and  an 
intensification of the sovereign-bank nexus. 

Third, acting at EU level to reform the CMDI framework will not prescribe the strategy 
that should be taken when banks fail. The determination of choosing an EU harmonised 
resolution  strategy/tool  or  the  national  liquidation  strategy  is  at  the  discretion  of  the 
resolution  authority  on  the  basis  of  the  public  interest  assessment,  which  is  tailored  to 
each specific failure case and not automatically driven by considerations such as the bank 
size, the geographical outreach of its activities and structure of the banking sector. This 
makes,  de  facto,  the  public  interest  assessment  the  subsidiarity  test  in  the  EU.  Overall, 
other  considerations  beyond  size,  such  as  functions  that  are  critical  for  the  broader 
economy 
substitutability, 
interconnectedness  to  other  actors  in  the  financial  system,  risk  profile  and  nature  of 
activity  are  important  for  resolution  authorities  when  assessing  the  impact  of  a  bank’s 
failure on financial stability and the public interest to resolve the bank.  

payments) 

lending, 

(deposit 

taking, 

their 

and 

Fourth,  the  decision-making  process  regarding  the  choice  between  EU  harmonised 
measures  versus  national  specific  measures  to  tackle  a  failing  bank  remains  at  the 
discretion of the authority in charge and aims to address a variety of cases depending on 
the  circumstances.  Outside  the  Banking  Union,  decisions  on  whether  to  apply  the 
resolution framework or national procedures are taken at a national level (by the national 
resolution  authority).  Within  the  Banking  Union,  decisions  are  made  via  the  Single 
Resolution  Mechanism  –  a  dual  mechanism  where  the  SRB  (Banking  Union  level 
authority)  works  closely  and  cooperates  with  national  resolution  authorities  in  joint 
resolution teams. Decisions are centralised at Banking Union level for the largest banks 
(120 banks under the direct SRB remit) and left at national level for the less significant 
ones (about 2200 less significant institutions (SRB, Annual Report 2021)), therefore fully 
preserving  the  capacity  of  these  national  authorities  to  put  a  bank  in  liquidation  if  the 
objectives would not be best met using resolution. Thus, while a case-by-case basis needs 
to be used for assessing whether a bank undergoes resolution or not, it is critical that the 
possibility  for  all  banks  to  undergo  resolution  is  preserved,  due  to  the,  potentially, 
systemic nature of all institutions, as already foreseen in BRRD I and also evidenced in 
Annex 4, Box 6. 

Fifth,  Member  States  may  still  consider  liquidation  for  the  smaller  banks  under  the 
reformed CMDI framework. In this respect, national insolvency regimes (unharmonised) 
remain  in  place  when  an  insolvency  procedure  is  deemed  superior  to  resolution.  For 
some small banks, liquidation is likely to apply. The continuum of tools is preserved in 
this  way,  including  tools  outside  resolution:  preventive  and  precautionary  measures, 
resolution tools, alternative measures to payout in insolvency and payout of depositors in 
case of piecemeal liquidation in insolvency. Among those tools, only the resolution tools 
and payout of depositors in liquidation are available to all banks in all countries.  

The  reforms  envisaged  with  regard  to  the  DGSD,  which  provide  for  improvements  to 
depositor protection, also comply with the subsidiarity principle. This is  due to the fact 
that the harmonisation of insurance coverage, scope, eligibility of depositors and payout 
delays can be better achieved at EU rather than at national level, to ensure a level playing 

38 

 
field and fair and equal treatment of depositors across the EU. This was also underlined 
by the EBA in its opinions on the DGSD.  

Importantly,  Member  States59  and  the  European  Parliament  agree  that  the  CMDI 
framework  needs  to  be  fixed  in  a  way  that  EU  action  via  the  harmonised  resolution 
framework can be used for any bank where needed. Despite the widely shared intention 
of  protecting  taxpayer  money  embedded  in  the  CMDI  framework  since  2014,  some 
Member  States  have  continued  to  make  recourse  to  taxpayer  money  when  handling 
failing banks, since the establishment of the framework, as evidenced in Chapter 2 and 
Annex 5. This is not because they find it politically or economically acceptable to do so, 
but because they had to  choose between protecting financial stability and depositors on 
one hand and protecting taxpayer money on the other hand. Appropriate level of MREL 
must remain the first line of defence for all banks that are put in resolution. At the same 
time, certain small and mid-sized banks find it challenging to access resolution funding, 
which some banks can only attain if deposits bear losses. However, inflicting losses on 
deposits  would  pose  a  significant  risk  to  financial  stability,  as  depositors  would  lose 
confidence in the banking sector and likely provoke bank runs and spiralling contagion, 
which  can  reverberate  also  into  the  real  economy,  as  seen  during  the  global  financial 
crisis. More concretely, the failure of a small/mid-sized banks active in a local region and 
community may cause losses to its clients regarding their claims exceeding the coverage 
level of EUR 100 000 when placed under national insolvency proceedings (households, 
SMEs, corporates, local and regional public institutions such as schools, hospitals, other 
financial institutions).  

Figure 6 shows the repercussions the identified problems have on the general objectives. 

Figure 6: Implications of the identified problems on the general objectives 

Source: Commission services 

The objectives pursued by the existing legislative acts can be better achieved at EU level 
rather than by different national initiatives: 

  Foster  financial  stability,  ensure  market  discipline  and  the  continuity  of  critical 
functions for society:  Due to  the strong interlinkages  between national financial 
sectors and the risk of spill-overs, the objective of financial stability in bank crisis 

59 Eurogroup (June 2022), Eurogroup Statement on the future of the Banking Union.  

39 

Foster financial stability, ensure market discipline and the continuity of critical functions for societySafeguard the functioning of the Single market and ensure a level playing field across the EUMinimiserecourse to taxpayer money and weaken the bank-sovereign loopProtect depositors and ensure consumer confidence GENERAL OBJECTIVESPROBLEMSProblem 1Insufficient legal certainty and predictability in the management of bank failuresProblem2Ineffective funding options and divergent access conditions in resolution and insolvencyProblem 3Uneven and inconsistent depositor protection and lack of robustness in DGS funding 
 
                                                           
management and deposit insurance can be better achieved by EU action compared 
to individual national actions. 

  Safeguard  the  functioning  of  the  single  market  and  ensure  a  level  playing  field 
across  the  EU:  Given  the  freedom  of  banks  to  establish  and  provide  services  in 
other Member States, EU action is preferable to prevent distortions to the single 
market and ensure a level playing field, which is a pre-condition for a symmetric 
impact of the ECB’s single monetary policy. Action at EU level can for instance 
ensure  that  credit  institutions  operating  in  more  than  one  Member  State  are 
subject  to  the  same  requirements  concerning  DGSs,  which  avoids  unwarranted 
compliance  costs for cross-border activities. EU  action also  fosters  convergence 
of supervisory and resolution practices across the EU. An intervention at EU level 
also  promotes  further  market  integration  by  ensuring  that  cross-border  bank 
failures  can be resolved  in  a predictable, effective and  equitable manner.  At the 
same time, also smaller banks that primarily operate on domestic markets should 
–  in  the  spirit  of  the  single  market  –  be  treated  in  a  similar  manner,  regardless 
their location, while respecting proportionality. 

  Minimise recourse to taxpayer money and weaken the bank-sovereign loop: For 
banking  groups  that  are  active  in  a  cross-border  context,  national  solutions, 
without  coordination  among  Member  States,  would  be  costlier  for  citizens  and 
taxpayers than if the failure of banking  groups was governed by comprehensive 
and harmonised rules and arrangements and in the case of Banking Union banks, 
managed  centrally  at  EU  level.  On  another  scale,  banks  active  on  a  more 
local/regional level are often interlinked with the local economic fabric and may 
constitute a risk for the local real economy, including households and SMEs that 
hold  deposits  in  such  banks.  In  addition  to  banks’  loss  absorbing  capacity, 
national safety nets (resolution funds and DGS) financed by the industry could be 
used  in  a  complementary  way  to  better  achieve  the  framework’s  objectives.  If 
losses were not covered by prudential capital buffers of individual institutions and 
safety net funding, this may lead to recourse to  public funds (sometimes at sub-
regional  level)  aiming  to  safeguard  financial  stability  and  protect  depositors. 
Also,  for  smaller  banks  operating  primarily  on  domestic  markets,  national 
procedures  available  and  the  reliance  on  the  sovereign  should  not  create  an 
unlevel playing field among and also within Member States. The lack of action at 
EU  level  for  less  significant  banks  and  their  perceived  exclusion  from  a 
mutualised safety net would also potentially affect their ability to access markets 
and  attract  depositors  when  compared  to  significant  banks.  Consequently, 
national  solutions  to  tackle  bank  failures  would  worsen  the  sovereign-bank  link 
and undermine the idea behind the Banking Union of introducing a paradigm shift 
from bail-out to bail-in.  

  Protect  depositors  and  ensure  consumer  confidence:  By  harmonising  the 
financing  by  DGSs,  depositor  confidence  is  maintained  and  cross-border 
distortions  of  competition  are  avoided  (the  same  holds  for  possible  competition 
distortions  within  Member  States).  Otherwise,  during  a  crisis  time,  bank 
customers  might  shift  their  funds  from  banks  with  less  depositor  protection  to 
other  ones  with  more  protection  (within  the  same  Member  States  or  in  another 

40 

 
one). This may potentially lead to fund outflows with potential adverse financial 
stability  and  real  economy  consequences.  Moreover,  the  harmonisation  of 
coverage, scope, eligibility of depositors and payout delays pursued in the DGSD 
review  cannot  be  sufficiently  achieved 
to  act 
independently  from  each  other  and  can  be  consequently  better  achieved  at  EU 
level.  

if  Member  States  were 

4.  OBJECTIVES: WHAT IS TO BE ACHIEVED? 

4.1.  General objectives 

The review of the CMDI framework will aim to achieve an adequate balance among the 
following general objectives: 

(1) Contribute  to  financial  stability,  ensure  market  discipline  and  the  continuity  of 

critical functions for society;  

(2) Safeguard  the  functioning  of  the  single  market  and  ensure  a  level  playing  field 

across the EU; 

(3) Minimise recourse to taxpayer money and weaken the bank-sovereign loop; 

(4) Protect  depositors  and  ensure  consumer  confidence  (see  Error!  Reference 

source not found.2, Annex 5).  

4.2.  Specific objectives 

The impact assessment will consider the following specific objectives: 

(1) Further  enhance legal  certainty and predictability and strengthen  a level  playing 
field as regards the coherent application of the tools available in bank resolution 
and insolvency; 

(2) Facilitate access to safety nets in case of bank failure and improve the clarity and 

consistency of funding rules; 

(3) Further align the national  approaches to  depositor protection, including in  terms 
of  coverage,  and  upgrade  the  capacity  of  national  DGSs’  to  withstand  local 
shocks.  

5.  WHAT ARE THE AVAILABLE POLICY OPTIONS? 

5.1.  Approach to design of policy options 

The  CMDI  and  the  State  aid  frameworks  for  banks  are  strongly  inter-related.  Jointly 
reformed,  they  would  create  a  system  of  European  rules  and  incentives,  where  the 
availability  of  tools  and  funding  sources  (subject  to  conditions  for  access),  combined 
with  discretionary  assessments  by  resolution  authorities,  determine  the  choice  of  crisis 

41 

 
management  strategies  and  procedures  to  deal  with  failing  banks60.  The  creation  of  a 
common safety net for the protection of deposits, for example via EDIS61 would support 
national  DGS  funds  in  need,  enhance  the  funding  sources  available  to  handle  failing 
banks  (beyond  the  internal  loss  absorption  capacity  and  the  RF/SRF)  and  achieve 
synergies  in  the  framework.  However,  EDIS  is  not  part  of  the  preferred  option  for 
reforming the CMDI framework due to lack of political feasibility, in the absence of an 
endorsement by Member States and the European Parliament. 

Given the critical interplay among key policy aspects (e.g. the availability of funding, the 
scope  of  resolution  through  the  PIA,  outcome  of  the  least  cost  test),  the  approach  to 
formulating policy options needs to be a holistic one. It bundles together relevant design 
features of the framework to deliver consistency in the resulting packages of options. The 
aim is  to  provide a coherent  and logical  articulation  for each encompassing package of 
policy  options.  However,  each  package  delivers  different  degrees  of  effectiveness  and 
efficiency  in  achieving  the  key  objectives,  as  envisaged  and  assessed  in  Chapter  6. 
Interchanging  elements  across  option  packages  could  create  inconsistencies  and  reduce 
the intended improved effectiveness, efficiency and coherence of the framework.  

Such  approach  is  also  indispensable  to  remedy  the  inconsistencies  (as  well  as  the 
incentives for using the framework and avoid fragmentation in the single market) which, 
as  described  above,  have  often  occurred  because  the  individual  legislative  texts 
(comprising  the  EU  bank  crisis  management  and  deposit  insurance  framework)  were 
originally proposed and negotiated on a standalone basis and not assessed jointly62. 

5.2.  Review of the 2013 Banking Communication on State aid rules 

The  Commission  has  direct  enforcement  powers  in  relation  to  State  aid  rules  which 
derive from the Treaty (Article 107 TFEU). In the context of the global financial crisis, 
the Commission clarified its assessment of compatibility of State aid measures, in several 
Communications, including, among others, the 2013 Banking Communication. The State 
aid  framework  for  banks  is  closely  interlinked  with,  and  complementary  to,  the  CMDI 
framework. In particular, it governs the burden sharing requirements, a condition to use 
public  funds  qualified  as  State  aid  for  resolution63,  preventive  and  precautionary 
measures  or  alternative  measures  in  insolvency.  The  two  frameworks  are  applied 
consistently  by  the  Commission.  For  example,  the  Commission  checks  if  a  public  or 
private support qualified as a State aid measure violates intrinsically linked provisions of 
the  CMDI  framework  and  cannot  authorise  it,  if  it  does  so.  Despite  their  natural 
interlinkages,  the  two  frameworks  are  meant  to  tackle  different  issues:  State  aid  rules’ 
main  purpose  is  to  limit  competition  distortions  from  such  support  to  banks,  while  the 
CMDI  framework’s  primary  objective  is  to  limit  risks  to  financial  stability  from  the 

60 See Annex 5 (Evaluation) and Chapter 2 for details on how the triggers, funding availability and funding 
conditions form a system of rules and incentives defining the possible outcomes when dealing with banks 
in crisis conditions. 
61 See glossary and Annex 10. 
62 Nevertheless, the review of the State aid rules is not covered as part of the CMDI review, see section 5.2.  
63 If the public funds do not qualify as  State aid within the meaning of Article 107(1) TFEU then burden 
sharing is not applicable. 

42 

 
                                                           
disorderly management of bank failures while avoiding or minimising the use of public 
funds.  

In November 2020, the  Eurogroup invited the Commission  to  carry out  and finalise its 
review of the State aid rules for banks, in parallel to the review of the CMDI framework, 
ensuring  their  entry  into  force  at  the  same  time  as  the  revised  CMDI  framework.  Such 
timeline  aims  at  ensuring  consistency  between  the  two  frameworks,  adequate  burden 
sharing  of  shareholders  and  creditors  to  protect  taxpayers  and  depositors  and  preserve 
financial  stability64.  In  June  2022,  the  Eurogroup  took  note  of  the  intention  of  the 
European  Commission  to  finalise  the  review  of  the  State  aid  framework  for  banks,  to 
ensure consistency between the State aid framework and the renewed CMDI framework.  

Having  the  objective  of  coherence  in  mind,  it  is  important  to  underline  that  the  CMDI 
framework  is  subject  to  co-legislation,  which  will  require  time  before  implementation, 
and its outcome as compared to the Commission proposal is uncertain, while an update 
of  the  State  aid  rules  requires  a  Commission  Communication,  which,  when  decided  by 
the Commission, could take effect immediately.  

Notwithstanding  the  interactions  between  the  various  components  of  the  current 
legislative framework, the reform of the State aid rules is not part of the present impact 
assessment  nor  of  the  subsequent  legislative  proposal.  A  separate  process  to  assess  the 
need for a review of the State aid rules is ongoing, in parallel to the review of the CMDI 
framework, also in light of different procedures to amend the relevant acts65.  

Provided coherence is maintained within the packages of policy options, all the options 
envisaged for CMDI would bring an improvement compared to the baseline (status quo), 
irrespective of the changes to the State aid rules (or status quo) which may take place. An 
enhanced  alignment  between  the  frameworks  would  usefully  complement  the  changes 
proposed to the CMDI rules. 

5.3.  What is the baseline from which options are assessed? 

Under the baseline option, the existing CMDI framework as well as national regimes for 
handling  failing  banks  would  continue  to  apply  without  any  legislative  changes  and 
would function without a common deposit guarantee scheme in the Banking Union in the 
absence  of  an  agreement  on  a  Banking  Union  work  plan  including  EDIS  by  the 
Eurogroup in June 2022 and of progress on the EDIS file in the European Parliament 66.  

Despite ongoing developments in the interpretation and methodological approach to the 
PIA67,  broad  discretion  in  its  application  would  continue  to  be  exercised  by  resolution 

64 Eurogroup (November 2020), Statement of the Eurogroup in inclusive format on the ESM reform and the 
early  introduction  of  the  backstop  to  the  Single  Resolution  Fund.  The  intention  of  the  Eurogroup  is  to 
ensure that the outcome of the State aid rules review is aligned with the outcome of the negotiations of the 
CMDI review by co-legislators. 
65 In March 2022, the  Commission  has launched a Call for Evidence together with a public and targeted 
consultation to seek stakeholder feedback on the evaluation of State aid rules for banks in difficulty. The 
input collected and a study will feed into the evaluation that the Commission aims to publish. . 
66 The 2015 Commission proposal on fully-fledged EDIS is still on the table, but in practice, not discussed 
by the co-legislators. 
67  SRB  (May  2021),  the  SRB  revised  its  approach  to  PIA,  System-wide  events  in  the  public  interest 
assessment.  

43 

 
                                                           
authorities,  with  the  risk  of  maintaining  the  divergence  across  the  EU  on  the  scope  of 
banks  placed  in  resolution  or  insolvency.  This  means  that  similar  bank  failures  would 
continue to be managed under divergent frameworks. Some may continue to be handled 
under  the  harmonised  resolution  framework,  while  others  would  be  bailed-out  with 
taxpayer money, thus continuing to create issues for the EU’s single market in banking 
and the equal treatment of banks’ shareholders, creditors and customers.  

In  terms  of  funding,  the  framework  would  continue  to  rely  on  two  existing  safety  nets 
under divergent access conditions: the RF/SRF in resolution and the national DGS funds 
covering  different  types  of  interventions  (preventive  measures,  resolution,  payout  of 
covered  deposits  and  alternative  measures  in  insolvency).  The  condition  to  access  the 
RF/SRF68  for  liquidity  support  would  remain  subject  to  interpretation.  Access  to  the 
RF/SRF for certain smaller and medium-sized banks for solvency support would remain 
challenging in view of the minimum bail-in access condition of 8% TLOF (despite their 
contribution to the RF/SRF). Tapping the DGS for contribution to various interventions 
would continue to  be difficult  and unclear from a legal  point  of view, due to  divergent 
access  conditions  across  Member  States,  in  particular  the  least  cost  test  (as  shown  in 
Chapter  2  and  the  evaluation).  Persisting  differences  in  the  hierarchy  of  claims  would 
continue  to  make  the  level  of  depositor  protection  vary  per  Member  State,  creating 
difficulties  for  resolution  authorities  when  assessing  the  risks  for  creditors  being  worse 
off in resolution than in insolvency69, while the super-preference of the DGS would make 
it almost impossible for DGS funds to be used in resolution or insolvency under the least 
cost test (see in Annex 7).  

In addition, the current room for regulatory arbitrage would remain unchanged, leaving 
the  possibility  to  apply  restructuring  measures  under  national  insolvency  laws  financed 
through  DGS  alternative  measures  or  through  taxpayer  money  because  of  the  more 
favourable  conditions  for  banks’  creditors  than  under  resolution,  rather  than  merits  in 
terms of effectiveness and efficiency.  

At the current juncture, in the context of the challenging macroeconomic outlook fuelled 
by  the  energy  crisis  and  the  geopolitical  situation,  the  need  to  improve  the  CMDI 
framework is pressing if the likelihood of failures were to increase in case distress in our 
banking sector started to materialise. Under the status quo, even those failing banks for 
which  resolution  would  be  in  the  public  interest,  would  continue  to  be  restructured  or 
liquidated  outside  the  harmonised  resolution  framework,  under  existing  heterogeneous 
national regimes, where in some cases only disorderly and costly insolvency proceedings 
or solutions involving taxpayer money exist. This would weaken consumer confidence in 
the EU banking sector and the predictability and level playing field of our single market 
for banking, and of the Banking Union in particular.  

More  concretely,  first,  the  handling  of  banks’  failure  would  remain  inefficient  from  a 
cost  perspective,  as  taxpayer  money  would  continue  to  be  used  despite  the  build-up  of 
considerable MREL buffers and very significant safety nets (e.g. the SRF is forecasted to 
exceed EUR 80 bn by the end of 2023 in the Banking Union and the aggregate amount of 

68  Minimum  bail-in  rule  of  8%  TLOF  for  solvency  support,  while  no  minimum  bail-in  rule  for  liquidity 
provision. 
69 See Annex 8, section 2.  

44 

 
                                                           
national  DGSs  to  exceed  EUR  56  bn  across  the  EU).  Also,  the  franchise  value  of  the 
failing bank’s assets and its client relationship would deteriorate, leading to overall loss 
of  value.  Second,  costs  would  not  be  sufficiently  redistributed  from  taxpayers  to 
shareholders  and  creditors,  despite  this  being  one  of  the  main  objectives  of  the 
BRRD/SRMR  and  the  Banking  Union  created  in  the  aftermath  of  the  global  financial 
crisis.  Third,  the  baseline  option  would  not  foster  consumer  confidence  in  the  banking 
sector,  in  particular  when  the  certainty  of  outcomes  cannot  be  guaranteed,  which  may 
create  spiralling  contagion  to  other  banks  and  the  risk  that  bank  clients  may  start 
questioning the solidity of the system and its safety nets, with no improvement over what 
could happen under insolvency proceedings. 

The  European  Parliament  and  the  Council  have  also  acknowledged  this  risk  and 
repeatedly called on the Commission to deliver the CMDI legislative package with high 
urgency. 

5.4.  Overview of the policy options 

Figure 7: Overview of policy option packages and the interaction of their key elements 

Source: Commission Services 
* Eurogroup statement of 16 June 2022. 

5.5.  Common elements across the packages of options 

Some  changes  proposed  are  common  across  all  option  packages  (except  the  baseline). 
These  include  elements  related  to:  depositor  protection,  early  intervention  measures, 
triggering  of  failing  or  likely  to  fail  status  of  a  bank  (FOLF)  and  winding-up  under 
insolvency.  

The packages of options closely follow the advice provided by the EBA  for the CMDI 
review through the set of four opinions dedicated to the review of the DGSD functioning 
and the response to the call for advice on funding in resolution. 

As shown in the evaluation in Annex 5 and the problem definition, these aspects would 
require  amendments  to  improve  the  framework,  however  they  are  not  driving  the 
distinctions among the option packages. Alternatives to the proposed policy changes on 
the  common  elements  have  been  analysed  and  evaluated  in  Annexes  6,  7  and  8  and 

45 

 
 
subsequently, the preferred option for the common elements was integrated in this impact 
assessment  (section  6.3).  As  shown  in  these  annexes,  the  analysed  alternatives  to  the 
preferred  policy  options  would  not  have  addressed  the  problems  of  clarity  and 
predictability of the framework to the same extent as the preferred options. Including all 
possible  variations  for  these  elements  in  the  packages  of  options  as  alternative  options 
would  have  resulted  in  a  very  large  number  of  possible  combinations.  Some  of  these 
would have been rather arbitrary and would have complicated the reading of the options 
without adding value in terms of coherence and consistency.  

In view of these considerations, the main report will focus on the core elements driving 
the main differences across the coherent packages and which are described in Chapter 6: 
the scope of resolution (PIA), the funding solution and access conditions to the industry-
funded safety nets, DGS interventions and related conditions and possible cost synergies 
for banks. In the absence of EDIS, the governance and decision making process on the 
use  of  funds  between  national  and  European  authorities  (SRB)  would  not  change  in 
principle under this initiative. 

Figure 8: Elements common across all option packages (see also section 6.3 and 
Annex 8) 

Source: Commission Services 

5.6.  Options discarded at an early stage 

Additional policy options were analysed and discarded at an early stage: (i) resolution as 
the  sole  procedure  for  banks  needing  restructuring,  (ii)  set-up  of  a  parallel  harmonised 
national regime in insolvency – an orderly liquidation tool, (iii) withdrawal of the 2015 
Commission  EDIS  proposal  without  a  replacement  and  (iv)  incompatible  permutations 
between elements in the option packages presented in Chapter 6. The assessment of these 
additional options together with a rationale for their discarding is presented in Annex 14. 

6.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS AND HOW DO THEY COMPARE? 

In  this  section,  each  package  of  policy  options  considered  is  assessed  against  how  it 
addresses the identified problems and problem drivers (see Chapter 2) along the criteria 

46 

 
 
of effectiveness (general objectives), efficiency (benefits-costs), political considerations, 
feasibility70 and coherence with EU rules.  

Each of the three packages of policy options (other than the baseline) strives to create an 
incentive-compatible  framework  where  the  application  of  resolution  tools  and  of 
alternatives outside resolution is achieved in a more consistent manner, increasing legal 
certainty and predictability, levelling the playing field to safeguard the functioning of the 
single  market,  facilitating  access  to  common  safety  nets,  protecting  depositors  and 
ensuring  consumer  confidence,  while  reducing  the  contingency  for  taxpayer  funds. 
Depending on the degree of ambition embedded in their design, the packages of options 
achieve  these  objectives  to  a  different  extent,  also  with  a  varying  degree  of  political 
feasibility. 

The  key  features  analysed  under  each  option  in  relation  to  the  mentioned  criteria  and 
which  drive  the  differences  across  the  option  packages,  are:  the  clarification  of  the 
resolution  scope  through  the  PIA,  the  conditions  to  access  industry-funded  safety  nets, 
the use of DGS funds and the harmonisation of its access conditions across various types 
of  interventions,  implementing  a  depositor  preference  in  the  hierarchy  of  claims  and 
synergies  through  cost  reductions  for  the  industry.  These  dimensions  are  the  most 
important in the overall comparison of option packages because they touch on the core 
issues  identified  in  Chapter  2  and  they  determine  the  coherence  and  interdependence 
between the sub-elements of the consistent packages of options.  

The  policy  option  packages  2  and  3  are  assessed  against  the  background  of  the  2015 
EDIS proposal  under the assumption that political  negotiations remain on hold71, while 
the  policy  package  4  is  a  technical  option  included  for  completeness,  assuming  the 
implementation of EDIS as the third pillar of the Banking Union (although EDIS has not 
yet been politically endorsed by the Council or European Parliament). 

The  most  relevant  evidence  underpinning  the  analysis  of  policy  options  in  this  chapter 
includes, among others, analysis of past cases of bank failures, data provided by the EBA 
in  its  opinions  on  the  functioning  of  the  DGSD  in  the  current  framework,  empirical 
evidence by the EBA in its reply to the Commission’s call for advice on funding issues in 
resolution  and  empirical  evidence  provided  by  the  Commission’s  JRC  regarding  key 
policy  options  pertaining  to  the  DGSD  related  policy  options.  A  complementary,  more 
detailed  summary  of  the  evidence  used  in  this  impact  assessment  is  also  provided  in 
Annex 1, sections 3 and 4. 

6.1.  Assessment of policy options 

6.1.1.  Option  2  –  Slightly  improved  resolution  funding  and  commensurate 

resolution scope 

70 Political considerations and feasibility are important aspects in the assessment of the option packages. In 
particular, certain elements of a potential reform – such as the use of funds, conditions to access funding or 
the  completion  of  the  Banking  Union  with  its  third  pillar,  EDIS  implying  mutualisation  of  funds  are 
inherently political, as shown also by the interrupted negotiations of the 2015 proposal. 
71 I.e. 2015 EDIS proposal not withdrawn and no new hybrid EDIS proposal tabled. 

47 

 
                                                           
This option entails a revision of several elements of the CMDI framework, where slightly 
more resolution funding would be made available and, therefore, a commensurate larger 
scope  of  banks  would  be  placed  in  resolution  compared  to  the  baseline.  However,  the 
outcome  in  terms  of  fixing  the  issues  identified  and  reaching  the  objectives  listed  in 
chapter 4 will be marginal in comparison with options 3 and 4.  

6.1.1.1. Public interest assessment 

Under  this  option,  a  widening  of  the  PIA  scope  would  be  achieved  through  legislative 
change  to  ensure  that,  following  this  assessment,  resolution  would  be  applied  to  more 
institutions  than  under  the  baseline  option,  when  this  best  achieves  the  objectives  of 
preserving financial stability, protecting deposits and taxpayer funds. While retaining the 
discretionary  nature  of  the  PIA  decision  by  the  resolution  authority,  the  PIA  legal 
amendments  would  include  additional  considerations  for  the  achievement  of  the 
resolution  objectives  such  as:  (i)  a  regional  dimension  in  the  assessment  of  critical 
functions of the bank and of risks to financial stability (in addition to national one as in 
the  current  framework),  (ii)  the  need  to  preserve  DGS  resources  and  (iii)  the  possible 
granting of State aid in insolvency72. However, under this option, the amendments to the 
PIA would not include a positive presumption of public interest/resolution unlike under 
option 4. Option 2 would improve, to some extent, the legal certainty in applying the PIA 
and determining the scope of banks going in resolution and better frame the discretion of 
resolution authorities. However, higher risks of divergences across the EU are likely to 
remain  in  the  absence  of  sufficient  access  to  funding.  Such  a  relative  expansion  of  the 
resolution scope to more small/medium-sized banks under this option is coherent with a 
relatively less robust funding solution when compared to options 3 and 4. As described in 
the  next  section,  the  funding  solution  of  option  2  may  fail  to  effectively  underpin  a 
broader  application  of  resolution  tools  to  more  smaller/medium-sized  banks  due  to  the 
lack of sufficient  funding to sustain  resolution actions. The number of additional banks 
that  were  earmarked  for  liquidation  strategy  under  the  baseline  and  would  go  in 
resolution under this option cannot be estimated upfront, as the PIA remains a case-by-
case assessment by resolution authorities, retaining elements of discretion and is highly 
dependent on the financial condition of the bank at the moment of failure as well as on its 
access  to  funding  (bank’s  loss  absorption  capacity  and  safety  nets)  to  conduct  a 
successful  resolution.  Moreover,  the  strategy  set  out  for  a  bank  by  the  resolution 
authority at the planning stage (resolution versus liquidation) is a presumptive path based 
on backward looking information which allows deviations to take account of the specific 
situation  at  the  moment  of  failure  (e.g.  idiosyncratic  versus  systemic  crisis,  level  of 
losses,  available  loss  absorbing  capacity  in  the  bank,  existence  of  a  buyer,  access  to 
funding from safety nets if needed, impact on deposits and on financial stability). 

6.1.1.2. Conditions to access industry-funded safety nets 

72 SRB (May 2021), SRB’s updated approach to PIA, System-wide events in the public interest assessment. 
The SRB already took steps to clarify the PIA in its internal policy. Also, please refer to Chapter 2, section 
2.1.3 and the evaluation Annex 5, section 7.1.3.4. 

48 

 
                                                           
Broadening  the  scope  of  PIA  and  placing  more  banks  in  resolution  without  facilitating 
access to more funding in resolution, in particular for small/medium-sized banks with a 
large deposit  base, would increase the risk to  financial stability or  recourse to  taxpayer 
money. Therefore, the design of these two features, scope expansion and funding, have to 
be approached consistently and holistically.  

The  core  access  condition  to  the  RF/SRF  (minimum  bail-in  of  8%  TLOF)  remains  in 
place to ensure protection of the fund against moral hazard73. Under this option and only 
in  case  of  transfer  strategies74,  depositors  (including  beyond  covered  ones)  could  be 
shielded  from  taking  losses  in  order  to  meet  this  requirement,  provided  that  such 
discretionary exclusion from bail-in is justified on financial stability grounds, as already 
foreseen  by  the  framework.  To  achieve  this  objective,  once  the  first  line  of  defence 
against losses – the internal loss absorbing capacity of the bank (except deposits) is used, 
the  DGS  would  intervene75  to  support  transfer  strategies  with  market  exit  and  cover 
losses  that  would  have  otherwise  been  allocated  to  depositors  to  meet  the  8%  TLOF 
requirement  in  order  to  access  the  RF/SRF.  The  DGS  can  intervene  to  this  effect,  if 
allowed,  and  up  to  the  amount  determined  by  the  least  cost  test  to  ensure  that  the 
intervention is less costly than in a payout of covered deposits. Subject to conditions and 
safeguards (only transfer strategies with market exit and least cost test  - see also Box 2 
for further details), this adjustment would facilitate the use of RF/SRF (a combination of 
DGS  and  RF/SRF)  for  a  larger  number  of  smaller/medium-sized  banks  with  a  large 
deposit  base,  while  maintaining  a  strict  access  condition  to  the  fund,  avoiding  moral 
hazard  and  at  the  same  time  allowing  resolution  authorities  to  shield  depositors  from 
taking losses when that is a threat to financial stability76.  

As  shown  by  the  statistical  analysis  in  Annex  7  (section  3.2.1),  under  a  baseline 
scenario77,  deposits  (non-preferred,  preferred  and  in  a  few  cases  also  covered)  in  96 
banks (26.1%) located in 20 Member States would  suffer losses when reaching the 8% 
TLOF threshold up to an aggregate amount of EUR 18.3 bn, based on balance sheet data 
as  of  Q4  2019.  In  three  Member  States,  deposits  in  more  than  half  of  the  banks  in  the 
sample would be affected. When only institutions which already had resolution strategies 
under the 2019 PIA decision were considered, deposits in 44 banks would be affected up 
to  an  aggregate  amount  of  EUR  14.2 bn  in  18  Member  States.  Under  more  severe 
scenarios of equity depletion in the run up to a crisis, the share of affected banks would 

73 A minimum bail-in of 8% TLOF must be applied to the bank’s shareholders and creditors (which may 
include depositors) before accessing the resolution fund for solvency support. 
74 See Annex 13 section 4 for an overview of resolution strategies by types of banks (size, business model).  
75 The DGS can intervene in resolution under Article 109 BRRD, which could offer alternative funding for 
smaller/medium-sized banks. See section 6.1.1.3. 
76 Shielding deposits from taking losses as part of the resolution process may encourage the application of 
resolution  to  more  banks  and  facilitate  the  process  of  finding  potential  buyers  interested  in  taking  over 
(parts of) the failed bank. The objective of shielding depositors from losses was in some of the past cases, 
one  of  the  reasons  why  tools  other  than  resolution  were  used  to  deal  with  these  cases,  since  the  same 
outcome could not be achieved with sufficient credibility and legal certainty as part of the resolution action 
under the current framework. The review would address this. 
77  Baseline  scenario  in  Annex  7  refers  to  status  quo  assumptions:  no  equity  depletion  in  the  bank  at 
moment of failure and existing depositor preference (including super-preference of DGS) in the hierarchy 
of claims. See section 3.2.1 in Annex 7. Other (combined) scenarios are also explored there. 

49 

 
                                                           
increase significantly78. This  would be mitigated to  an extent when changing the tiered 
depositor  preference  in  the  hierarchy  of  claims  to  a  two-tier  depositor  preference  (see 
section  6.1.1.4)  by  virtue  of  prioritising  all  deposits  versus  other  senior  ordinary 
unsecured claims.  

The  revisions  under  this  option  would  improve  the  access  to  funding  in  resolution  and 
introduce more proportionality for banks that would be resolved under transfer strategies, 
by  protecting  deposits  from  bail-in79,  addressing  in  an  effective  manner  the  problem 
pertaining to funding identified in Chapter 2. 

Box 2: The DGS bridge mechanism to reach the RF/SRF 

All packages of policy options other than the baseline propose the possibility to use the 
national DGS funds as a bridge to reach the RF/SRF in specific cases and under framed 
conditions in order to address problem 2 (described in Chapter 2). For certain banks with 
a high prevalence of deposits, reaching 8% TLOF may only be possible when imposing 
losses on depositors, despite compliance  with  the minimum  requirement for own funds 
and eligible liabilities (MREL)80. Hence, the DGS funds would contribute to supplement 
the bail-in of the bank’s internal loss absorbing capacity (i.e. shareholders and creditors 
other than deposits) to reach 8% TLOF and enable access to the RF/SRF, while shielding 
deposits from losses, if necessary.  

The  DGS’  intervention  in  resolution  to  act  as  a  bridge  to  reach  the  RF/SRF  would  be 
framed by the following important safeguards:  

(i) 

(ii) 

Only applied when the resolution authority would have considered, on a case-
by-case basis, and only at resolution execution stage, that bailing-in deposits 
would create financial stability issues and would consider the need to exempt 
those deposits from bearing losses under Article 44(3) BRRD. In these cases, 
the  DGS  could  intervene  only  to  replace  losses  that  would  have  otherwise 
been  borne  by  depositors  (covered  and  non-covered).  Conversely,  the 
framework  would  retain  the  possibility  for  resolution  authorities  to  bail-in 
deposits rather than use the DGS fund, if appropriate; 
Only if allowed under the reformed least  cost test (see also Box 3) and only 
up to the maximum between the amount allowed by the least cost test and the 
gap required to reach 8% TLOF;  

78 From 96 banks with an aggregate EUR 18.30 bn affected deposits (44 banks with resolution strategy and 
an aggregate EUR 14.16 bn affected deposits) under the baseline scenario, to 246 banks with an aggregate 
EUR 83.1 bn affected deposits (117 banks with resolution strategy and an aggregate EUR 71.6 bn affected 
deposits) under the next more severe CET1 depletion scenario assuming 75% depletion of buffers). 
79 Shielding deposits, including non-covered ones, from bail-in is likely to improve the odds of finding a 
buyer interested in acquiring the bank or parts of it (deposit book). Imposing losses on the uninsured part of 
deposits increases the likelihood of runs and contagion, which is very likely to deter potential buyers from 
purchasing (parts of) the failing bank.  
80 Under the BRRD, deposits may be MREL eligible liabilities if they fulfil all eligibility criteria including 
the  remaining  maturity  over  one  year.  Many  smaller/mid-sized  banks  comply  with  their  MREL 
requirement by also relying on deposits (see EBA MREL report as of December 2020, in particular Figures 
9, 10, 14, 15 and 17 which show that wholesale deposits (uncovered) are part of MREL resources for banks 
with a total balance sheet size of up to EUR 50 bn). However, in a failing or likely to fail situation, it is 
likely that deposits would be excluded from bail-in on financial stability grounds (under Art 44(3) BRRD), 
leaving a gap compared to the MREL requirement.  

50 

 
                                                           
(iii)  Only  applicable  to  banks  with  transfer  strategies  leading  to  market  exit,  to 
avoid  distorting  competition  with  banks  that  would  be  restructured  and 
planned to remain on the market;  

(iv)  Only  applicable  to  banks  for  which  the  resolution  plan  foreseen  the 
application  of  a  resolution  strategy  and  not  wind-down  under  national 
insolvency  proceedings,  to  avoid  incentives  to  resolve  banks  earmarked  as 
liquidation entities and which would not have built-up their MREL buffers; 
Only for banks where the bail-in of liabilities consisting of shareholders and 
creditors other than deposits cannot reach 8% TLOF. 

(v) 

In light of the above conditions,  in  practice, it is likely that  this tool could  be used for 
smaller  and  medium-sized  banks  because  they  are  more  likely  candidates  for  transfer 
strategies and often rely on deposit funding. 

Using DGS as a bridge to reach the 8% TLOF threshold to access RF/SRF is expected to 
have numerous positive impacts. The primary purpose of the DGS bridge, as also shown 
in  the  detailed  description  of  policy  options  in  Chapter  6  (sections  referring  to  the 
resolution financing arrangements and the hierarchy of claims under each option) and in 
the analyses performed in Annex 7, section 4, is to enable access by more small and mid-
sized banks to resolution funding under the harmonised CMDI framework, so that more 
such  banks’  failures  can  be  handled  more  efficiently  under  resolution,  where  there  is  a 
public interest. It will reduce the cost of managing a bank failure, by using resolution as 
the  less  costly  procedure  compared  to  insolvency.  It  will  reduce  the  risk  of  imposing 
losses on deposits, a factor that has been identified as one of the key reasons for avoiding 
the application of the resolution framework in the past. This mechanism would therefore 
make  resolution  a  more  credible  option  to  handle  a  bank  failure  compared  to  other 
avenues that often relied on taxpayer money.  

The least cost test acts as a critical safeguard to ensure that the DGS bridge mechanism 
reaches its  goal  and enables access to RF/SRF for more banks. However, the  least  cost 
test is mainly dependent on the ranking of the DGS in the hierarchy of claims and limited 
by the super-preference of DGS (see also Box 3). It is therefore very important to bundle 
together  changes  that  remove  the  super-preferred  ranking  of  DGS  in  the  hierarchy  of 
claims with the DGS bridge mechanism to ensure that the potential to place more banks 
in resolution when this best meets the objectives is materialising.  

It must be also clearly acknowledged that the least cost test will not allow the use of DGS 
in  all  cases  where  it  may  be  required  to  avoid  inflicting  losses  on  deposits  in  a  sale  of 
business strategy, and that a tail scenario of cases will remain, where resolution funding 
remains out of reach, potentially leading to bailing in deposits.  

Importantly,  strict  access  conditions  to  the  resolution  fund  (RF/SRF),  in  the  form  of  a 
mandatory bail-in of at least 8% TLOF, are key to ensure a level playing field and avoid 
moral  hazard.  The  proposal  does  not  weaken  the  8%  TLOF  threshold  and  does  not 
disincentivise banks to hold sufficient amount of MREL for the following reasons: 

(i)  Incentives  to  reach  MREL  are  built  into  the  governance  of  the  framework. 
Resolution authorities calibrate MREL requirements for all banks with resolution 
strategies, including smaller/mid-sized banks where appropriate, according to the 
existing  legal  provisions.  Failure  to  comply  may  be  addressed  through  several 
measures  (e.g.  restrictions  to  distribute  dividends/  variable  remuneration, 

51 

 
supervisory  measures,  penalties,  procedure 
to 
resolvability, early intervention measure or failing or likely to fail determination) 
as well as market stigma when disclosing the MREL requirement and capacity to 
the  markets  via  market  discipline.  In  other  words,  there  are  strong  safeguards 
already in the law to ensure that each bank would receive an appropriate MREL 
requirement that would be enforced; 

impediments 

remove 

to 

(ii) MREL requirements do  not  incorporate the 8%  TLOF for smaller  and medium-
sized  banks,  therefore  a  possible  bridge  to  the  8%  would  not  impact  MREL  as 
such.  The  8%  TLOF  access  condition  to  the  resolution  fund  is  linked  to  a 
minimum amount of bail-inable liabilities, not MREL eligible ones (which are a 
subset  of  bail-inable  liabilities).  MREL  requirements  depend  on  the  resolution 
strategy chosen by the resolution authority, and the legislation does not introduce 
a minimum level of MREL that would correspond to 8% TLOF for all banks (it is 
only  the  case  for  the  largest  ones,  with  limited  exceptions).  In  fact,  most  of  the 
small/mid-size  banks  are  subject  to  transfer  strategies,  which  generally  imply  a 
lower  level  of  MREL  than  for  bail-in  strategies  in  order  to  cover  losses  and 
ensure market exit81. Therefore, by construction, there is no link between the 8% 
TLOF  threshold  and  MREL  levels  for  smaller/mid-sized  banks  already  in  the 
current framework. This does not mean, however, that these banks should never 
access the resolution fund, and they are in fact contributing to its build-up; 

(iii) There  would  be  a  very  big  price  to  pay  (market  exit)  to  use  the  DGS  bridge 
mechanism, therefore the latter cannot be considered as providing incentives not 
to build sufficient buffers (MREL) for a crisis. The use of DGS as bridge facility 
would be limited to cases where banks are subject to a transfer strategy that leads 
to  a  market  exit  in  case  of  failure.  It  would  also  be  at  the  discretion  of  the 
resolution  authority  (no  automaticity).  Furthermore,  since  the  failed  bank  will 
disappear and not be resurrected after resolution should DGS funds be used, this 
mechanism  de  facto  prevents  any  perceived  advantage  with  regard  to  MREL 
calibration or the use of DGS funds compared to other banks that would continue 
operating after being restructured; 

(iv)  Moral  hazard  is,  on  the  contrary,  rather  encouraged  outside  resolution  via  the 
implicit  subsidy  provided  by  the  availability  of  public  funds  in  insolvency.  By 
allowing a more credible use of resolution via the DGS facility for specific banks, 
the  reform  aims  to  disincentivise  the  recourse  to  taxpayer  money,  which  may 
affect  market  expectations  ex  ante,  leading  to  more  market  discipline  and 
lowering moral hazard; 

(v) Higher  exposures  to  possible  replenishment  contributions  for  the  industry  as  a 
whole could result in peer pressure and further reduce moral hazard. Making use 

81 8% TLOF is part of the MREL calibration only  for global systemically important institutions (G-SIIs) 
and top-tier banks (total assets above EUR 100 bn) as per BRRD II provisions. This BRRD II calibration of 
MREL  is  targeted  at  open-bank  bail  in  strategies,  where  the  failing  banks  do  not  exit  the  market  after 
resolution,  hence  they  need  sufficient  loss  absorption  and  recapitalisation  buffers.  The  latter  component 
(recapitalisation amount) is needed to a lesser extent for other resolution strategies leading  to exit, which 
preserves proportionality. 

52 

 
                                                           
of  industry-funded  safety  nets  more  frequently  may  increase  the  scrutiny  by 
market participants of risks taken by their peers, as banks may become liable to 
replenish the funds once these are used to handle a bank failure. The DGS facility 
may therefore increase market discipline in the framework. 

Moreover,  alternative  approaches  lowering  the  8%  TLOF  threshold  (for  example  by 
allowing  the  use  of  the  resolution  funds  even  if  8%  TLOF  is  not  met)  have  been 
explicitly discarded on the ground of increasing the risk of moral hazard (Chapter 6, or 
Annex 14). 

On  this  basis,  allowing  DGSs  to  bridge  the  gap  to  access  the  resolution  funds  would 
introduce more proportionality for smaller/medium-sized banks under transfer strategies 
and make the framework functional for these types of banks as well, without weakening 
the  minimum  bail-in  condition  to  access  the  resolution  funds  or  increasing  the  risk  of 
moral hazard. 

Figure 9: Stylised example DGS bridge mechanism versus status quo 

This  stylised  example  (further  building  on  Box  1  in  Chapter  2)  shows  the  benefits  of 
using  the  DGS  bridge  mechanism  compared  to  possible  alternative  avenues  under  the 
status  quo  (resolution  with  bail-in  of  depositors,  use  of  public  funds,  insolvency  with 
DGS payout of covered deposits). The example also highlights the potential impacts of 
each approach on financial stability, depositor confidence and the use of taxpayer money. 
It  also  shows  that  the  involvement  of  DGS  via  such  bridge  mechanism  would  put  a 
significantly lower pressure on DGS financial means than a payout in insolvency. 

Source: Commission services 

53 

 
 
 
54 

 
 
 
 
6.1.1.3. Use of DGS funds 

As  under  all  options,  the  DGS  would  continue  to  contribute  to  the  payout  of  covered 
deposits,  as  well  as  to  the  use  of  preventive,  resolution  and  alternative  measures  in 
insolvency.  In  order  to  facilitate  an  effective  DGS  intervention,  the  following 
adjustments  and  clarifications  to  the  access  conditions  to  the  DGS  funds  would  be 
required:  

  DGS contribution and access condition to preventive measures: the conditions for 
the intervention of a DGS for preventive measures (Article 11(3) DGSD) would 
be  improved  by  including  relevant  safeguards,  i.e.  ensuring  that  preventive 
measures  would be subject to an adequate least cost test and that a solid rationale 
exists  to  justify  the  DGS  intervention82.  To  ensure  consistent,  credible  and 
predictable outcomes when applying  crisis  management  tools, the least  cost  test 
would be harmonised to govern the use of DGS funds outside payout of covered 
deposits in insolvency83 but would take into account the specificities and timing 
of preventive measures. 

  DGS  contribution  and  access  condition  in  resolution  and  insolvency:  the 
provision on the DGS use in resolution (Article 109 BRRD) would clarify84 that 
the DGS could  also  finance the transfer  of deposits  beyond the covered ones, if 
needed to execute a sale of business transaction in resolution. The least cost test 
conditioning the DGS intervention in resolution would be fully  aligned with the 
least cost test for alternative measures in insolvency. 

  Least  cost  test:  the  least  cost  test  conditioning  the  DGS  interventions  would 
provide  elements  for  its  quantification  and  the  types  of  costs  (direct  and/or 
indirect) that it could include85.  

These  adjustments  to  the  conditions  for  accessing  DGS  funds  would  significantly 
increase  the  legal  clarity  and  applicability  of  rules  and  simplifying  the  framework  by 
harmonising some of the conditions, addressing problem 2 described in Chapter 2. These 
amendments  which  are  closely  inter-related  would  contribute  to  a  more  coherent  and 
incentive-compatible framework. 

6.1.1.4. Harmonisation of depositor preference in the hierarchy of claims: two-

tier preference 

As explained in section 2 of Annex 8 and sections 4.1.1 to 4.1.3 of Annex 7, the super-
preference  of  the  DGS,  in  line  with  the  current  framework  (baseline  scenario)  and  its 
impact on the least cost test, is the main reason why the DGS cannot be used outside a 
payout  event  under  the  least  cost  test86  (see  also  Box  3).  Withdrawing  this  super-

82 See Annex 6.  
83 As foreseen by the Eurogroup statement of 16 June 2022. 
84 The legal interpretation under the current rules is that the DGS can be used to finance the transfer of the 
whole deposit book in resolution. However, the legal text would benefit from clarification on this point.  
85 See Annex 6. 
86 The DGS can only provide an amount up to the losses it would bear in case of a hypothetical payout of 
covered deposits in insolvency. These losses are given by the difference between the amount disbursed by 
the DGS in case of a payout and the amount the DGS would recover from the sale of the bank’s assets in 

55 

 
                                                           
 
preference  and  envisaging  a  more  harmonised  depositor  preference,  when  compared  to 
the  current  situation  with  a  three-tier  depositor  preference,  is  instrumental  in  accessing 
funding  in  resolution  and  making  resolution  effective  for  smaller  and  medium-sized 
banks.  Option  2  explores  the  impacts  of  achieving  a  two-tier  depositor  preference 
without the super-priority of covered deposits and DGS in the hierarchy of claims.  

Box 3: The impact of DGS ranking in the hierarchy of claims  

The objective of the least cost test safeguard is to ensure that any DGS intervention other 
than paying out  covered deposits  would not  expose the DGS to  losses  greater than the 
ones  it  would  incur  in  a  payout  of  covered  depositors  in  an  insolvency  counterfactual. 
The  amount  of  losses  in  the  insolvency  counterfactual  depends,  to  an  extent,  on  the 
ranking  of  the  DGS  in  the  hierarchy  of  claims.  Abstracting  from  other  factors 
influencing  the  recovery  rates  in  insolvency  (i.e.  quality  of  assets,  effectiveness  of 
insolvency regimes, overall duration of insolvency processes), the higher the ranking, the 
higher the recovery for the DGS and therefore the less likely for the DGS to incur losses 
in insolvency, which, in turn, makes it less likely for the least cost test to allow a DGS 
contribution to support measures other than payout.  

A quantitative analysis carried out by the EBA in the response to the Commission’s call 
for  advice  (CfA)  on  funding  in  resolution87  looked  at  the  losses  that  depositors  would 
bear in order to meet the 8% total liabilities and own funds (TLOF) threshold and access 
the resolution fund. This analysis, also reflected in Annex 7 (section 3.2.1), showed that, 
under  a  baseline  scenario88,  deposits  (non-preferred,  preferred  and  in  a  few  cases  also 
covered)  in  91  banks  (out  of  368  banks  in  the  sample)  located  in  20  Member  States 
would suffer losses up to an aggregate amount of EUR 18.3 bn (based on balance sheet 
data as of Q4 2019) in order to reach the 8% TLOF threshold and access the resolution 
fund. 

When  only  institutions  which  already  had  resolution  strategies  under  the  2019  PIA 
decision  were  considered,  deposits  in  44  banks  would  be  affected  up  to  an  aggregate 
amount  of  EUR  14.2 bn  in  18  Member  States.  Under  more  severe  scenarios  of  equity 
depletion  in  the  run  up  to  a  crisis,  the  share  of  affected  banks  would  increase 
significantly89. This would be mitigated to an extent when changing the tiered depositor 
preference  in  the  hierarchy  of  claims  to  preferring  all  deposits  versus  other  senior 
ordinary unsecured claims and removing the super-preference of the DGS.  

insolvency. Given the super-preferred ranking of the DGS in the hierarchy of claim, the DGS has, in some 
Member  States,  the  possibility  to  recover  most  or  all  its  expenditure  in  the  hypothetical  insolvency. 
However,  this  recovery  rate  is  heterogeneous  among  Member  States,  depending  on  the  efficiency  of 
judicial systems, quality of assets to be liquidated, time required to conduct the insolvency proceedings and 
other factors. As a result, the DGS has very limited scope to intervene in resolution because the least cost 
test on the basis of which the use of resolution tools would have to be assessed, would not allow for it. 
87 EBA (October 2021), Call for advice regarding funding in resolution and insolvency. 
88 Baseline scenario refers to status quo assumptions: no equity depletion in the bank at moment of failure 
and existing depositor preference (including super-preference of DGS) in the hierarchy of claims.  
89 From 96 banks with an aggregate EUR 18.30 bn affected deposits (44 banks with resolution strategy and 
an aggregate EUR 14.16 bn affected deposits) under the baseline scenario, to 246 banks with an aggregate 
EUR 83.1 bn affected deposits (117 banks with resolution strategy and an aggregate EUR 71.6 bn affected 
deposits) under the next more severe CET1 depletion scenario assuming 75% depletion of capital buffers). 

56 

 
 
 
                                                                                                                                                                            
Summary of impacts of various depositor preference scenarios on bailing-in deposits 
when reaching 8% TLOF 

Institutions that would 
require DGS 
intervention to reach 
8% TLOF to avoid 
losses on depositors 
91 
48 

48 

48 

48 

Baseline 
Single-tier preference 
Two-tier preference (no 
super-preference) 
Two-tier preference 
(with super-preference) 
Three-tier preference 
(with super-preference) 

Of which: Institutions 
for which DGS can 
intervene (positive least 
cost test) 

3 
41 

18 

3 

3 

Of which: Institutions 
for which DGS 
interventions under the 
LCT are sufficient to 
reach 8% TLOF 
2 
31 

13 

2 

2 

Source: EBA Call for advice, summary of evidence from Annex 7, section 4.1.1. 

Note: analysis based on a total sample of 368 banks at consolidated level. The figure above assumes no 
CET1 depletion in the event of failure. If CET1 depletion were factored in, the impact on deposits would 
increase very significantly. 

The  EBA  analysis  also  considered  the  possibility  to  use  the  DGS  fund  as  a  bridge  to 
reach the 8% TLOF and avoid such losses on depositors. The analysis has shown that, 
under the current framework, the least cost test would yield a positive result and allow 
for DGS use in resolution, for only three out of 91 banks (out of a total sample of 368 
banks)  where  deposits  would  bear  losses  to  access  resolution  funding  (8%  TLOF), 
considering  an  85%  recovery  rate  in  insolvency90.  The  least  cost  test  would  allow  a 
sufficient DGS support to reach 8% TLOF for two out of these three banks. 

Preferring  all  deposits  versus  ordinary  unsecured  claims  would  reduce  the  number  of 
banks where deposits would be impacted when reaching 8% TLOF, from 91 banks in the 
baseline scenario to 48 (out of 368 banks in total). 

It can be concluded based on this evidence that, under the baseline (status quo), the DGS 
can  almost  never  be  used  for  measures  other  than  the  payout  of  covered  deposits  in 
insolvency  (see  table  above  and  section  4.1.1  of  Annex  7)  because  its  ranking  and 
consequently  high  likelihood  to  get  its  claims  paid  before  other  creditors  make  the 
counterfactual  of  a  payout  in  insolvency  artificially  less  costly,  despite  the  fact  that  a 
DGS  contribution  to  resolution  or  an  alternative  measure  could  be  more  cost  efficient 
(involve a lower need for cash disbursement from the DGS to support a sale of business 
strategy, compared to  a full payout of all covered deposits),  better preserve depositors’ 
confidence  and  facilitate  a  more  efficient  crisis  management.  On  one  hand,  paying  out 
covered  deposits  in  insolvency  is  likely  to  require  a  very  significant  upfront  cash 
disbursement  by  the  DGS  (especially  in  cases  of  predominantly  deposit-funded  mid-
sized  banks  with  significant  amounts  of  covered  deposits)91.  On  the  other  hand,  an 

90 An 85% recovery rate  is a conservative  assumption and for several Member States, recovery rates are 
actually  lower.  Therefore,  in  those  cases  their  DGS  funds  would  recover  less  after  a  payout  of  covered 
deposits in insolvency (i.e. the burden of the counterfactual of the payout is underestimated) and in reality, 
the LCT could be even more favourable to other alternatives to payout of covered deposits in insolvency, 
such as DGS intervention in resolution. 
91  See  a  more  detailed  analysis  in  Annex  5  (evaluation),  sections  7.1.4.4  and  7.2.2.6  and  ECB  (October 
2022), Protecting depositors and saving money - why DGS in the EU should be able to support transfers of 
assets and liabilities when a bank fails. 

57 

 
 
                                                           
intervention in resolution to support the transfer of a failing bank to a buyer may require 
only a portion of those DGS financial means. Transfer transactions can unfold in many 
ways,  depending  on  the  quality  of  assets  and  the  funding/liabilities  to  match  these,  as 
well  as  the  appetite  of  the  buyer  and  the  offered  price.  Considering  the  likely  need  to 
plug  a  gap  between  the  value  of  assets  and  deposits  to  be  transferred  to  a  buyer,  the 
DGS/resolution fund contribution to support such transfer may be much lower than the 
total value of covered deposits that would need to be paid out in insolvency. Under the 
current set-up, the DGS super-priority ends up protecting the financial means of the DGS 
and of the banking industry from possible replenishment burden by hindering any DGS 
intervention, without bringing a better protection for covered deposits. The protection of 
covered deposits does not depend on their ranking in the hierarchy of claims; rather, it is 
insured  through  the  obligation  to  be  paid  out  under  the  DGSD  when  accounts  become 
unavailable and the mandatory exclusion from bearing any losses in resolution.  

The  implementation  of  a  two-tier  depositor  preference  without  the  super-preference  of 
DGS and covered deposits would require two changes in the BRRD rules on the ranking 
of  deposits  (Article  108  BRRD).  First,  the  legal  preference  in  the  hierarchy  of  claims 
would be harmonised at  EU level  to  include all  deposits,  meaning deposits would rank 
above ordinary senior unsecured claims in all Member States. Second, the current three-
tier approach would be replaced with a two-tier ranking, whereby covered and preferred 
deposits would rank pari passu and above non-preferred non-covered deposits92. Annex 
7  and  8  further  describe  the  detailed  impact  of  different  depositor  preference  scenarios 
assessed, varying in scope and relative ranking among deposits. 

Introducing a depositor preference in the hierarchy of claims (be it a two-tier or single-
tier,  as  proposed  in  option  3)  would  facilitate  the  bail-in  of  ordinary  unsecured  claims 
and  potentially  decrease  the  likelihood  of  inflicting  losses  on  deposits.  It  would  also 
mitigate risks related to potential breaches of the NCWO safeguard currently existing in 
the  baseline  option,  which  could  arise  when  some  of  the  deposits  that  rank  pari  passu 
with  ordinary  unsecured  creditors  are  discretionarily  excluded  from  bail-in  by  the 
resolution  authority,  on  contagion  and  financial  stability  grounds93.  This,  in  turn,  may 
give rise to legal challenges and potential compensation claims by the ordinary unsecured 
creditors  if  they  can  prove  that  they  were  treated  worse-off  in  resolution  than  in 
insolvency,  particularly  when  they  represent  a  significant  share  of  the  ordinary  senior 
unsecured  class.  At  the  same  time,  keeping  via  the  two-tier  approach  a  distinction 
between  covered  and  preferred  deposits  (i.e.  eligible  deposits  of  natural  persons  and 
SMEs)  on  one  hand  and  the  remaining  non-covered  deposits  on  the  other  hand,  would 
facilitate  the  bail-in  of  the  latter  deposits,  in  situations  where  that  would  not  affect 
financial stability, thereby preserving some flexibility by resolution authorities on how to 
allocate losses. However, as explained in Annex 8, considering that smaller and medium-
sized  banks  primarily  serve  retail  and  SME  clients  and  that  the  volume  of  “wholesale” 
deposits may not be material in some banks, this flexibility may not be used in all cases.  

92 See also Figure 29 in Annex 8, section 2, for a stylised view of creditor hierarchy in insolvency with a 
two-tier depositor preference and without the super-preference of DGS/covered deposits.  
93 Pursuant to Article 44(3) of the BRRD. 

58 

 
                                                           
The removal of the DGS super-preference would increase to a relative extent, compared 
to  the baseline, the amount  of funds the DGS could  contribute for measures other than 
payout  under  the  least  cost  test.  However,  because  the  DGS  would  still  be  a  preferred 
creditor  in  relation  to  non-covered  non-preferred  deposits,  the  increase  in  DGS  funds 
unlocked under the least cost  test for these measures would be significantly lower than 
under a single-tier depositor preference explored  in  options  3 and 4, where all deposits 
would rank pari passu in the hierarchy of claims.  

According to the quantitative analysis in Annex 7 (section 4.1.3), 48 banks would require 
additional resources to meet 8% TLOF and access the resolution fund without imposing 
losses  on  depositors  when  preferring  deposits  versus  ordinary  unsecured  claims,  as 
opposed  to  91  banks  under  the  current  hierarchy  of  claims,  which  does  not  feature  a 
preference of deposits. A two-tier depositor preference without the super-preference for 
DGS would lead to a least cost test result where the DGS could contribute for 18 banks 
out of the 48 to bridge financing needs to shield deposits from losses and help meet the 
8% TLOF condition to access the RF/SRF. The number of banks where the DGS funds 
could  contribute  under  a  two-tier  preference  without  super-priority  for  DGS  would  be 
improved  compared  to  the  baseline,  where  only  three  banks  could  benefit  from  DGS 
contributions  but  it would be lower than under a single-tier depositor  preference where 
41  banks  could  benefit  from  DGS  contributions  (considered  under  options  3  and  4). 
Under  the  two-tier  depositor  preference  without  the  super-priority  for  DGS  claims,  the 
DGS  intervention  to  plug  the  gap  towards  accessing  the  resolution  fund  would  be 
sufficient to meet 8% TLOF in 13 cases (out of the 48) versus two under the baseline and 
31  banks  under  a  single-tier  depositor  preference  (options  3  and  4).  In  terms  of  euro 
amount, the DGS could be allowed to contribute under the least cost test for an estimated 
amount of EUR 0.21 bn under a two-tier depositor preference without the super-priority 
for DGS, compared to EUR 0.05 bn under the baseline and EUR 0.98 bn under a single-
tier  depositor  preference.  Table  25  in  Annex  7  also  shows  that  maintaining  the  super-
preference  of  DGS  does  not  unlock  more  funds  compared  to  the  baseline,  even  if  all 
depositors were preferred compared to  ordinary  unsecured  claims. Therefore, removing 
the DGS super-preference is an important element of the preferred policy option to reach 
the objectives envisaged by this initiative.  

Annex 8 explains in detail why the removal of the super-preference of covered deposits 
and  the  DGS  in  the  hierarchy  of  claims  does  not  impede  in  any  way  on  the  protection 
enjoyed by covered deposits, but it allows for the use of DGS funds earlier and in a more 
effective and efficient manner.  

Some  stakeholders  (including  a  few  Member  States  and  banks)  argue  that  preserving  a 
super-priority for DGS in the hierarchy of claims is instrumental in ensuring the recovery 
of  funds  used  to  payout  covered  deposits  in  insolvency,  even  if  the  creditor  payout  in 
insolvency can take many years (depending on the judicial system in each Member State 
and  the  approach  to  liquidate  assets94).  Importantly,  the  amount  of  cash  the  DGS  must 

94  In  some  Member  States  and  in  specific  cases,  the  approach  to  liquidate  assets  in  insolvency  is  to  sell 
those assets to buyers which may take several years to complete. In other cases, depending on the bank’s 
business,  a  solvent  wind-down  of  assets  may  be  pursued,  meaning  that  proceeds  are  recovered  by 
respecting the reimbursement schedule of assets, which for certain loan portfolios such as mortgages can 
take tens of years.  

59 

 
                                                           
disburse in a payout in insolvency corresponds to the total amount of covered deposits in 
bank  (plus  other  direct  costs)  and,  as  shown  in  the  evaluation  (sections  7.1.4.4.  and 
7.2.2.6),  it  is  likely  to  be  significantly  higher  than  the  amount  the  DGS  would  need  to 
contribute to fund the gap between assets and liabilities for facilitating a transfer strategy 
in resolution or as alternative measure. Additionally, by facilitating transfer strategies in 
resolution,  the  franchise  value  of  the  failing  bank’s  assets  is  preserved  as  opposed  to 
insolvency95 and so is  the client  relationship,  which is  transferred to  a new bank rather 
than being interrupted, avoiding thus potential contagion effects and impacts on financial 
stability.  Therefore,  the  difference  in  costs  for  the  DGS  between  pursuing  more 
resolution  versus  insolvency  lies  in  the  more  efficient  usage  of  funds,  facilitated  by 
removing the super-preference of DGS in the hierarchy of claims.  

6.1.1.5. Use of industry-funded safety nets and cost synergies for banks 

The  assessment  of  costs  and  potential  synergies  for  the  industry  looks  at  two  main 
aspects: (i) impacts on banks’ contributions to safety nets and (ii) the impact of the policy 
measures on the banks’ requirements to hold loss absorbing capacity.  

Regarding  the  contributions  to  safety  nets,  under  option  2,  banks  will  continue  to 
contribute to the safety nets (RF/SRF and DGS) as under the baseline option (status quo), 
without  any  changes  to  the  contribution  levels.  However,  facilitating  the  use  of  DGS 
funds  to  support  the  financing  of  various  measures  outside  payout  by  modifying  the 
hierarchy  of  claims  may  lead  to  a  more  frequent  usage  of  these  funds  and  potentially 
drive  up  the  replenishment  burden  for  the  industry,  despite  the  mitigation  by  the  least 
cost  test.  It  should  be  noted  however,  that  depending  on  the  features  of  the  sale  of 
business transactions and the form of the support measures required, such replenishment 
obligations/ex post contributions may not materialise for banks (e.g. DGS may contribute 
with  guarantees  to  the  buyer  rather  than  cash  injection).  Moreover,  ex  post  industry 
contributions to replenish a depleted DGS fund may not only be triggered by the uses of 
DGS  in  resolution  or  alternative  measures;  they  may  also  occur  when  the  recovery  of 
proceeds from the insolvency estate following a payout event takes very long time. The 
net impact for the industry in terms of DGS replenishment needs cannot be estimated as 
it would be a case-by-case assessment in function of the nature of the transfer transaction 
(full or partial), the amount of losses and DGS contribution under the least cost test. In 
any case, this possible cost increase for the banking industry would not be compensated 
by any cost reduction in the DGS contributions, contrary to option 4 where the pooling of 
funds in EDIS opens this possibility.  

Another  relevant  aspect  when  assessing  costs  for  the  industry  is  the  usage  of  the  SRF 
versus DGS funds in  the Banking Union. Since the SRF is  a central  fund consisting of 
pooled  contributions  by  all  banks  in  the  Banking  Union,  its  use  would  trigger 
replenishment needs spread out over the Banking Union population of banks. DGS funds, 
in  the  absence  of  EDIS,  remain  national  under  this  policy  option  meaning  that 
replenishment needs bear on the national banking system in the Member State where the 

95 According to the valuation methodology, the haircut imposed on assets in a transfer transaction is lower 
than the haircut that could be imposed in some situations in insolvency. This may not be the case in a wind-
down liquidation which may take a very long time to complete.  

60 

 
                                                           
DGS  funds  were  used.  From  a  cost  synergy  perspective  at  system  level,  it  is  therefore 
more interesting, in the absence of EDIS, to use SRF funds and, in order to do so more 
credibly, the DGS could provide a financing bridge to meeting the SRF access condition, 
as explained in section 6.1.1.2 above.   

Regarding  the  banks’  loss  absorbing  capacity,  smaller  and  medium-sized  banks 
previously earmarked for liquidation and which would enter the resolution scope due to 
the PIA changes under this option, would need to comply with a MREL requirement. The 
MREL  target  would  be  calibrated  proportionately  and  in  line  with  the  preferred 
resolution strategy, which for transfer strategies could be lower than for open bank bail-
in  strategies. This  is  because the loss absorbing capacity would support  a transfer of (a 
set of) assets, rights and liabilities of a bank to a buyer with a simultaneous market exit of 
the former and not a full restructuring and recapitalisation to allow the bank to continue 
to operate in the market on a standalone basis.  

Looking  at  the  funding  equation  as  a  whole  and  in  order  to  substitute  potential  public 
funds injections (frequently observed in the past), the private sources of financing for a 
bank failure would be a combination of banks’ loss absorption capacity, contributions by 
RF/SRF  and  contributions  by  DGS,  where  option  2  would  have  the  potential  to 
marginally improve the balance among the elements (resolution scope and funding) and 
enhance economic efficiency of the funding equation though not at a zero net cost for the 
industry (compared to the baseline). 

6.1.1.6. Assessment of Option 2 

Benefits 

The main benefit of option 2 would be a relative expansion of the scope of resolution to 
include  smaller/medium-sized  banks  by  slightly  increasing  the  availability  of  funding 
solutions for some specific resolution strategies leading to market exit. This option would 
ensure  a  more  flexible  and  harmonised  use  of  DGS  funds  thanks  to  changes  in  the 
hierarchy  of  claims  and  harmonisation  of  the  least  cost  test  and  increasing  the 
proportionality when accessing the RF/SRF in resolution, under specific conditions and 
safeguards.  These  changes  to  the  funding  equation  would  make  transfer  strategies96 
easier and more credible to plan and implement than under the baseline, contributing to 
the  orderly  handling  of  failed  banks  and  ensuring  their  market  exit  without  impacts  on 
financial stability or depositor protection while reducing the recourse to public funds. In 
terms  of access  to  external  funding, this option  would indeed lower to  some extent the 
recourse to public funds, as banks’ loss absorbing capacity complemented, where needed, 
by industry-funded safety nets would be used instead to fund more resolution actions for 
more banks under the harmonised framework.  

These  changes  are  also  likely  to  increase  the  convergence  in  resolution  practices,  legal 
certainty, level playing field and simplify and standardise the access conditions to DGS 
funds  (through  a  harmonised  least  cost  test  and  clearer  conditions  for  a  contribution  to 
preventive  measures).  The  review  of  certain  DGSD  aspects  (see  section  6.3)  and  the 

96 Whether transfer strategies in resolution or under insolvency proceedings, where available.  

61 

 
                                                           
legislative changes concerning the PIA leading to an increased application of resolution 
tools  would  also  improve  depositor  confidence  and  preserve  a  continuous  access  of 
depositors  to  their  accounts,  which  can  be  particularly  important  in  EU’s  increasingly 
digitalised economies. 

Moreover, enabling the application of resolution tools such as transfer tools on a broader 
scale and the related funding could be conducive to further financial stability and cross-
border market integration. 

Costs 

The main drawback of this option is the untapped potential expansion of the resolution 
scope  because  of  an  insufficiently  effective  improvement  in  the  funding  equation.  This 
may  impact  the  efficiency  and  effectiveness  of  the  framework  and  may  not  provide  an 
optimal  solution  to  address  some  of  the  issues  identified  in  Chapter  2.  Implementing 
option 2 requires indeed similar legal amendments as foreseen under option 3, but with 
more  modest  effects  in  terms  of  outcomes,  implying  therefore  comparatively  higher 
adjustment costs for resolution authorities when assessed against results. Option 2 would 
yield  a  lower  probability  of  PIA  expansion  for  the  same  number  of  banks  and  a  lower 
amount  of  DGS  funds  unlocked  under  the  least  cost  test  for  measures  other  than  the 
payout of covered deposits in insolvency, than options 3 and 4 (i.e. as shown in Annex 7, 
a  two-tier  depositor  preference  would  deliver  a  lower  total  amount  of  DGS  funds  that 
could contribute for a smaller number of banks to fund resolution or alternative measures 
than under a single-tier depositor preference analysed in option 3). 

A  consequence  of  a  broader  use  of  DGS  funds  for  interventions  other  than  payout  of 
covered depositors in insolvency (depending also on the needs to access the RF/SRF and 
protected by safeguards such as the least cost test and the two-tier depositor preference) 
is  a  risk  of  shortfall  in  national  DGS  funds.  Without  EDIS,  the  probability  of  DGS 
shortfalls ranges from 20.7% to 56% depending on the severity of the simulated crisis97 
and  independently  of  a  possible  CMDI  impact  compounding  the  risk  of  shortfalls  in 
national  DGSs.  These  shortfalls  could  be  mitigated  through  extraordinary  contributions 
by  the  banking  industry  or  lending  from  other  DGSs.  DGS  shortfalls  could  also  be 
mitigated  through  lending  from  the  market,  or  recourse  to  public  funds;  however  the 
latter would reinforce the bank-sovereign nexus. DGS’ vulnerability to large shocks may 
also impair depositor confidence in the banking sector. In addition, the limited potential 
for  cost  synergies  for  banks  (e.g.  diversification  and  compensation  effects  leading 
potentially to a lower target level or contributions) would not materialise in this option.  

Option 2 would also require additional coordination and consultation between resolution 
and DGS authorities. The DGS intervention to bridge the gap to 8% TLOF to access to 
the  RF/SRF  would  require  additional  preparation.  However,  despite  more  preparation 
work,  such  a  mechanism  would  ensure  broader  access  to  resolution  funding  for 
smaller/medium-sized  banks  and  address  to  some  extent  the  funding-related  problems 

97  The  amounts  of  these  DGS  shortfalls  would  range  from  EUR  0.3  bn  to  EUR  0.5  bn.  However,  these 
amounts are probably significantly underestimated as they are calculated  only on a sample of banks. See 
Annex 7, section 4.4.2. 

62 

 
                                                           
identified, slightly reducing costs in other areas (taxpayer money, loss of franchise value 
and loss of depositor confidence).  

In  addition,  placing  more  banks  in  resolution  than  under  the  baseline  option  entails  a 
requirement  for  them  to  ensure  adequate  levels  of  internal  loss  absorbing  capacity 
(MREL) to allow for the execution of resolution strategies (bail-in or transfer strategies). 
The MREL requirement is bank-specific, proportionate to the chosen resolution strategy 
and  it  may  be  complied  with  own  funds  and  eligible  liabilities.  It  is  impossible  to 
estimate ex ante, whether such a policy change would lead to a need for banks to issue 
additional  MREL  capacity,  mainly  due  to  two  factors:  (i)  the  level  of  bank-specific 
MREL  targets  that  resolution  authorities  would  set  for  banks  entering  the  resolution 
scope  needs  case  by  case  calibration  and  cannot  be  estimated  in  advance  and  (ii)  the 
starting point in terms of outstanding stock of MREL eligible instruments that each bank 
holds combined with the level of the requirement determines the issuances needs of each 
bank which cannot be estimated in advance98. Nevertheless, it should be recalled that, in 
line  with  the  fundamental  objectives  of  the  CMDI,  the  first  line  of  defence  in  case  of 
bank distress, should always be the banks’ internal loss absorption capacity. A mitigating 
factor for failing banks would be avoiding the bail-in of depositors and preserving asset 
value by using the safety nets in case the MREL capacity were not sufficient to support 
the resolution action, subject to safeguards.  

Moreover, banks entering the scope of resolution for the first time would also be subject 
to the obligation to enhance recovery plans, provide information to resolution authorities 
on  a  more  frequent  basis  for  the  preparation  of  more  extensive  resolution  plans  and 
ensure they become resolvable. While this would also involve additional costs for banks, 
these  are  estimated  to  be  marginal,  because  banks  earmarked  for  liquidation  already 
report data to resolution authorities who prepare resolution plans albeit on a less frequent 
basis  (simplified  obligations).  Banks  entering  the  resolution  scope  would  also  need  to 
invest  in  projects  to  become  more  resolvable  (i.e.  enhancing  their  management 
information  systems,  valuation capabilities, revising contracts  to  assure resolution  stays 
with counterparts, other projects related to the organisation structure and separability).  

The  benefits  of  improving  preparedness  and  resolvability  of  banks  in  case  of  failure 
would  increase  the  chances  of  preserving  financial  stability  and  taxpayer  funds  and 
exceed such costs. 

Finally,  increasing  depositor  preference,  by  rendering  all  deposits  senior  to  ordinary 
unsecured  debt  (be  it  through  a  two-tier  depositor  ranking  or  a  single-tier  depositor 
ranking  under  options  3  and  4)  has  the  potential  to  lead  to  marginally  higher  issuance 
costs for ordinary unsecured debt (and by extent to marginally higher funding costs for 
banks) by reducing their potential recovery prospects in the event of a bank’s insolvency. 
However,  this  pricing  impact  is  not  supported  by  empirical  evidence99.  Moreover,  any 
potential marginal cost impact must be weighed against the added benefits that depositor 
preference  brings  in  terms  of  enforcing  market  discipline  on  financial  investors  to 

98 See Annex 13, section 5. 
99  See  for  example,  the  IMF  Working  Paper  13/172  (July  2013),  Bank  Resolution  Costs,  Depositor 
Preference,  and  Asset  Encumbrance,  from  a  review  of  previous  studies  it  concludes  that  introducing  a 
single-tier depositor preference in the US had “little “systemic effect” on overall bank funding costs. 

63 

 
                                                           
monitor  banks’  risks  more  closely,  once  their  expectation  that  they  will  be  bailed-in 
(instead  of  being  bailed-out  under  a  less  effective  CMDI  framework)  becomes  more 
credible. 

Overall assessment 

Effectiveness,  efficiency  and  coherence:  Under  option  2,  the  slightly  broader  use  of 
resolution  tools  thanks  to  a  slightly  improved  access  to  funding  for  more  banks 
(compared to the baseline option) would enhance financial stability and decrease to some 
extent  the  recourse  to  taxpayer  money,  however  not  to  the  full  potential  that  a  more 
comprehensive CMDI reform could achieve (as described under option 3 or 4). Critical 
functions for the society (e.g. deposit taking, lending, payments) and the franchise asset 
value of failing institutions would be better maintained by applying resolution tools more 
broadly  than  today  and  enabling  the  more  extensive  use  of  industry-funded  safety  nets 
such  as  the  RF/SRF  and  DGS  funds,  subject  to  the  minimum  8%  TLOF  bail-in  access 
condition and the least cost test safeguard respectively. However, the relatively moderate 
increase  in  the  scope  of  resolution  (see  PIA  section  6.1.1.1)  correlated  with  a  slight 
improvement in accessing DGS funds through the implementation of a two-tier depositor 
preference  in  the  hierarchy  of  claims  and  the  use  of  DGS  funds  to  fill  the  gap  in 
accessing the RF/SRF, would still maintain a higher degree of uncertainty and potential 
divergences in the application of the PIA than under other options. The absence of EDIS 
would also render it less effective in ensuring depositor protection and sufficient liquidity 
in case of DGS funding shortfalls, contributing therefore comparatively less than option 
4 to protecting taxpayer funds and breaking the bank-sovereign nexus. Moreover, absent 
EDIS,  the  potential  for  cost  synergies  through  lower  contributions  to  the  RF/SRF  and 
DGS funds by the industry would not materialise (unlike in option 4). On the contrary, 
some banks may face increased costs (potentially raising MREL eligible instruments, ex 
post  replenishment  needs  for  the  safety  nets  as  well  as  the  obligation  to  enhance  their 
recovery plans and become more resolvable because of broadening the resolution scope) 
which may be passed-through, to some extent, to customers.  

Stakeholder views and political considerations: The majority of Member States favouring 
a strong CMDI reform could consider this option as sub-optimal because of the untapped 
potential for broadening the scope of resolution supported by a more ambitious revision 
of the funding equation, in particular the harmonisation of the depositor preference. One 
Member  State  is  reluctant  to  facilitate  the  usage  of  industry-funded  safety  nets  in 
resolution  (RF/SRF)  for  non-systemic  banks  and,  in  this  context,  favours  handling  the 
failure  of  smaller/medium-sized  banks  at  national  level  and  with  national  DGS  funds 
rather  than  under  the  harmonised  framework.  Depositors  in  particular  would  greatly 
benefit from solutions that avoid inflicting losses on them and ensure their uninterrupted 
access to their accounts100. They may therefore regard this option as sub-optimal because 
the  resolution  scope  would  not  be  expanded  to  its  full  potential,  meaning  that  some 
deposits may still be on the line to bear losses when applying resolution tools.  

Regarding  the  industry,  the  majority  of  stakeholders  from  both  big  and  small/medium 
sized banks see merit in targeted amendments of the framework to improve its practical 

100 See responses to the public and targeted consultations.  

64 

 
                                                           
application,  in  particular  views  converge  on  the  need  to  improve  the  predictability  and 
transparency  of  the  PIA  assessment  and  to  avoid  paying  additional  contributions  into 
industry funded safety nets. However, views of some small and large banks diverge on 
the  need  to  broaden  the  scope  of  resolution.  On  one  hand,  some  smaller/medium-sized 
banks,  in  particular  cooperatives  and  savings  banks101  may  prefer  to  stay  outside  the 
scope  of  resolution  to  avoid  costs  related  to  additional  requirements  (MREL,  reporting 
obligations  to  resolution  authorities  for  resolution  planning  and  MREL  calibration, 
increased  scrutiny  by  markets)  or  possible  ex  post  contributions  to  the  safety  nets 
(RF/SRF or DGS). Many large banks, on the other hand, are supportive of bringing more 
smaller/medium  sized  banks  into  the  resolution  scope,  regardless  of  their  size  and 
country  of  origin,  and  enhancing  the  credibility,  predictability  and  consistency  of  the 
framework as well as level playing field in the single market. Large banks also support 
minimising risks to taxpayer money and minimising moral hazard by ensuring a  use of 
internal  resolution  buffers  and  a  consistent  and  careful  approach  across  the  EU  for  the 
use  of  industry  funded  safety  nets  subject  to  a  harmonised  least  cost  test,  supporting 
market  discipline  and  avoiding  competitive  distortions.  On  the  other  hand,  they  are 
critical  of  the  prospect  of  paying  additional  contributions  into  the  safety  nets,  if  these 
were to be used more frequently to handle the failure of more small/mid-sized banks102. 

Winners  and  losers:  Reduced  risks  to  financial  stability  through  a  potentially  slightly 
broader  application  of  resolution  tools  under  this  option  would  benefit  taxpayers  and 
depositors. Depositors, including individuals and SMEs, would be better off than under 
the  baseline  option  due  to  continued  access  to  their  deposits  and  the  continuity  of  the 
bank’s critical functions through more extensive use of resolution and thanks to a more 
effective use of DGS resources in general. This impact, however, would be limited to the 
resources available in the DGS until there is progress on EDIS and would be less certain 
than under options 3 and 4 where the expansion of resolution is broader given a positive 
presumption of public interest and hence resolution.  

Resolution  authorities  are  also  winners  in  this  option.  They  would  benefit  from  legal 
clarifications of the PIA and more consistent rules on access to funding in resolution and 
insolvency.  This  would  reduce  their  risk  of  legal  challenge.  The  increased  access  to 
funding  in  resolution  for  transfer  strategies  would  permit  them  to  confidently  take 
positive  PIA  decisions  and  facilitate  their  implementation,  although  this  would  imply 
additional work in improving the planning of such strategies. 

The impact on the DGS funds and consequently on banks’ contributions is twofold. On 
the  one  hand,  DGS  funds  could  be  used  more  frequently  than  under  the  baseline  if 
cheaper  than  paying  out  covered  deposits  in  insolvency  (thanks  to  harmonising  the 
hierarchy  of  claims  by  implementing  a  two-tier  depositor  preference  which  facilitates 
meeting  the  least  cost  test,  although  not  as  much  as  under  a  single-tier  preference 
explored under option 3), potentially increasing the need to replenish depleted DGSs on 
the basis of industry contributions. On the other hand, such an impact could be mitigated 
by  a  broader  use  of  transfer  strategies,  increasing  the  cost  efficiency  of  DGS 

101 ESBG (The European Savings and Retail Banking Group) (October, 2022),  Short paper on the CMDI 
framework. 
102 AFME (Association for Financial Markets in Europe  – an association of large banks) (October 2022), 
Position paper on the CMDI review. 

65 

 
                                                           
interventions, and better preserving DGS available financial means, compared to a more 
costly payout in insolvency103.  

As originally intended by the framework but not observed in its application to date (see 
evaluation),  banks’  senior  creditors104  would  likely  be  losers  under  option  2,  as  they 
could bear relatively more losses if more banks are put in resolution upon failing. In this 
context,  option  2,  when  compared  to  the  baseline,  may  transfer  some  benefits  from 
banks’  creditors  back  to  taxpayers,  depositors  and  the  society.  Importantly,  enabling 
access  to  resolution  financing  by  using  the  DGS  fund  for  transfer  strategies  would  not 
discriminate  against  banks  with  open  bank  bail-in  strategy  because  the  latter  would  be 
recapitalised,  restructured  and  continue  their  operations,  while  banks  under  transfer 
strategies  would  need  to  exit  the  market  as  a  condition  for  the  more  proportionate 
funding access. 

6.1.2.  Option  3  –  Substantially  improved  resolution  funding  and  commensurate 

resolution scope 

Option 3 envisages reviewing certain elements of the CMDI framework (BRRD/SRMR, 
DGSD) achieving a robust reform of the funding equation, which would facilitate a more 
credible and significant expansion of the resolution scope to more smaller and medium-
sized  banks  whose  failure  may  not  be  handled  in  insolvency  without  consequence  on 
financial  stability,  taxpayer  money  and  depositor  protection.  This  option  is  designed  to 
deliver  a  broader  use  of  resolution  tools  supported  by  a  more  substantial  access  to 
funding  than  under  option  2,  but  not  as  broad  as  under  option  4  where  EDIS  as  a 
common central fund would act as a backstop to the national DGS funds. 

6.1.2.1. Public interest assessment 

Legislative  amendments  to  the  PIA  under  this  option  (in  line  with  option  2)  would 
include  regional  economic  considerations  in  the  assessment  of  critical  functions  and 
financial  stability  implications,  the  need  to  preserve  DGS  resources  and  the  possible 
granting  of  State  aid  in  insolvency  as  part  of  the  considerations  on  the  resolution 
objectives105.  Importantly  and  differently  from  option  2,  the  legislative  amendments  to 
the PIA would also clarify that national insolvency proceedings should be selected as the 
preferred  strategy  only  when  they  achieve  the  framework’s  objectives  better  than 
resolution  (as oppose to  achieving them in  the same manner, as under the baseline and 
option 2), leading to an increased prevalence to put banks in resolution, as the resolution 
authorities would face a slightly increased burden of proof to place banks in insolvency. 
Nevertheless, the PIA decision will remain at the discretion of the resolution authority on 
a  case-by-case  basis.  The  outcome,  in  terms  of  expanding  the  resolution  scope  under 
option 3, would be less ambitious than under option 4, where the inclusion of EDIS in the 
funding  solution  would  allow  an  even  larger  scope  to  apply  resolution  and  a  general 

103 See Annex 6.  
104 Banks’ shareholders and junior creditors would bear losses first, as also the case under State aid rules. 
However,  the  BRRD  already  foresees  that  the  claims  held  by  senior  creditors  could also  be bailed-in,  in 
order to cover losses and recapitalise an institution.   
105  SRB  (May  2021),  SRB’s  updated  approach  to  PIA,  System-wide  events  in  the  public  interest 
assessment. The SRB already took steps to clarify the PIA in its internal policy. 

66 

 
                                                           
presumption  of  positive  PIA.  As  also  mentioned  under  other  options,  the  number  of 
additional  banks  channelled  through  resolution  under  this  option  cannot  be  estimated 
upfront  as  the  PIA  remains  a  case-by-case  assessment  by  resolution  authorities. 
However, the strengthening of the PIA provisions in the legislation coupled with credible 
funding  in  resolution  are  likely  to  allow  a  significant  broadening  of  resolution 
application. 

6.1.2.2. Conditions to access industry-funded safety nets 

From  the  perspective  of  improving  access  to  funding  in  resolution,  the  adjustments  to 
access  criteria  under  this  option  would  be  the  same  as  under  options  2  and  4,  i.e. 
implementing the possibility to use DGS funds as a bridge to meet 8% TLOF and reach 
the RF/SRF for transfer strategies with market exit in order to avoid imposing losses on 
deposits, where that is desired on financial stability grounds. The key  distinction in the 
funding solution between options 2 and 3 is the amount of DGS funds made available for 
potential interventions outside the payout event, in particular resolution strategies leading 
to  market  exit  (see  section  6.1.2.4  for  the  corresponding  change  to  the  hierarchy  of 
claims  envisaged).  This  more  ambitious  reform  to  the  funding  solution  in  resolution  is 
matched by a more ambitious expansion of the resolution scope. 

6.1.2.3. Use of DGS funds 

Under  Option  3,  DGS  funds  would  contribute  to  the  payout  of  covered  deposits, 
preventive,  resolution  and  alternative  measures  under  insolvency  proceedings.  Access 
conditions would be clarified in the same way as under option 2.  

These  adjustments  would  address  the  problem  of  unclear  and  inconsistent  rules  in 
accessing  DGS  funding,  contributing  to  improved  level  playing  field  also  delivering 
clearer rules leading to more legal certainty (e.g. the least cost test).  

6.1.2.4. Harmonisation  of  depositor  preference  in  the  hierarchy  of  claims: 

single-tier depositor preference 

Option 3 explores a harmonisation of the ranking of deposits in the hierarchy of claims 
through  a  single-tier  depositor  preference  and  by  removing  the  super-preference  of 
covered depositors and the DGS in the hierarchy of claims106. This entails two changes 
being introduced in the BRRD. First, as under option 2, the legal preference at EU level 
would be extended to include all deposits (general depositor preference), meaning that all 
deposits,  including  eligible  deposits  of  large  corporates  and  excluded  (uninsured) 
deposits107,  would  rank  above  ordinary  senior  unsecured  claims.  Second,  the  existing 
different  relative  ranking  of  deposits  (i.e.  the  current  three-tier  approach)  would  be 
replaced by a single ranking, whereby all deposits rank at the same level (i.e. pari passu) 
amongst  themselves  (single-tier  approach).  Annex  7  further  describes  the  different 

106  See  Figure  29  in  Annex  8,  section  2,  for  a  stylised  view  of  creditor  hierarchy  in  insolvency  with  a 
single-tier depositor preference. 
107  The  deposits  of  public  authorities  would  no  longer  be  deemed  as  excluded  deposits  (see  Annex  6, 
section 3.2.6). 

67 

 
                                                           
depositor  preference  scenarios  assessed,  varying  in  scope  and  relative  ranking  among 
deposits.  

Annexes 7 and 8 (section 2) provide evidence that the general depositor preference with a 
single-tier ranking would best address the objective of the revised framework, because it 
would: (i) protect deposits in resolution by reducing the amount that would be otherwise 
bailed-in  to  reach 8% TLOF  and access  the RF/SRF;  (ii) maintain intact the protection 
enjoyed by covered deposits which does not depend on their ranking and (iii) unlock the 
largest amounts of funds that the DGS could contribute to measures other than the payout 
of covered deposits under the least cost test, which is critical for facilitating more cost-
efficient  interventions  by  the  DGS,  as  proposed  under  this  option.  It  should  also  be 
acknowledged that, by placing non-covered non-preferred deposits (e.g. deposits of large 
corporates)  on  the  same  ranking  as  covered  and  preferred  deposits  (deposits  of 
households and SMEs) and facilitating the use of the DGS bridge, banks  would need to 
replenish  the  DGS  funds  to  protect  not  only  covered  and  preferred  deposits,  but  also 
deposits of large corporates in the context of a transfer strategy. While it may expose the 
DGS industry-funded safety  nets  to  more  frequent  contributions  by the banks,  it would 
reduce  the  likelihood  and  extent  of  recourse  to  taxpayer  money,  improve  financial 
stability  and  depositor  protection  and  safeguard  the  financial  means  of  the  DGS  to  a 
greater extent than a payout of covered deposits in insolvency. 

As highlighted in Annex 7 (section 4.1.3), a comparative analysis of depositor preference 
scenarios showed that the single-tier preference would best shield deposits from bearing 
losses  by  reducing  most  significantly  the  number  of  banks  where  deposits  would  be 
impacted when reaching 8% TLOF, from 96 banks in the baseline scenario to 48 (out of 
368  banks  in  total),  reducing  the  value  of  impacted  deposits  from  EUR  18.3 bn  in  the 
baseline to EUR 6.4 bn and unlocking on aggregate up to 20 times more funds for DGS 
contributions  under  the  least  cost  test  (EUR  0.98 bn)  than  under  the  baseline  or  the 
alternative  scenarios  retaining  the  super-preference  of  DGS  (EUR  0.05 bn).  Under  the 
single-tier preference, the DGS intervention under the least cost test would be sufficient 
to bridge the gap towards 8% TLOF in 76% of cases when considering the entire sample 
and in 88% of cases when considering only banks with resolution strategy108,109.  

The analysis shows that some deposits in a number of banks would not be shielded from 
losses in case the 8% TLOF needs to be met. In view of a greater protection of deposits, 
alternatives solutions for certain tail scenarios may be explored. For instance, should the 
DGS  support  not  be  sufficient  or  not  be  able  to  intervene  due  to  the  least  cost  test  to 
cover  the  gap  between  the  assets  and  the  deposits  transferred110,  the  RF/SRF  might 

108 The resolution or liquidation strategy of banks in the analysed sample reflects the PIA decisions as of 
Q4 2019. Given the intended expansion of the  PIA, the results based on the entire sample as well as the 
ones  considering  only  banks  with  resolution  strategies  as  of  Q4  2019  are  provided  for  comparison  in 
Annex 7. 
109 These results are based on an assumption for a recovery rate  of 85% in the insolvency  counterfactual 
when  conducting  the  least  cost  test.  A  lower  recovery  rate  would  mean  that  the  DGS  would  be  able  to 
contribute more and shield more depositors in a larger number of banks, as explained in Annex 7, section 
4.5, while a higher recovery rate would have the opposite effect.  
110 DGS contributions to reach 8% TLOF may not be sufficient due to the least cost test limit or the cap 
when using the DGS funds for an individual bank (0.4% of covered deposits, or 50% of the DGS means). 

68 

 
                                                           
provide  additional  financial  support  (irrespective  of  whether  the  8%  TLOF  has  been 
reached or not), when justified based on financial stability grounds or other exceptional 
circumstances. However, this additional flexibility was discarded as the 8% TLOF access 
condition  to  the  resolution  fund  is  generally  perceived  as  a  critical  safeguard  against 
moral hazard.  

Regarding  the  argument  of  cost-efficiency  associated  with  the  use  of  DGS  funds  in 
resolution  or  alternative  measures  versus  the  cost  of  a  payout  of  covered  deposits,  an 
ECB  report  on  DGS  alternative  measures111  shows  that  261  banks,  banking  groups  or 
hosted  subsidiaries  in  the  Banking  Union  could  individually  deplete  their  fully-filled 
DGSs with a single payout of covered deposits in insolvency. While 129 of these banks 
are significant  institutions likely to involve resolution  rather than a depositor payout  in 
insolvency, the 132 remaining are less significant institutions or their hosted subsidiaries, 
which also have covered deposits exceeding the target level of their DGSs. 

6.1.2.5.Use of industry-funded safety nets and cost synergies for banks 

The  nature  of  the  impacts  on  banks  and  industry-funded  safety  nets,  and  the  potential 
cost  synergies  related  to  these  are  the  same  as  described  under  option  2.  The  main 
distinction  under option 3 is  the intensity of these impacts.  Since the access  to  funding 
from  DGS  would  be  facilitated  more  substantially  under  this  option  (as  a  result  of  the 
single-tier depositor preference in the hierarchy of claims), DGS replenishment needs via 
ex post industry contributions could be higher. However, this potential higher cost for the 
industry  would  be  counter-balanced  by  the  following  effects:  (i)  increased  depositor 
protection including for non-covered deposits, which could facilitate more effective and 
efficient 
fostering 
competitiveness for the sector; (ii) increased financial stability through credible financing 
of transfer tools in resolution or alternative measures for more failing banks in a credible 
manner,  preserving  asset  value,  reducing  contagion  and  ensuring  the  continuation  of 
client relationship, and (iii) reduced recourse to taxpayer funds while synergies between 
RF/SRF  and  DGS  would  be  more  efficiently  combined,  in  particular  in  the  Banking 
Union where the SRF and DGSs do not have the same base for the bank contributions. 
The combined use of the safety nets would enhance the resilience of the industry-funded 
source  of  funding  available  for  bank  failures  and,  to  some  extent,  reduce  the 
procyclicality of ex post contributions bearing on the sector112. 

(restructuring  and  market  exit) 

transfer  strategies 

thereby 

However,  foregoing  the  pooling  effects  that  the  implementation  of  EDIS  could  have 
brought, this option would not result in savings related to lower safety net contributions 
by the banking sector (see option 4). Therefore, the combined target level contributions 
for DGSs would remain as under the baseline option (0.8% of covered deposits). 

111 ECB (October 2022) Protecting depositors and saving money - why DGS in the EU should be able to 
support transfers of assets and liabilities when a bank fails. 
112  As  replenishment  needs  are  spread  across  a  larger  population  of  banks,  not  only  on  the  domestic 
banking sector in case a DGS is used. 

69 

 
 
 
                                                           
6.1.2.6. Assessment of Option 3 

Benefits 

Option 3 would broaden the application of the EU harmonised framework for resolution 
to more smaller/medium-sized banks on the back of more ambitious improvements in the 
funding solution. The legal clarification of the PIA would deliver a broad application of 
resolution  tools.  Legal  clarity  and  level  playing  field  would  be  significantly  enhanced 
and the uncertainty  regarding the handling of smaller and medium  sized banks through 
diverging  national  solutions  greatly  reduced.  The  problems  identified  in  the  current 
framework  regarding  the  difficulty  to  access  funding  sources  and  the  broad  discretion 
when deciding whether to place a bank in resolution or insolvency, would be addressed 
to  a  large  extent.  A  more  extensive  use  of  resolution  underpinned  by  a  mechanism  to 
improve  access  to  the  DGS  and  resolution  funding,  while  meeting  the  8%  TLOF 
minimum bail-in condition, would limit further the recourse to public funds and enhance 
financial stability. At the same time, allowing DGS funds to bridge the gap to access the 
RF/SRF  would  introduce  more  proportionality  for  smaller/medium-sized  banks  under 
transfer  strategies  in  accessing  safety  nets  without  weakening  the  minimum  bail-in 
condition  to  access  the  RF/SRF.  Implementing  a single-tier depositor preference would 
shield more depositors from  taking losses and enable more DGS funds’  contribution  to 
finance transfer tools in resolution or alternative measures under the least cost test. This 
would de facto provide more scope for DGS funding interventions for a larger population 
of  banks  than  under  the  baseline  and  option  2,  to  either  facilitate  transfer  transactions 
directly or help bridge the gap to meet the access condition of RF/SRF (provided market 
exit as a safeguard is observed).  

The  implementation  of  option  3  would  strengthen  the  level  playing  field  in  the  EU, 
improve  legal  certainty  and  predictability,  and  make  the  CMDI  framework  more 
incentive-compatible  across  all  possible  interventions  available  in  the  toolbox,  whether 
they  are  embedded  in  the  harmonised  framework  (BRRD/DGSD)  or  available  under 
national  insolvency  procedure.  Similarly  to  the  other  options,  option  3  would  facilitate 
the use of DGS funds in resolution, but also better frame interventions outside resolution 
such  as  preventive  and  alternative  measures  by  clarifying  access  conditions  (least  cost 
test),  leading  to  more  standardisation,  transparency,  predictability  of  rules  and  an 
equitable treatment of depositors, creditors and taxpayers across the EU.  

Option 3 would deliver tangible benefits to resolution authorities by increasing the legal 
certainty  of  the  framework  and  providing  them  with  stronger  financing  solutions  to 
credibly  handle  bank  failures.  It  would  also  enhance  depositor  protection  and  a  more 
efficient  use  of  industry  funds,  whose  main  purpose  is  to  finance  crisis  management 
measures.  Additionally,  enabling  and  significantly  strengthening  the  funding  of 
resolution  strategies,  such  as  transfer  tools,  would  be  conducive  to  further  cross-border 
market integration and consolidation. 

Costs 

The nature of the costs assessed under option 2 would largely remain valid under option 
3,  with  the  distinction  that  some  costs  under  option  3  may  be  somewhat  higher  or 

70 

 
applicable  to  more  banks,  while  at  the  same  time  comparatively  delivering  greater 
benefits  (see  above).  These  costs,  as  already  explained  under  option  2,  include:  (i) 
potential  additional  replenishment  needs  by  the  industry  without  benefiting  from  lower 
contributions  (in  the  absence  of  EDIS),  (ii)  risks  of  shortfalls  in  national  DGS  funds, 
which may require borrowing (from other DGSs or the market) or for a backstop by the 
sovereign,  reinforcing  the  bank-sovereign  nexus,  (iii)  additional  coordination  efforts 
between  resolution  and  DGSs  authorities,  (iv)  the  need  for  banks  earmarked  for 
resolution  due  to  the  changes  to  the  PIA  to  raise  the  required  levels  of  MREL  and  (v) 
costs related to marginal reporting needs by banks entering the resolution scope for the 
first time.  

A more substantial  improvement in  accessing industry-funded safety nets  (RF/SRF and 
DGS  funds),  both  in  terms  of  higher  amounts  unlocked  and  for  a  larger  population  of 
banks (thanks to the single-tier depositor preference), may increase the risk of shortfalls 
in  national  DGS  funds.  Without  EDIS,  these  shortfalls  could  be  mitigated  through 
extraordinary  contributions  by  the  banking  industry,  which  may  lead  to  pass-through 
costs  effects  from  banks  to  their  customers.  DGS  shortfalls  could  also  be  mitigated  by 
lending from other DGSs, lending from the market or recourse to public funds. However, 
the latter would reinforce the bank-sovereign nexus. As under option 2, in the absence of 
EDIS, cost synergies for the industry in the form of reduced contributions to safety nets 
would  not  materialise  and  DGS’  vulnerability  to  large  shocks  may  continue  to  impair 
depositor confidence in the banking sector. 

The  implementation  of  this  option  would  also  require  additional  coordination  among 
resolution and DGS authorities when using the DGS fund to reach the resolution fund. It 
would  also  imply  additional  tasks  for  resolution  authorities  to  prepare  additional 
resolution  plans  and  set  bank-specific  MREL  requirements  due  to  the  extension  of  the 
PIA. However, these costs would be mitigated by the benefits of using the framework as 
intended and ensure the market exit of failing banks without consequences on financial 
stability.  

This option would also impact banks through the requirement to ensure adequate levels 
of  internal  loss  absorbing  capacity  to  allow  for  the  execution  of  resolution  strategies 
(bail-in  or  transfer  strategies)  and  investing  in  projects  to  become  more  resolvable  (i.e. 
enhancing  their  management  information  systems,  valuation  capabilities,  revising 
contracts  to  assure  resolution  stays  with  counterparts,  other  projects  related  to  the 
organisation  structure  and  separability).  However,  whether  new  MREL  requirements 
would  translate  into  higher  costs  is  a  case-by-case  assessment  that  cannot  be  estimated 
upfront,  depending  on  the  required  MREL  targets,  the  outstanding  stock  of  eligible 
instruments  that  banks  already  hold  as  well  as  on  bank  individual  features  and  market 
conditions. A mitigating factor for banks would be avoiding the loss of franchise value 
and the continuation of critical functions via a transfer to a buyer, avoiding the bail-in of 
depositors  by  using  DGS  to  fill  the  gap  towards  accessing  resolution  funding,  in  case 
MREL  capacity  were  not  sufficient  to  support  the  resolution  action,  subject  to 
safeguards.  

While option 3 would address to a larger extent than option 2 the problems identified in 
chapter 2, it should be acknowledged, however, that the resolution scope and necessary 

71 

 
funding may not be secured in all cases under this option due to remaining discretion and 
the  inherent  limitations  in  the  conditions  to  access  funding  (least  cost  test)113.  As  a 
consequence,  the  problem  of  insufficient  legal  certainty  and  predictability  may  not 
always be fully addressed and there may be some residual uncertainty in the treatment of 
certain bank liability holders in the event of a bank failure. 

Overall assessment 

Effectiveness, efficiency and coherence: Under option 3, the broadening of the resolution 
scope  would  be  achieved  with  increased  legal  certainty  and  mirror  the  increased 
availability  in  funding.  It  would  materially  tackle  the  problem  of  level  playing  field, 
convergence  in  practices  and  use  of  public  funds  to  manage  failing  banks,  unlike  the 
baseline  or  option  2  which  would  deliver  a  weaker  reform  in  the  same  direction. 
Providing  the  funding  and  the  PIA  legal  clarity  to  place  more  smaller/medium-sized 
banks  in  resolution  would  contribute  to  improving  financial  stability,  depositor 
protection,  limiting  contagion  and  preserving  critical  functions  in  banking  compared  to 
the  baseline  and  option 2,  however  to  a  lesser  extent  than  under  Option  4  where  EDIS 
would significantly reinforce the funding  equation.  In this context,  the issues related to 
the existing room for arbitrage and lack of clarity and predictability in the application of 
crisis  management  tools,  as  identified  in  Chapter  2,  would  be  largely  resolved,  despite 
some residual risks  that  may  remain due to  certain  inherent  limitations in the access  to 
funds (least cost test) and the remaining discretion. The possibility to use the DGS funds 
as  a  bridge  to  access  the  RF/SRF  if  conditions  are  met  would  require  enhanced 
coordination  between  the  SRB  and  national  DGS  authorities.  However,  this  does  not 
imply any change in governance. As explained above, the reforms envisaged in option 3 
would  entail  certain  costs,  which  would  be  outweighed  by  the  benefits  brought  by  the 
improvements to the framework in terms of financial stability, depositor protection, level 
playing field and taxpayer money. 

The policy option package 3 (as well as 2) is assessed against the background of the 2015 
EDIS proposal under the assumption that political negotiations remain on hold. However, 
option  3  is  neutral  but  open  to  the  introduction  of  EDIS  at  a  later  stage.  Within  the 
Banking  Union,  the  establishment  of  EDIS  (whatever  the  design),  would  enhance  the 
effectiveness  and  efficiency  of  the  framework  under  this  option,  as  the  firepower  of 
deposit  guarantee  schemes  to  contribute  to  transfer  strategies  would  increase,  and  with 
EDIS in place, there would be a better alignment between the level of the decision taking 
(EU or national) and the responsibility related to financing.  

Stakeholder  views  and  political  considerations:  The  reform  proposed  under  option  3  is 
fully  aligned  with  the  vision  put  forward  by  the  Eurogroup  in  its  statement  of  16  June 
2022114. The Eurogroup in inclusive format agreed on a clarified and harmonised public 
interest  assessment,  broader  application  of  resolution  tools  in  crisis  management  at 
European  and  national  level,  including  for  smaller  and  medium-sized  banks  where  the 

113 Even under a single-tier depositor preference, the least cost test would not allow DGS fund intervention 
in all cases. Therefore, funding in resolution may remain beyond reach for a number of banks, provided the 
resolution authority wanted to include them in the scope. See Annex 7 section 4.  
114 Eurogroup (16 June 2022), Eurogroup statement on the future of the Banking Union. 

72 

 
                                                           
funding needed for effective use of resolution tools is available, notably through MREL 
and industry-funded safety nets. The Eurogroup also agreed to further harmonise the use 
of  national  DGS  funds  in  crisis  management,  while  ensuring  appropriate  flexibility  for 
facilitating market exit of failing banks in a manner that preserves the value of the bank’s 
assets. It called for a harmonised least cost test to govern the use of DGS funds outside 
payout  of  covered  deposits  to  ensure  consistent,  credible  and  predictable  outcomes. 
Given diverging views among Member States on the merits and risks of implementing a 
single-tier  depositor  preference,  the  Eurogroup  statement  deferred  the  impact  analysis 
and policy making to the Commission.  

While many Member States find the idea of expanding resolution and a more extensive 
use  of  the  RF/SRF  appealing,  some  remain  reluctant  to  facilitating  the  access  to 
resolution  funding due to concerns  related to  moral  hazard and redistribution effects  in 
case of replenishment needs following a depletion of the SRF in the Banking Union. At 
the same time, many Member States support the idea of expanding the resolution scope 
and  framing  the  discretion  regarding  the  PIA,  while  at  the  same  time  integrating  more 
proportionality in the rules to access funding. One Member State is reluctant to facilitate 
the usage of industry-funded safety nets in resolution (RF/SRF) for non-systemic banks 
and,  in  this  context,  favours  handling  the  failure  of  smaller/medium-sized  banks  at 
national level and with national DGS funds rather than under the harmonised framework.  

The European Parliament supports adjustments to the CMDI framework with the goal of 
ensuring  more  coherent,  credible  and  effective  approaches  across  all  Member  States, 
including  facilitating  market  exit  of  failing  banks  to  the  benefit  of  financial  stability, 
taxpayers’  protection  and  depositors’  confidence115.  In  particular,  the  European 
Parliament supports a clarification of the PIA criteria, so that the framework is applied in 
a more consistent and predictable manner. It is also supportive of using DGS funds: (i) to 
fill the gap towards reaching the minimum bail-in rule (8% TLOF) to access resolution 
funding  for  smaller/medium  sized  banks  with  a  transfer  strategy  or  (ii)  to  support 
alternative  measures  in  national  insolvency  for  those  banks,  subject  to  a  stringent, 
harmonised least  cost  test.  The European Parliament therefore  calls  for  more clarity on 
the  least-cost  principle  and  to  the  conditions  for  the  use  of  DGS  funds.  It  has  finally 
stressed the need to explore a possible alignment of specific aspects of insolvency law for 
the purpose of aligning incentives and ensuring a level playing field. 

The  views  of  the  industry,  as  for  all  options,  are  confirming  the  need  to  bring  forward 
targeted amendments for improving the practical application of the CMDI framework, in 
particular with regard to improving the predictability of the PIA assessment. As under all 
options, on one hand, some smaller/medium-sized banks, in particular cooperatives and 
savings banks116 may prefer to stay outside the scope of resolution to avoid costs related 
to  additional  requirements  (MREL,  reporting  obligations  to  resolution  authorities  for 
resolution planning and MREL calibration, increased scrutiny by markets) or possible ex 
post contributions to the safety nets (RF/SRF or DGS). Many large banks, on the other 

115 European Parliament (June 2022), European Parliament 2021 annual report on Banking Union. 
116  ESBG  (European  Savings  and  Retail  Banking  Group)  (October,  2022),  Short  paper  on  the  CMDI 
framework. 

73 

 
                                                           
hand,  are  supportive  of  bringing  more  smaller/medium  sized  banks  into  the  resolution 
scope,  regardless  of  their  size  and  country  of  origin,  and  enhancing  the  credibility, 
predictability  and  consistency  of  the  framework.  Large  banks  also  support  minimising 
risks  to  taxpayer  money  and  minimising  moral  hazard  by  ensuring  a  consistent  and 
careful  approach  across  the  EU  for  the  use  of  industry  funded  safety  nets  subject  to  a 
harmonised  least  cost  test,  supporting  market  discipline  and  avoiding  competitive 
distortions.  On  the  other  hand,  they  are  critical  of  the  prospect  of  paying  additional 
contributions into the safety nets, if these were to be used more frequently to handle the 
failure  of  more  small/mid-sized  banks117.  However,  the  principle  of  industry  funding 
(internal absorption capacity and safety nets) absorbing losses in case of distress/failure 
as opposed to  public bail-out  would inevitably come as a cost.  Overall, the majority of 
stakeholders  agree  that  resolution  and  insolvency  tools  should  be  applied  more 
consistently,  thereby  ensuring  a  better  level  playing  field  in  the  treatment  of  similar 
banks across the EU.  

In  addition,  some  international  institutions118  acknowledge  the  more  efficient  use  of 
funds  in  resolution  rather  than  through  payout  in  insolvency  and  the  economic 
inefficiency,  at  a  system  level,  of  having  significant  funds  sitting  idle  and  untapped, 
while  public  funds  are  being  employed  to  handle  failures.  Also,  some  industry  players 
acknowledge  the  need  for  additional  market  consolidation  in  the  EU  and  ensuring  that 
smaller/medium-sized  institutions  actually  exit  the  market  when  failing.  Depositors, 
including SMEs, and consumer organisations support the reform proposed under option 3 
because it would reduce the need for recourse to taxpayer funds and because they would 
be  shielded  to  a  greater  extent  from  bearing  losses  in  a  failure,  while  industry-funded 
safety  nets  would  take  the  second  line  of  defence  (after  banks’  internal  loss  absorbing 
capacity) to cover losses and sustain the financing of the crisis management measures.  

Winners  and  losers:  Depositors,  including  households  and  SMEs,  are  likely  winners 
under option 3 by retaining uninterrupted access to their accounts under the assumption 
of  a  broader  use  of  resolution  tools  delivered  by  legal  clarifications  in  the  PIA  and 
enhancement  of  funding  options.  Taxpayers  would  also  be  better  off  under  this  option 
since  banks’  failures  would  be  financed  by  industry-funded  safety  nets  created  for  this 
purpose. 

Smaller and medium-sized banks relying on equity and deposits and their clients would 
essentially  be  in  a  better  situation  if  they  were  to  fail,  thanks  to  alternatives  to  access 
RF/SRF without bailing-in deposits and a more credible possibility of being transferred 
to  a  buyer  while  preserving  their  franchise  asset  value.  Alternatively,  under  national 

117 AFME (Association for Financial Markets in Europe  – an association of large banks) (October 2022), 
Position paper on the CMDI review. 
118 For instance, the Financial Stability Institute (FSI) insights on policy implementation no.45 (July 2022) 
“Counting the cost of payout: constraints for deposit insurers in funding bank failure management” argues 
that (p.4): “Financial stability may benefit from broader use of deposit insurance funds in the management 
of a failing bank….(DGS) support for non-payout measures such as transfer transactions, bridge banks or 
capital  and  liquidity  support  under  bank  insolvency  and  resolution  frameworks  can  achieve  the  same 
objective by minimising interruptions to depositors’ access to their funds and, in addition, potentially offer 
wider  benefits  for  financial  stability.  Those  benefits  stem  from  a  broader  range  of  failure  management 
options for authorities which avoid the uncertainties and frictions of lengthy liquidation proceedings and 
achieve closure at a much earlier stage”. 

74 

 
                                                           
insolvency  regimes,  they  would  have  to  rely  on  the  national  DGS  funds  to  transfer  the 
business  or payout  covered deposits  under a liquidation  process.  However, the banking 
sector  in  general  may  face  costs  due  to  potential  replenishment  needs  for  DGS  and 
RF/SRF,  which  would  be  used  more  broadly  to  substitute  public  funds.  Absent  any 
reduction  of  contributions  to  the  safety  nets,  option  3  may  be  more  expensive  for  the 
banking  industry  compared  to  option  4,  while  providing  less  benefits  in  terms  of 
depositor  protection  and  not  addressing  the  bank-sovereign  nexus  in  the  absence  of 
EDIS. Option  3 may also be potentially more expensive for the industry  than option 2, 
however it would deliver superior benefits, as explained above. Banks newly subjected to 
resolution  strategy  would  also  need  to  invest  in  projects  to  become  more  resolvable 
(negative aspects from a banks’ cost perspective, while a very positive one for financial 
stability).  As  under  the  other  options,  facilitating  the  access  to  resolution  financing  by 
using the DGS for banks with transfer strategies aims at ensuring an orderly market exit 
for such banks and it would not create an undue advantage compared to banks with open 
bank bail-in strategies, which are meant to be recapitalised and continue their operations 
post-resolution. 

Resolution  authorities  would  be  winners  under  this  option,  benefiting  from  additional 
legal clarity stemming from the PIA legal amendments, a strong toolkit underpinned by 
more accessible safety nets and more consistent rules on access to funding in resolution 
and insolvency. Achieving standardisation and transparency thanks to the harmonisation 
of the least cost test, the reform under option 3 would solve the problem of misaligned 
incentives  when  deciding  on  the  type  of  measures  and  tools  to  apply,  leading  to  more 
convergence, legal  certainty  and improved level  playing  field.  It would  also  reduce the 
authorities’ legal risk (litigations).  

Banks’ creditors, and specifically senior ordinary unsecured creditors119, would be more 
exposed to the risk of bearing losses under this option, since the banks in which they hold 
claims are more likely to be placed in resolution in case of failure than under the baseline 
and  option  2,  but  to  a  lesser  extent  than  under  option  4.  The  degree  of  this  impact 
depends on whether the bank would have a possibility to be restructured under national 
insolvency law under the current legislation. 

6.1.3.  Option 4 – Ambitious reform of the CMDI framework including EDIS 

Option 4 envisages a review of the CMDI framework coupled with the implementation 
of  EDIS  as  the  third  pillar  of  the  Banking  Union  architecture.  However,  EDIS  as 
envisaged  under  option  4  does  not  correspond  to  the  fully  fledged  mechanism  put 
forward in the 2015 Commission proposal, which did not make progress in co-legislative 
negotiations.  Instead,  it  is  consistent  with  a  hybrid,  intermediate  mechanism  more 
recently  discussed  in  inter-governmental  format  since  2018  (see  Annex  10,  section  2). 
While  this  option  was  explicitly  not  endorsed  by  the  Eurogroup,  the  Commission  and 

119  The  depositor  preference  (valid  across  all  options)  means  that  senior  ordinary  unsecured  creditors 
become  junior to deposits in  the  hierarchy of claims,  while  they previously ranked  pari passu  with  non-
covered  non-preferred  deposits.  This  would  facilitate  bailing  in  these  creditors  without  creating  a  no 
creditor worse off risk, as under the baseline, in case non-covered non-preferred deposits would be shielded 
from losses. 

75 

 
                                                           
many stakeholders continue to underline its importance, pointing that EDIS would make 
the  CMDI  framework  more  robust.  The  interplay  between  the  CMDI  framework  and  a 
possible  EDIS  in  the  future  is  important  to  bear  in  mind  for  the  conceptual  logic  and 
policy design of the review. Therefore, it has been included in this impact assessment for 
technical  completeness  and  consistency  and  in  sign  of  acknowledgement  of  all  the 
political and technical discussions which took place on EDIS in the past years. 

6.1.3.1. Public interest assessment 

Option  4  would  deliver  an  expansion  in  the  scope  of  resolution  that  would  exceed  in 
intensity the one under option 3, primarily thanks to a more ambitious funding solution 
including EDIS as a complementary central industry-funded safety net alongside the SRF 
in the Banking Union. The more extensive application of resolution, compared to other 
options, would be achieved through the same legislative amendments as proposed under 
options  2  and  3  plus  loosening,  more  than  under  option  3,  the  burden  of  proof  for 
resolution  authorities  to  place  banks  in  resolution  thanks  to  a  “general  positive 
presumption  of  public  interest”.  As  also  mentioned  under  other  options,  the  number  of 
additional  banks  that  would  go  in  resolution  under  this  option  cannot  be  estimated 
upfront,  as  the  PIA  remains  a  case-by-case  assessment  by  resolution  authorities. 
However, the strengthening of the PIA provisions and the presumption of public interest 
in the legislation are likely to result in a significant broadening of resolution application. 

6.1.3.2. Conditions to access industry-funded safety nets 

For  a  credible  application  of  resolution  tools  on  a  broad  scale,  the  access  to  resolution 
financing  is  key,  especially  for  smaller/medium-sized  banks  with  a  large  deposit  base, 
likely to be resolved under transfer strategies. Importantly, as under options 2 and 3, the 
minimum  bail-in  requirement  of  8%  TLOF  remains  unchanged,  to  safeguard  against 
moral  hazard  when  using  the  RF/SRF.  However,  when  deemed  important  for  financial 
stability,  deposits  would  not  be  required  to  cover  losses  to  meet  such  requirement,  if 
certain  conditions  are  met.  More  specifically,  the  DGS/EDIS  can  intervene  to  support 
transfer strategies120 leading to a market exit and cover losses in lieu of deposits up to the 
amount  determined  under  the  least  cost  test.  This  approach  as  in  options  2  and  3  is 
justified by the need to ensure consistency with the broader approach to the PIA and the 
expectation that more adequate access to funding in resolution needs to be available for 
certain strategies.  

Extending the scope for resolution combined with the possibility to access funding more 
broadly  and  credibly  (RF/SRF,  DGS/EDIS)  would  improve  legal  certainty  in  applying 
the PIA, achieve more convergence and level playing field in applying resolution across 
jurisdictions  and,  importantly,  address  the  funding  issues  identified  in  Chapter  2. 
Implementing  an  EDIS  central  fund  as  a  backstop  to  the  DGS  funds  would  tackle  the 
problem  of  potential  shortfalls  in  available  resources  of  national  DGSs  that  may  be 
caused by significant shocks, which no other option can credibly tackle without engaging 
taxpayer  funds.  As  under  the  other  options,  the  targeted  DGS/EDIS  contribution  to 

120 Concerning other enhancements made in the proposed reform to promote the use of DGS for transfer 
strategies, see Chapter 6, section 1.1.2. 

76 

 
                                                           
reaching  the  condition  to  access  RF/SRF  for  transfer  strategies  would  introduce  more 
proportionality, while at the same time safeguarding against moral hazard by maintaining 
the minimum condition of 8% TLOF. 

6.1.3.3. Use of DGS funds/ EDIS role and governance 

Option  4,  which  is  the  most  ambitious  in  terms  of  resolution  scope  combined  with  a 
central  fund  in  EDIS,  also  aims  to  address  the  problem  pertaining  to  unclear  rules  and 
access  conditions  to  DGS/EDIS  funds  per  type  of  intervention,  eliminating  legal 
uncertainties. In terms of scope of intervention, support from EDIS would be called for 
all  DGSs  functions:  payout  of  covered  deposits,  preventive  measures,  contribution  in 
resolution and alternative measures in insolvency. The following clarifications would be 
made:  

  Clarify  and  harmonise  the  conditions  for  financing  of  preventive  measures  by 

DGS/ EDIS contribution; 

  Clarify the scope of intervention and least cost tests of DGS/ EDIS in resolution;  
  Clarify  and  harmonise  the  least  cost  test  for  DGS  contributions  and  access 

conditions to EDIS alternative measures in insolvency;  

  EDIS to contribute, as a backstop to the DGS, to the payout of covered deposits 

in insolvency.  

These  adjustments  would  contribute  to  clearer  rules  leading  to  more  legal  certainty, 
simplification  of  the  least  cost  test  and  eliminating  difficulties  in  its  application, 
enhanced level playing field and address the issue of inconsistent solutions to funding. 

Under option 4, with  the establishment of EDIS,  the governance in  the  Banking  Union 
would  be  revised  and  strengthened.  In  order  to  reflect  the  substantial  concentration  of 
resources  at  central  level,  a  key  role  for  the  SRB  in  the  decision-making  process 
concerning the funding measures (including use of DGS/EDIS) would be required under 
this  option.  The  SRB  would  therefore  be  empowered  to  take  decisions  in  all  scenarios 
where  EDIS  would  need  to  be  tapped.  For  certain  elements  of  the  decision-making 
process, and particularly the least cost test calculation, the SRB may however still decide 
to rely on input from national authorities when more specific national considerations are 
concerned (e.g. the ranking of liabilities at national level or an estimate of the recovery 
rates for assets). 

6.1.3.4. Harmonisation of depositor preference in the hierarchy of claims 

Option  4  envisages  the  implementation  of  a  single-tier  depositor  preference  in  the 
hierarchy  of  claims  and  removing  the  super-priority  of  DGS/EDIS/covered  deposits,  as 
also explained under option 3. The only distinction is that the benefit of implementing a 
single-tier preference for depositors would also entail facilitating the use of EDIS under 
the least cost test where necessary as backstop to national DGS funds.  

77 

 
 
 
6.1.3.5. Use  of  industry-funded  safety  nets  and  cost  synergies  for  banks  with 

EDIS in place 

Option 4 would generate significant synergies between the SRF and EDIS, both in terms 
of  funding  structure,  liquidity  depth  and  scope  of  intervention  in  resolution  and 
insolvency. By design, pooling resources and increasing risk diversification would allow 
to increase the level of depositor protection, while creating room for lowering the target 
level  and,  consequently,  reducing  the  contributions  burden  for  the  banking  sector.  The 
quantitative  analysis121  demonstrates  the  possibility  to  maintain  or  even  increase  the 
current level of depositor protection with a lower target level, even under systemic crisis 
simulations.  The  more  resources  are  pooled  the  higher  the  potential  reduction  of 
contributions  would  be.  For  instance,  assuming  an  ambitious  pooling,  EDIS  would 
significantly lower the probability and the amounts of liquidity shortfall compared to the 
status  quo  with  a  0.6%  target  level122.  The  cost  savings  for  the  banks  in  the  Banking 
Union could represent on aggregate EUR 14 bn or 25.5% of total DGS contributions, as 
estimated based on Q4 2020 data. However, given the risk-based nature of contributions, 
the cost reduction would not affect all banks to the same extent123. 

However,  if  Member  States  wish  to  retain  and  cover  the  residual  national  options  and 
discretions  (other than preventive and alternative measures) under the DGSD (not fully 
harmonised), they would be required to finance them with funds above the target level. 
The  current  target  level  of  0.8%  of  covered  deposits  would  continue  to  apply  in  the 
Member States outside the Banking Union. 

6.1.3.6. Assessment of Option 4 

Benefits 

Option 4 would deliver a decisive step forward towards completing the Banking Union 
with its third pillar, EDIS. It would be broadening the application of the EU harmonised 
framework  for  resolution.  In  the  Banking  Union,  it  would  create  a  central  EDIS  fund 
with  pooled  resources  available  to  handle  multiple  bank  failures,  which  would  enhance 
the  financial  stability  of  participating  Member  States,  strengthen  the  single  market  in 
banking and underpin the Economic and Monetary Union.  

The legal  clarification of the PIA would deliver a broad application of resolution tools. 
Legal clarity and level playing field would be significantly enhanced and the uncertainty 
regarding  the  handling  of  smaller  and  medium  sized  banks  through  diverging  national 
solutions  greatly  reduced.  The  problems  identified  in  the  current  framework  regarding 
the robustness of funding sources, the difficulty to access them and the broad discretion 
when deciding whether to place a bank in resolution or insolvency, would be addressed 
to a large extent. An extensive use of resolution underpinned by central industry-funded 

121  In  terms  of  calibration,  a  lot  of  work  has  been  carried  out  in  various  fora  (Council  working  parties, 
HLWG on EDIS, EGBPI, JRC reports) assessing various possibilities to pool funds into a central fund in a 
gradual manner. See Annex 10. 
122  There  is  a  95%  probability  that  the  hybrid  EDIS  with  such  a  reduced  target  level  provides  a  better 
protection than the status quo. See Annexes 10 and 12. 
123 The riskier the bank, the smaller the cost reduction and vice-versa.  

78 

 
                                                           
safety nets and a mechanism to improve access the resolution fund while meeting the 8% 
TLOF  would  limit  further  the  recourse  to  public  funds  and  enhance  financial  stability, 
weakening the bank-sovereign nexus in the Banking Union.  

Improvements  to  conditions  for  DGS/EDIS  contribution  to  various  interventions  other 
than  payout  would  render  the  use  of  DGS/EDIS  more  efficient  when  compared  to  a 
payout scenario124 and boost depositor confidence, including due to continued access to 
their accounts also ensuring level playing field with an equitable treatment of depositors, 
creditors, taxpayers across the EU.  

At  the  same  time,  allowing  DGS/EDIS  to  bridge  the  gap  to  access  the  RF/SRF  would 
introduce more proportionality for smaller/medium-sized banks under transfer strategies 
without weakening the minimum bail-in condition to access the RF/SRF.  

This  option  would  deliver  cost  synergies  for  the  banking  sector  through  a  lower 
combined  target  level  and  related  contributions,  while  providing  extensive  benefits  via 
the available pooled resources.  

Moreover,  enabling  and  significantly  strengthening  the  funding  of  resolution  strategies 
such as transfer tools  would be conducive to  further  cross-border market  integration.  It 
could  also  contribute  to  the  efficiency  of  the  EU  resolution  regime  by  promoting  a 
functional framework able to cater for the failure of smaller/medium-sized banks, as it is 
the case in other jurisdictions (e.g. US with the Federal Deposit Insurance Corporation). 
In line with this more centralised use of funding, including when it comes to EDIS, this 
option  proposes  a  governance  structure  with  a  prominent  role  for  the  SRB  to  manage 
funding for banks under its remit. 

Costs 

The creation of EDIS would involve set-up costs to pool funds in a central EDIS fund. 
However,  these  costs  would  be  likely  marginal,  when  compared  to  the  set-up  of  the 
SRM/SRB/SRF in 2015, as the functioning of EDIS would build on already existing and 
functioning  funds  (DGS  funds  and  SRF)  and  established  processes,  workflows  and 
authorities (national DGS authorities and the SRB). While the set-up costs of this option 
would be higher than zero, the benefits  of available liquidity in  case of  DGS shortfalls 
would render the cost-effectiveness of this option comparatively higher than that of other 
options. 

The  implementation  of  this  option  would  also  require  additional  coordination  among 
authorities when using the DGS/EDIS to reach the resolution fund. It would also imply 
additional  tasks  for  resolution  authorities  to  prepare  additional  resolution  plans  and  set 
bank-specific MREL requirements due to the extension of the PIA. However, these costs 
would  be  mitigated  by  the  benefits  of  using  the  framework  as  intended  and  ensure  the 
market exit of failing banks without consequences on financial stability.  

This option would also impact banks which would need to comply with the requirement 
to ensure adequate levels of internal loss absorbing capacity to allow for the execution of 
resolution  strategies  (bail-in  or  transfer  strategies)  and  investing  in  projects  to  become 

124 See also Annex 10.  

79 

 
                                                           
more resolvable. However, whether new MREL requirements would translate into higher 
costs  is  a  case-by-case  assessment,  depending  on  the  required  MREL  targets,  the 
outstanding  stock  of  eligible  instruments  that  banks  already  hold  as  well  as  on  bank 
individual  features  and  market  conditions.  A  mitigating  factor  for  banks  would  be 
avoiding the bail-in of depositors by using DGS/EDIS to fill the gap towards reaching the 
minimum  bail-in  rule  (8%  TLOF)  to  access  resolution  funding  for  banks  with  transfer 
strategy,  in  case  MREL  capacity  were  not  sufficient  to  support  the  resolution  action, 
subject to safeguards. However, using the DGS/EDIS fund and the RF/SRF would also 
entail re-couping those funds through ex post contributions from the industry. 

Overall assessment 

Effectiveness,  efficiency  and  coherence:  Option  4  would  be  a  step  forward  towards 
completing  the  Banking  Union  with  its  third  pillar.  It  would  contribute  by  design  to  a 
greater  application  of  resolution  tools  than  any  other  option  (through  legal  amendment 
including a  general  presumption  of positive PIA), also  strengthening  financial stability, 
limiting significantly the recourse to taxpayer money, thanks to stronger, more accessible 
industry-funded  central  safety  nets.  This  option  is  the  one  that  would  best  preserve 
critical  functions  and  the  franchise  value  of  assets  in  failing  banks  given  the  extensive 
use  of  resolution.  This  option  would  also  contribute  to  better  legal  clarity  and  aligned 
incentives  in  the  choice  of  applicable  procedure  (resolution  or  insolvency)  as  well  as 
enhancing the EU level playing field. It would boost depositor protection and ensure they 
are treated equitably, irrespective of their location. 

Stakeholder  views  and  political  considerations:  Given  the  outcome  of  the  June  2022 
Eurogroup  and  the  lack  of  agreement  on  a  comprehensive  roadmap  to  complete  the 
Banking Union including EDIS, this option is considered politically unfeasible, at least in 
the current institutional cycle.  

In  its  recent  report  on  Banking  Union125,  the  European  Parliament  has  stressed  the 
importance of completing the Banking Union with the establishment of an EDIS, as its 
third pillar. In particularly, the European Parliament stresses the importance of EDIS, for 
improving  the  protection  for  depositors  in  the  EU  and  their  trust  in  the  banking  sector 
and for reducing the link between banks and sovereigns. However, the Parliament has not 
yet concluded its first reading of the Commission’s 2015 EDIS proposal.  

The potential to place more banks in resolution, benefiting from strong central safety nets 
and reducing financing costs (i.e. for EDIS in the Banking Union), is appreciated by the 
banking industry (banks of all sizes and business models), which considers that national 
DGSs are limited in size and firepower and a fully-fledged EDIS would be an essential 
piece of the Banking Union architecture. This view is not shared by IPS members, which 
consider  their  solidarity  model  as  sufficient  to  avert  failures.  Some  respondents  to  the 
targeted  and  public  consultations126  underlined  that  a  fully-fledged  EDIS  would  reduce 
the burden on banks while minimising the probability of a call for ex post contributions, 
also  avoiding  pro-cyclical  impacts  on  banks’  balance  sheets.  However,  certain 

125 European Parliament (June 2022), European Parliament 2021 annual report on Banking Union. 
126 See Annex 2. 

80 

 
                                                           
smaller/medium-sized banks which would come into the scope of resolution may need to 
bear  additional  obligations  to  enhance  recovery  plans,  provide  more  extensive 
information  to  resolution  authorities  for  the  preparation  of  resolution  plans,  ensure 
compliance with MREL requirements and become more resolvable127. 

Consumer  organisations  are  supportive  of  a  centralised  deposit  insurance  scheme128  to 
ensure  a  uniform  level  of  depositor  protection  and  reinforce  consumer  confidence. 
Consumers  support  any  solution  that  limits  the  use  of  public  money  to  rescue  failing 
banks. They would however prefer solutions where capital requirements for banks would 
be increased, and State aid in liquidation proceedings and of precautionary support would 
be subject to a stricter test129.  

Winners  and  losers:  Taxpayers,  depositors  and  Member  States  would  benefit  greatly 
from an improved and more proportionate CMDI framework with a strong EDIS in the 
Banking Union. Such a framework, given the expected application of resolution and the 
improved functioning of measures outside of resolution, would significantly reduce risks 
for financial stability, and would preserve banking critical functions for the society. The 
reduced recourse to public funds and the corresponding increased use of industry-funded 
safety nets (RF/SRF, DGS/EDIS) would have a positive impact on weakening the bank-
sovereign nexus. More depositors would be likely better off than under other options, due 
to continued access to their deposits and depositor protection thanks to a robust EDIS in 
the  Banking  Union.  Such  a  construction  may  also  increase  the  appeal  of  the  Banking 
Union with non-participating Member States, paving the way towards a more integrated 
and centralised single market in banking.  

Smaller  and  medium-sized  banks  relying  on  equity  and  deposits,  which  are  generally 
candidates for transfer strategies, and their shareholders, creditors and employees would 
also benefit from more proportionality by being able to access the RF/SRF more easily, 
without the need to systematically inflict losses on depositors. Such banks would be able 
to  access  the  RF/SRF  through  DGS  contributions  under  the  least  cost  test,  while  being 
subject  to  safeguards  (e.g. market  exit if they fail). However, the smaller and medium-
sized  banks  subject  to  an  extended  PIA  would  also  need  to  comply  with  MREL 
requirements  in  line with  the resolution  strategy and invest in  projects  to become more 
resolvable (negative aspects from a banks’ cost perspective, while a very positive one for 
financial  stability).  As  under  the  other  options,  facilitating  the  access  to  resolution 
financing by using the DGS for banks with transfer strategies aims at ensuring an orderly 
market  exit  for  such  banks  and  it  would  not  create  an  undue  advantage  compared  to 
banks with open bank bail-in strategies, which are meant to be recapitalised and continue 
their operations post-resolution.  

Resolution  authorities  would  be  winners  under  this  option  (even  more  so  than  under 
other options), benefiting from a strong toolkit underpinned by robust safety nets in the 
Banking  Union  and  more  consistent  rules  on  access  to  funding  in  resolution  and 

127  Yet,  as  a  mitigating  factor  for  these  additional  obligations,  the  BRRD  provides  for  a  proportionate 
treatment of smaller institutions by allowing for simplified obligations in terms of planning preparation and 
reporting of information to relevant authorities.  
128 Respondents to the consultation did not specify whether a centralised deposit insurance should take the 
form of the 2015 proposal or a hybrid model as under this option.  
129 See responses to the public and targeted consultations.  

81 

 
                                                           
insolvency.  This  option  would  achieve  more  convergence  and  legal  certainty  in  the 
application  of  rules,  leading  to  improved  level  playing  field.  It  would  also  reduce  the 
authorities’ legal risk (litigations).  

Banks’ creditors, and specifically senior bond holders, would be more exposed to the risk 
of bearing losses since the banks in which they hold claims are more likely to be placed 
in resolution in case of failure than under the baseline and other options. The degree of 
this  impact  depends  on  whether  the  bank  would  have  a  possibility  to  be  restructured 
under national insolvency law under the current legislation. 

6.2.  Comparison and choice of preferred options 

Table 1 provides a high-level summary of how the previously-described options compare 
(for the sake of readability of the tables, the labels of the options have been shortened). 

Table 1: Summary of how the options compare 

EFFECTIVENESS 
Level 
playing 
field, single 
market 

Minimise 
recourse to 
taxpayer 
money 

Depositor 
protection 

EFFICIENCY 
(cost-
effectiveness) 

COHERENCE 

OVERALL 
SCORE 

Financial 
stability 

0 

+ 

0 

+ 

0 

+ 

0 

+ 

0 

+ 

0 

++ 

++ 

0 

+ 

++ 

++ 

++ 

++ 

++ 

++ 

+++ 

+++ 

+++ 

+++ 

+++ 

+++ 

+++ 

Option 1 
Do nothing 
Option 2 
improved  resolution 
Slightly 
funding  and  commensurate 
resolution scope 
Option 3  
Substantially 
resolution 
commensurate 
scope 
Option 4  
Ambitious 
including EDIS 

improved 
and 
resolution 

funding 

reform 

CMDI 

Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): +++ very 
positive; ++ positive; + slightly positive; +/- mixed effect; 0 no effect; – slightly negative; -- negative; --- 
very negative. 

Leaving  aside  option  4  which,  although  technically  the  most  robust  option,  is  not 
politically  feasible  at  this  stage,  option  3  would,  on  balance,  deliver  solutions  to  most 
problems identified in chapter 2. It is therefore considered to be the preferred option.  

In  particular,  in  terms  of  effectiveness,  option  3  would  deliver  a  crisis  management 
reform  contributing  comparatively  more  than  other  options  to  strengthening  financial 
stability,  while  facilitating  market  exit  of  failing  banks.  It  would  likely  reduce  the 
recourse  to  public  funds  by  creating  the  funding  conditions  to  handle  more  failures  of 
smaller/medium-sized banks in the CMDI framework, using industry-funded safety nets. 
Increased  access  to  funding  in  resolution  or  for  alternative  measures  would  open  the 
possibility of shielding depositors from bearing losses, maintaining the client relationship 
and  the  franchise  value  of  assets  by  creating  room  for  a  successful  transfer  of  failing 
banks. Option 3 would also improve the legal clarity and predictability of the framework 
by standardising and harmonising the access condition to DGS funds for all contributions 
other than payout of covered deposit, ensuring incentive compatibility among the various 

82 

 
 
measures (preventive, resolution, alternative measures in insolvency) that could be used 
to handle bank failures.  

In  terms  of  cost-efficiency,  option  3  would  deliver  benefits  exceeding  its  costs  by 
ensuring that already established industry-funded safety nets could be used more broadly 
and in a more efficient manner130. Additional obligations on banks generated through this 
reform  would  be  mitigated  by  increased  societal  benefits,  through  protecting  financial 
stability  and  taxpayer  money,  more  market  consolidation  and  transferring  the  benefits 
from banks’ creditors to depositors and taxpayers. In comparison, option 4 would deliver 
more cost synergies to the industry through reductions of contributions to EDIS, thanks 
to the pooling effects that a central fund would create. However, in option 3 (as in option 
2), the potential increase in costs for banks due to calls to replenish depleted safety nets, 
requirements  to  build-up  loss  absorbing  capacity  and  other  additional  requirements, 
which come with having a resolution strategy (e.g. reporting, becoming more resolvable), 
would not be balanced by any cost reduction in contributions to the safety nets under this 
option. 

In terms of coherence, all option packages, including option 3 have been designed with 
internal  coherence  among  the  various  elements  in  mind  (e.g.  ambition  on  the  PIA 
expansion matched by funding solutions).  

The changes envisaged under option 2 go into the same direction as the ones described 
for option 3, however they would deliver a less extensive reform and, as a result, achieve 
a less effective outcome in terms of the objectives of the framework. This is mainly due 
to  a  less  effective  outcome  in  terms  of  potentially  unlocking  DGS  funds  as  a  result  of 
implementing  a  two-tier  depositor  preference  as  opposed  to  a  single-tier  depositor 
preference  as  envisaged  under  option  3,  which  may  limit  the  potential  to  place  more 
banks in resolution. The overall costs of option 2 may be somewhat lower than in option 
3, but so are the benefits delivered, i.e. a narrower scope to broaden resolution matched 
by a narrower increase in funding, as explained in the respective sections in Chapter 6.  

When ranking the effectiveness of the various reform options envisaged and measured in 
terms  of  PIA  scope,  access  to  industry  funding  and  depositor  protection,  the  benefits 
delivered  under  option  2  would  improve  the  current  framework  (baseline)  less 
significantly. Option 3 would make a more substantial impact than option 2. Based on the 
sample analysed in Annex 7, section 4.1.3, the funding unlocked under option 3 would be 
20 times higher than under the baseline, while it would be five times higher than under 
option  2.  In  this  regard,  option  3  would  lead  to  an  increased  protection  of  taxpayer 
money  and  depositors,  although  it  would  also  come  at  a  potentially  higher  cost  for  the 
banking sector. 

130 Using the DGS fund for measures other than payout may result in lower disbursement needs than when 
paying out covered deposits in insolvency. See sections 7.1.4.4 and 7.2.2.6 in the evaluation (Annex 5) and 
ECB  (October  2022),  Protecting  depositors  and  saving  money  -  why  DGS  in  the  EU  should  be  able  to 
support transfers of assets and liabilities when a bank fails. 

83 

 
 
 
                                                           
6.3.  Common elements across the packages of options 

This  section provides an assessment of additional  policy changes envisaged to  enhance 
depositor  protection  and  which  are  common  across  all  packages  of  options.  The 
remaining common elements across all packages of options (early intervention measures, 
timing  of  FOLF  trigger,  interaction  between  FOLF  and  insolvency  triggers)  listed  in 
section 5.5 are of a more technical nature and presented in Annex 8.  

Depositor protection 

As observed in the four EBA opinions, the consistency of depositor protection in the EU 
needs to be improved across all options131. In addition to the current standard protection 
of  EUR 100 000  per  depositor  per  bank  applicable  across  the  EU,  more  convergence 
focusing  on  specific  depositors  (i.e.  public  authorities)  or  types  of  deposits  (i.e.  client 
funds of financial institutions, so-called temporary high balances) would contribute to a 
more equal treatment of depositors across the EU. The organisation of depositor payouts, 
addressing  various  situations  involving  money-laundering  concerns  in  a  cross-border 
context,  or  specific  elements  of  information  disclosure  would  also  benefit  from 
improvements.  Having  regard  to  the  increasing  volume  of  cross-border  and  Fintech 
services132,  these  improvements  would  also  help  depositors  navigate  the  different  legal 
regimes to claim the repayment of their deposits in other Member States.  

Key areas for further improvements are: 

-  Eligibility for depositor protection (e.g. public authorities); 
-  DGS  payout  processes  (prescription  timelines,  determination  of  repayable 

amount, set off); 

-  Specific improvements to information disclosure for depositors; 
-  Cooperation between DGSs  (reimbursements in  host Member States, passported 
services and transfers of contributions in the event of changes to DGS affiliation); 

-  DGS funding (definition of available financial means, use of funding sources);  
-  More  convergence  in  the  application  of  national  options  and  discretions,  e.g. 

temporary high balances, third country branches; 

-  The treatment of client funds held by non-bank financial institutions. 

Box 4: Implementing the EBA advice  

The  analysed  policy  options  closely  follow  the  opinions  provided  by  the  EBA  for  the 
CMDI review through two main channels. 

First,  the  options  retain  16  out  of  19  recommendations  from  a  set  of  four  opinions 
dedicated  to  the  review  of  the  DGSD  functioning  (Table  10,  Annex  6,  section  2).  The 
only  exceptions  are  related  to  definitions  of  certain  concepts  discarded  based  on 
technical  and  legal  considerations,  or  to  recommendations  which  received  no  support 

131 See Chapter 2, section 2.3.1 and Annex 6. 
132  Fintech  services  refer  to  technology  and  innovation  that  aims  to  compete  with  traditional  financial 
methods in the delivery of financial services (e.g. payments, investment). 

84 

 
                                                           
from Member States. This is the case for the following elements: 

- 

- 

- 

the recommendation to clarify the concept of “normal banking transaction” in the 
definition  of  deposit  in  light  of  recent  case  law133  that  clarifies  whether  certain 
funds held on an account fall within the definition of a deposit will be subject to a 
case-by-case assessment;  

the recommendation to assess whether there was a need to revise the definition of 
low-risk assets related to investments of the DGS available financial means led to 
the  conclusion  that  there  was  no  need  to  change  this  definition  based  on  the 
feedback  received  from  Member  States  where  a  majority  did  not  see  merit  in 
changing the current definition;  

the recommendation on the possibility to use failed institutions’ assets for a DGS 
payout was discarded based on the low likelihood that a failed institution would 
have a significant amount of liquid assets to pay depositors in the DGS’ stead. 

Second,  the  EBA  report  responding  to  the  Commission’s  call  for  advice  regarding 
funding in resolution and insolvency was fully taken into account. The policy options of 
the impact assessment mirror the different scenarios of changes in the creditor hierarchy 
analysed by the EBA, from the unharmonised three-tier depositor preference (status quo) 
to the harmonised single-tier depositor preference (preferred option). The EBA provides 
evidence  that  equally  preferring  all  deposits  to  other  ordinary  unsecured  claims  could 
significantly increase the number of institutions that could be more efficiently managed 
in  case  of  failure,  by  (i)  reducing  the  overall  cost  (as  the  value  of  the  bank  is  better 
preserved  when  it  can  be  sold  in  resolution,  as  opposed  to  its  assets  sold  in  pieces  in 
insolvency), (ii) accessing resolution financing arrangements (funded by the industry as 
opposed  to  taxpayers)  and  (iii)  avoiding  a  bail-in  of  deposits  (and  deriving  financial 
stability concerns and possible contagion generated by the unavailability of deposits in a 
liquidation).  The  impact  assessment  leverages  on  this  pivotal  conclusion  to  justify  its 
policy  choices  in  Annex  7  and  reproduces  the  EBA’s  quantitative  material  in  the 
numerical tables reported in this Annex.  

7. 

PREFERRED OPTION 

The packages of policy options outlined above would all provide an improvement to the 
status quo. All of them address, to some extent, some of the core issues identified in the 
problem  definition  and  follow  a  similar  direction.  In  particular,  they  would  allow  (to 
various  degrees)  a  more  extensive  application  of  resolution,  more  proportionate  and 
consistent  access  to  funding  sources  in  resolution  and  outside,  and  incentivise  a  more 
extensive  use  of  the  sources  of  financing  which  are  funded  by  the  industry  (resolution 
fund, DGS) as a possible complement to the internal loss absorption capacity of the bank 
concerned. This  would  foster financial stability,  depositor protection  and limit  recourse 
to  taxpayers’  funds.  As  an  important  distinguishing  element,  option  4  would  also 
implement EDIS as a central fund134, which would backstop the national DGS funds and 
reduce the link between banks and sovereigns, which cannot be achieved under the other 

133 The EU CJEU has clarified the meaning of the concept ‘normal banking transactions’ in the judgment 
of 22 March 2018 (Joined cases C  688/15 and C  109/16 Anisimovienė and Others v. Snoras). 
134  However,  a  different  mechanism  (hybrid)  than  the  fully  fledged  EDIS  put  forward  in  the  2015 
Commission proposal.  

85 

 
                                                           
options. Although option 4 would be an important step towards completing the Banking 
Union, it cannot be implemented politically at this point in time. 

All  the  options  provide  improvements  with  respect  to  the  legal  certainty  and 
predictability  in  the  management  of  bank  failures.  In  particular,  the  clarifications  to 
important  provisions  such  as  the  harmonisation  of  the  least  cost  test  contribute  to 
clarifying  and  resolving  certain  interpretive  issues  which  have  led  to  uncertainty  in  the 
application of the framework.  

In the same vein, the proposed clarifications to some elements of the toolbox (detailed in 
section  6.3  of  Chapter  6  and  in  Annex  8)  which  are  important  to  ensure  early  action 
before  the  bank’s  failure  (early  intervention  measures,  preventive  DGSD  measures, 
BRRD  precautionary  measures)  are  effective  in  ensuring  a  better  framed  and  more 
consistent  use  of  these  tools.  Additionally,  clarifications  regarding  advancing  the 
timeliness of resolution action (by ensuring an adequately early FOLF triggering) would 
bring significant net societal benefits in terms of cost minimisation. While there may be 
limitations to the degree of ambition for advancing the determination in time of a bank as 
FOLF135, the earlier this determination is made, the more resources (capital, liquidity) are 
available in  the failing bank to  facilitate the execution of a successful resolution  action 
with  potentially  less  need  to  impose  losses  on  deposits.  Finally,  clarifications  to  the 
FOLF triggers and their coordination with triggers for insolvency (see Annex 8) would 
improve clarity with respect to the need for a swift exit of a failing bank from the market 
when  there  is  no  public  interest  in  resolution.  This  in  turn  reduces  the  burden  for 
authorities and banks in ensuring compliance with the legislative provisions. Since many 
of these amendments and clarifications are  common  to  all options, it can be  concluded 
that they all equally achieve the mentioned objective.  

However,  with  respect  to  the  objective  of  improving  the  effectiveness  of  the  funding 
options and address the divergent access conditions in resolution and outside resolution, 
not  all  options  are  able  to  achieve  the  policy  objectives  to  the  same  extent.  From  this 
perspective, the design features on access  conditions to,  and  availability  of funding  are 
intrinsically linked with the scope of resolution that would be achieved as predicated by 
the  PIA  under  the  various  options.  In  this  respect,  option  3  is  the  preferred  option 
retained,  as  it  achieves  a  strong  funding  from  industry-funded  safety  nets  aimed  at 
supporting  transfer  strategies  for  failing  banks  in  resolution  or  under  alternative 
measures, if available, setting the stage for a credible broadening of the resolution scope.  

Option 3 would make more DGS funds available for measures other than the payout of 
covered deposits in insolvency by harmonising the ranking of deposits through a single-
tier  preference  in  the  hierarchy  of  claims  and  removing  the  super-priority  of  the  DGS. 
Option  2  would  enable  a  more  modest  use  of  DGS  funds  through  a  two-tier  depositor 
preference  without  the  super-priority  of  DGS,  and  thus  lead  to  a  less  ambitious  CMDI 
reform, which would require the same types of legislative changes as option 3 only with 
a lower impact in terms of achieving the overall objectives of the framework. It should, 
however,  be  acknowledged  that  option  3  would  reduce  the  flexibility  for  resolution 

135 FOLF may not be triggered if private solutions are available to avert the bank’s failure.  

86 

 
                                                           
authorities to allocate losses to non-covered non-preferred deposits without breaching the 
“no  creditor  worse  off”  principle,  as  they  would  rank  pari  passu  with  other  deposits 
excluded from bail-in. The preferred option 3 provides for a reinforced role of DGSs in 
the  context  of  the  CMDI  framework.  In  particular,  it  promotes  a  more  efficient  use  of 
more  DGS  resources  for  transfer  strategies  and  introduces  the  possibility  for  DGSs  to 
contribute to bridge the gap between deposits and 8% TLOF, under the least cost test.  

All  these  changes  are  likely  to  translate  into  a  more  intensive  use  of  DGS  funds  for 
measures  other  than  the  payout  of  covered  deposits,  which  in  turn  may  lead  to  higher 
costs  for  the  industry  in  case  of  replenishment  needs  and  potentially,  higher  risks  of 
shortfalls.  The  magnitude  of  these  costs  for  the  industry  may  be  higher  under  option  3 
than  under  option  2,  but  they  would  also  be  balanced  by  addressing  the  identified 
problems to a greater extent and in a more credible manner and achieving greater societal 
benefits  through  a  considerably  higher  likelihood  to  preserve  financial  stability,  protect 
public funds and deposits. Also, as shown in the evaluation (sections 7.1.4.4. and 7.2.2.6) 
using DGS funds to facilitate transfer transactions in resolution or alternative measures is 
likely more efficient than paying out covered deposits in insolvency (baseline).  

In the absence of EDIS, the only available avenues to remedy a DGS shortfall would be 
recourse  to  industry  ex  post  contributions,  alternative  funding  arrangements136  and,  in 
insolvency,  to  supplement  the  DGS  intervention  with  liquidation  aid  financed  by  the 
State.  In  all  cases,  the  solutions  are  less  efficient  than  receiving  financing  from  a 
centralised EDIS, which would provide an opportunity for lowering banks’ contributions 
and a much more easily accessible source of financing compared to borrowing from other 
DGSs or the market. Moreover, an EDIS backstop to national DGS funds would weaken 
the bank-sovereign link. The political reality, however, has removed the implementation 
of EDIS as part of this CMDI reform package. But even without EDIS, the CMDI reform 
would improve the framework substantially by ensuring more banks could be handled via 
the  harmonised  framework  by  using  the  banks’  loss  absorbing  capacity  and  industry-
funded safety nets rather than taxpayers’ funds.  

Finally,  also  when  it  comes  to  the  objective  of  addressing  the  uneven  and  inconsistent 
depositor protection, all options provide clarifications aimed at reducing the divergences 
in the protection of depositors across Member States (see further Annex 6). However, the 
lack of robustness in DGS funding identified as an issue in Chapter 2 cannot be fixed via 
this reform in the absence of EDIS.  

The proposed policy options would not have a significant impact on administrative costs 
(i.e. information provision obligations by banks and resolution authorities), which would 
remain  low  under  all  options.  This  is  because,  the  very  marginal  increase  in  reporting 
burden for banks entering the scope of resolution for the first time137 would be offset by 

136 Article 10(9) DGSD Recourse to alternative funding sources would entail borrowing from the market, 
from other DGSs or from the State’s public budget. 
137  Banks  entering  the  scope  of  resolution  for  the  first  time  would  also  be  subject  to  the  obligation  to 
enhance  recovery  plans,  provide  information  to  resolution  authorities  on  a  more  frequent  basis  for  the 
preparation of more extensive resolution plans and ensure they become resolvable. While this would also 
involve  additional  costs  for  banks,  these  are  estimated  to  be  marginal,  because  banks  earmarked  for 

87 

 
                                                           
 
the relief resulting from removing the MREL decision for liquidation entities where the 
MREL requirement is equal to own funds, as also shown in Annex 3. 

Box 5: What this reform could mean for depositor protection and DGSs 

Proposed changes under this reform 

  Facilitated use of DGS funds in resolution to support the transfer of deposits, including non-
covered  deposits,  from  smaller/medium-sized  banks  funded  by  deposits  that  would  have  a 
positive PIA in case of failure, to other viable acquirers;  

  Possibility to shield more depositors from losses, if conditions are met, at a lower cost for the 

DGS compared to a payout of covered deposits under insolvency; 

  Harmonising  the  depositor  preference  in  the  hierarchy  of  claims  by  achieving  a  single-tier 
depositor preference, reducing unlevel playing field and NCWO issues in cross-border cases;  

  Allowing a more cost-efficient use of DGS funds: 

-  Changing  the  creditor  hierarchy  would  enable  unlocking  DGS  funds  for  resolution  and 
alternative measures, under the least cost test, with increased cost efficiency compared to 
the cost  of payout  events.  However, this  would also  potentially increase  the use  of DGS 
funds for transfer strategies with a call on the industry to replenish them;  

-  Facilitating  transfer  strategies  and  better  preserving  the  DGS  financial  means  and 
protecting also non-covered deposits, as they would generally be more cost-effective than 
the  payout  of  covered  deposits.  Transfer  strategies  in  resolution  could  be  more  cash 
efficient and preserve the DGS funding capacity (e.g. by providing guarantees), or strongly 
limit  the  potential  final  loss  but  be  more  cash  consuming  (e.g.  by  providing  loans)  (see 
Annex 10); 

-  The use of DGS funds in measures alternative to payout of covered deposits ensures intact 
client  relationships  and  continued  access  of  depositors  to  their  accounts  without  any 
interruption of services, an important aspect in digitalised economies; 

-  A  clearer  and  more  consistent  approach  to  preventive  measures  would  also  be  cost-
effective for depositors by avoiding the bank’s deterioration, depositor service interruption 
and costly payout events. 

  Least cost test: 

-  Removing  legal  uncertainty  and  inconsistency  regarding  the  least  cost  test  and  the  DGS 
intervention  in  preventive  measures,  resolution  and  alternative  measures  in  insolvency 
(clarification  and  harmonisation  of  applicable  conditions  under  Articles  11(3),  11(6) 
DGSD and Article 109 BRRD); 

-  The inclusion of indirect costs in the least cost test calculation may be envisaged, but this 
alone would not replace the effect that the changes in the hierarchy of claims have on its 
outcome. 

liquidation  already  report  data  to  resolution  authorities  who  prepare  resolution  plans  albeit  on  a  less 
frequent basis (under simplified obligations). 

88 

 
 
 
                                                                                                                                                                            
What stays the same 
  The DGS coverage level (eligible deposits up to, generally, 100,000 EUR) and the DGS target 

level (in principle, 0.8% of covered deposits); 

  Covered deposits and of the remaining part of eligible deposits of natural persons and SMEs 

(preferred deposits) would continue to rank senior to ordinary unsecured creditors; 

  The protection of covered deposits, which continues to be ensured by: 

- 
the mandatory exclusion of covered deposits from bail-in as per Article 44(2) BRRD 
-  The repayment of the covered amount guaranteed by the DGS, in case of unavailability 
- 

the possibility for the DGS to contribute to interventions other than the payout of covered 
deposits,  such  as  contribution  to  resolution  or  to  preventive  measures  and  alternative 
measures in insolvency; 

  The  counterfactual  in  the  least  cost  test  (referring  to  the  losses  that  covered  deposits  would 

have incurred in insolvency). 

Rationale for shielding also (non-covered) depositors from losses 

  Allowing  more  credible  transfer  strategies  by  facilitating  the  inclusion  in  the  transfer 
perimeter of entire deposit contracts and not only the covered part. This avoids compromising 
the customer relationship and the franchise value, which would otherwise increase the risk of 
deposit runs and potentially impair the appetite of the acquirer for the transfer; 

  Maintaining  the  integrity  of  deposits,  which  are  considered  by  most  national  authorities 
instrumental to bank intermediation in the economy (i.e. channelling savings into investments 
and  lending),  one  of  the  main  pillars  of  confidence  in  the  banking  system  and  an  important 
element to financial stability and the functioning of the payment system; 

  Deposits  fulfil  a  different  role  in  the  economy  than  investor  claims.  Depositors  use  banks, 
primarily, as a secure place for placing their savings, for meeting future needs, while investors 
take a (remunerated) claim in the bank after having analysed related risks and rewards; 

  Alignment  with  past  experiences  of  handling  banks’  failures  showing  a  high  interest  in 
protecting  deposits,  where  State  aid  was  granted,  inter  alia,  with  the  aim  of  protecting 
depositors and where the use of those public funds did not require the burden sharing of any 
depositor. 

It can be concluded that, from a technical point of view, Option 3 is the one that would, 
on  balance,  meet  most  of  the  objectives  in  the  most  effective,  efficient  and  coherent 
manner. This would entail a legislative proposal addressing the funding and the incentive 
compatibility problems in the CMDI, namely measures to improve the proportionality of 
accessing the resolution fund for deposit-based banks, by opening the possibility for the 
DGS to be used to cover some of the losses that would otherwise be borne by depositors 
(in  order  to  reach  the  8%  TLOF  and  access  resolution  financing).  The  improvement  in 
proportionality is  necessary in  order to  make the framework work  for smaller/medium-
sized banks and it does not go beyond what is strictly necessary for the sake of meeting 
the policy objectives.  

89 

 
 
 
These technical considerations are aligning well with the equally relevant political ones 
expressed by Member States in the June 2022 Eurogroup statement and by the European 
Parliament138.  While  the  Commission  retains  full  authority  and  independence  in 
proposing  legislation,  it  is  appropriate  and  efficient  to  take  into  account  the  elements 
emerging  from  the  related  political  discussions.  Striking  a  balance  between  a  solution 
which  can  satisfactorily  address  the  identified  problems  while  being  sufficiently 
supported politically should form the basis for a successful negotiation between the co-
legislators. 

REFIT 

The proposed reform will bring about  benefits  with  respect  to  administrative efficiency 
and  cost  savings.  These  are  largely  the  result  of  the  various  proposed  measures  to 
increase  the  harmonisation  of  certain  elements  of  the  framework  and  to  clarify  points, 
which have led to considerable discussion to achieve agreed interpretations. 

In this  respect,  the measures proposed on the least  cost  test and the use  of a consistent 
methodology  across  different  uses  of  DGSs  will  bring  more  simplification.  Similar 
positive impacts should be expected from the proposed clarifications to the use of DGSs 
in resolution (Article 109 BRRD), and the use of resolution fund resources for liquidity 
purposes. Other relevant clarifications in this respect are those related to the use of early 
intervention measures, where simplification and clarity is achieved by removing overlaps 
with  supervisory  measures,  which  have  so  far  impaired  the  use  of  early  intervention 
measures. In addition, clarifications of FOLF triggers and the concept of winding down 
under  national  measures  applying  in  case  of  negative  PIA  will  ensure  further  certainty 
and consistency of outcomes of the procedures available. 

Additionally,  the  proposed  harmonisation  of  the  ranking  of  depositors  will  bring  about 
more consistency and harmonisation across Member States on the treatment of deposits, 
avoid  uncertainties  and  potential  unlevel  playing  field.  It  will  also  facilitate  the  role  of 
the  resolution  authorities  when  assessing  the  existence  of  breaches  of  the  no  creditor 
worse  of  principle.  In  the  same  manner,  the  proposed  technical  improvements  in  the 
DGSD139 are expected to remedy application issues and improve, overall, the consistency 
of depositor protection in the EU.  

Finally,  the  improvements  included  in  this  initiative  are  “future-proof”  and  deemed  to 
significantly enhance the preparedness of banks and resolution authorities in dealing with 
emerging and future crises cases, especially in the context of the deteriorating economic 
environment due to geopolitical tensions. 

138  See  also  section  6.1.2.6  on  the  main  considerations  of  the  European  Parliament  related  to  the  CMDI 
reform. 
139 See section 6.3 and Annex 8 on the ‘Common elements across the packages of options’.   

90 

 
 
 
                                                           
Other impacts 

Climate and environmental impacts 

Pursuant  to  Article  6(4)  of  the  European  Climate  Law140,  no  direct  climate  or 
environmental impacts and no significant harm, either direct or indirect, are expected to 
arise  from  the  implementation  of  the  preferred  option.  The  initiative  may  have  some 
indirect  positive  impacts  on  fostering  the  transition  to  a  more  sustainable  economy  by 
increasing  financial  stability  and  the  overall  resilience  of  the  banking  sector,  therefore 
enabling  banks’  contribution  to  green  transition  goals.  This  effect  would  be  however 
indirect and is not possible to quantify. The initiative is considered to be consistent with 
the objectives of the European Climate Law. 

Social impacts 

Employees are not directly impacted. A robust and resilient banking sector and enhanced 
protection of depositors in cases of bank failures, including of SMEs and larger corporate 
depositors, would increase the likelihood that employees would be able to keep their jobs 
in  companies  that  hold  deposits  and  are  clients  in  banks.  Moreover,  a  solid  banking 
sector  could  better  contribute  to  financing  the  economy  and  promoting  growth  which 
would benefit the non-financial sector and their employees. No further significant social 
impacts are expected. 

SMEs 

The CMDI review is not directly addressed to SMEs, however they would benefit from 
the improvements that the reform is expected to bring, in their quality of depositors and 
bank customers. The initiative aims to ensure that the crisis management toolbox can be 
flexibly  applied  to  more  smaller/medium-sized  banks  in  a  manner  that  achieves  the 
framework’s  objectives,  including  the  protection  of  depositors,  which  can  be  SMEs. 
Additionally,  enabling  crisis  management  tools  facilitating  the  transfer  of  the  failing 
bank’s business to a buyer would ensure the continued client relationship for depositors, 
including  SMEs  and  avoid  the  interruption  of  access  to  the  accounts  and  the  risk  of 
losing the non-insured part of their deposit, as in case of an insolvency. 

Digitalisation 

This initiative has a slightly positive impact on digitalisation, arising notably through the 
proposed option to broaden the use of DGS funds for supporting the handling of failing 
banks  through  measures  other  than  payout  in  insolvency  (i.e.  resolution,  preventive  or 
alternative measures), which would be disruptive for customers’ continued access to their 
accounts for a significant period of time. Based on our assessment, the preferred option 
would ensure continued access to customer accounts, an important element encouraging 
digitalisation in banking services. 

140 Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing 
the  framework  for  achieving  climate  neutrality  and  amending  Regulations  (EC)  No 401/2009  and  (EU) 
2018/1999 (‘European Climate Law’) 

91 

 
                                                           
External impacts 

This initiative does not specifically target third countries or their entities, as it is focused 
on  reforming  the  EU  CMDI  framework.  However,  certain  benefits  arising  from  further 
legal clarity, harmonisation and standardisation (i.e. depositor preference in the creditor 
hierarchy) would also benefit entities of third country banks operating in the EU. 

Impact on fundamental rights 

The  preferred  option  respects  the  rights  and  principles  set  out  in  the  Charter  of 
Fundamental  Rights.  The  free  movement  of  persons,  services  and  establishment 
constituting one of the basic rights and freedoms protected by the Treaty on the European 
Union  and  the  Treaty  on  the  Functioning  of  the  European  Union  is  relevant  for  this 
measure. 

The  preferred  option  will  not  have  any  negative  impacts  on  fundamental  rights  since 
most  Member  States  recognise  that  the  need  to  safeguard  the  rights  of  banks’ 
shareholders  and  creditors  must  be  balanced  against  the  rights  of  taxpayers,  depositors 
and the general interest of protecting economic value and financial stability. Overall, the 
impact on fundamental rights will be neutral. 

8.  HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? 

The Commission shall carry out an evaluation of this package of proposed amendments, 
five years after its entry into application and present a report on the main findings to the 
European  Parliament,  the  Council  and  the  European  Economic  and  Social  Committee. 
The  evaluation  shall  be  conducted  according  to  the  Commission's  better  regulation 
Guidelines. Member States shall provide the Commission with the information necessary 
for the preparation of that report. The evaluation  will be based on a list  of specific and 
measurable indicators that are relevant to the objective of the reform, as presented in the 
following table. 

Summary of indicators 

Objectives 

Indicator 

Source of information 

Data 
already 
collected? 

Further enhance 
legal certainty 
and strengthen 
an even playing 
field as regards 
the application 
of the tools 
available in bank 
resolution and 
insolvency. 

Number of banks undergoing resolution 

Number of different resolution tools and powers 
applied (e.g. transfer tools, bail-in) 
Number of banks benefitting from precautionary 
aid measures, which subsequently are determined 
to be FOLF 
Number of banks benefitting from DGS 
preventive measures, which subsequently are 
determined to be FOLF 
Number of banks (for which EIM triggers have 
been met) addressed through an EIM measure 

92 

Actor(s) 
responsible 
for data 
collection 
EBA/NRAs/ 
SRB, 
Commission 
EBA/NRAs/ 
SRB 

Information from the 
NRAs/SRB, 
Official Journal 

Information from the 
NRAs/SRB 

Yes 

Yes 

Official Journal 

Yes 

Commission 

Information from the 
DGSs, 
Official Journal 
Information from 
NCAs/SSM 

Yes 

No 

EBA, 
Commission 

EBA 

 
Number of positive PIA assessments by the 
NRAs/SRB for banks determined to be FOLF and 
type of elements included in the 
PIA assessments 

Number of winding up procedures 

Average period between the issuance of a 
negative PIA assessment and the initiation of the 
orderly winding up proceedings for failing banks 
that cannot be resolved 
Complaints about competitive disadvantages due 
to different insolvency rankings of ordinary 
unsecured claims and other deposits 
Ad-hoc statistical analysis e.g. correlation 
between CDS banking sector and CDS of 
sovereign, correlation between bank share price 
and sovereign spread (*) 
Number of banks (of small/medium/large size) 
which are determined to be FOLF accessing 
resolution funding and amount of resolution funding 
provided. 
Percentage of banks (of small/medium/large size) 
which are determined to be FOLF accessing 
resolution funding 
Number of banks undergoing resolution 
accessing DGS funding in resolution and amount 
of the DGS funds provided in resolution in 
relation to the two possibilities: (a) bridging the 
gap to the 8% minimum bail in requirement 
otherwise required, for transfer strategies, or 
(b) other uses in resolution than bridging the gap 
to the 8% minimum bail in requirement otherwise 
required, for transfer strategies. 
Number of banks accessing DGS funding for 
alternative measures and amount of DGS funds 
provided for alternative measures. 
Number of banks accessing DGS funding for 
preventive measures and amount of DGS funds 
provided for preventive measures. 
Number of national DGSs without any alternative 
funding arrangements in place 
Final amount of losses incurred by DGSs for any 
type of intervention 

Number of cases where third country branches 
were granted a derogation from the obligation to 
participate in the DGS. 

Information from the 
NRAs/SRB 

Information from the 
NCAs/DGSs 

Information from the 
NCAs/NRAs/DGSs 

No 

EBA 

Yes 

EBA 

No 

EBA 

Stakeholder feedback 

No 

Commission 

Market data 

Yes 

EBA 

Information from the 
NRAs/SRB; 
Official Journal 

Yes 

EBA, 
Commission 

Information from the 
DGSs/SRB, 
Official Journal 

Information from the 
DGSs, 
Official Journal 
Information from the 
DGSs, 
Official Journal 

Stakeholder feedback 

Information from the 
DGSs 

Information from the 
responsible authority 

Yes 

Yes 

Yes 

No 

No 

No 

EBA/DGS/ 
SRB, 
Commission 

EBA, 
Commission 

EBA, 
Commission 

Commission 

EBA 

EBA 

Facilitate access 
to safety nets in 
case of bank 
failure and 
improve the 
clarity and 
consistency of 
funding rules. 

Further align the 
coverage level of 
depositors and 
upgrade the 
capacity of 
national DGS’s 
to withstand 
local shocks. 

(*) This type of indicators would capture several of the general objectives of the CMDI framework (such as 
financial stability, breaking the sovereign-bank nexus, etc.) and disentangling the individual effects would 
not be possible.  

Compliance  and  enforcement  will  be  ensured  on  an  ongoing  basis  including,  where 
needed,  through  infringement  proceedings  for  lack  of  transposition  or  for  incorrect 
transposition and/or application of the legislative measures. Reporting of breaches of EU 
law can be channelled through the European System of Financial Supervision, including 
the  national  competent  authorities,  EBA  as  well  as  through  the  ECB.  EBA  will  also 
continue publishing its regular reports, such as the reports taking stock of the compliance 
with  MREL  in  the  EU.  This  is  run  in  parallel  with  the  quarterly  MREL  dashboard 

93 

 
 
 
published  by  the  SRB  for  the  Banking  Union.  EBA  will  also  continue  to  assess  and 
monitor the resilience and the funding levels of the national DGSs. 

94 

 
 
 
 
ANNEX 1: PROCEDURAL INFORMATION 

1. 

LEAD DG, DECIDE PLANNING/COMMISSION WORK PROGRAMME REFERENCES 

This  impact  assessment  report  was  prepared  by  Directorate  D  “Banking,  insurance  and 
financial crime” of the Directorate General “Directorate-General for Financial Stability, 
Financial Services and Capital Markets Union” (DG FISMA).  

The Decide Planning references are: 

  PLAN/2020/8120:  BRRD  Review  –  Proposal  for  a  Directive  of  the  European 

Parliament and of the Council amending Directive 2014/59/EU (BRRD)  

  PLAN/2020/8121:  DGSD  Review  –  Proposal  for  a  Directive  of  the  European 

Parliament and of the Council amending Directive 2014/49/EU (DGSD) 

  PLAN/2020/8122:  SRMR  Review  –  Proposal  for  a  Regulation  of  the  European 
Parliament and of the Council amending Regulation (EU) 806/2014 (SRMR) 

This initiative was part of the Commission’s 2021 Work Programme141, though its timing 
was determined by the long-awaited political agreement on a comprehensive work plan 
to  complete  the  Banking  Union,  which  was  not  achieved  in  the  June  2022  Eurogroup. 
Instead,  the  Eurogroup  invited  the  Commission  to  table  legislative  proposals  for 
reforming the CMDI framework142. 

2. 

ORGANISATION AND TIMING 

Eight  Inter-Service  Steering  Group  (ISSG)  consultations  –  chaired  by  SG  –  were  held 
between 2020 and 2023: 

-  19 October 2020 
-  25 March 2021 
-  11 May 2021 
-  4 June 2021 
-  18 May 2022 
-  12 to 16 September 2022 (under written procedure) 
-  25 November 2022 
-  17 January 2023. 

The  ISSG  consisted  of  representatives  from  various  Directorates-General  of  the 
Commission:  BUDG,  COMP,  ECFIN,  GROW,  JUST, REFORM,  TRADE,  SG  and  SJ. 
The contributions of the members of the Steering Group have been taken into account in 
the content and shape of this impact assessment. 

Adoption of the package is expected in April 2023. 

141  Commission  Work  Programme  2021:  A  Union  of  vitality  in  a  world  of  fragility,  19  October  2020, 
COM(2020)690 final. 
142 Eurogroup (16 June 2022), Eurogroup statement on the future of the Banking Union 

95 

 
 
 
                                                           
3. 

CONSULTATION OF THE RSB 

An upstream  meeting was held  with  the Regulatory Scrutiny  Board  (RSB) on 28 April 
2021.  

The draft report was sent to the RSB on 28 September 2022 and the hearing took place 
on  26  October  2022.  The  RSB  delivered  a  negative  opinion  on  28  October  2022.  The 
report was resubmitted to the RSB on 9 December 2022; the RSB then issued a positive 
opinion on 17 January 2023.  

The principal areas/topics raised by the RSB’s opinion of 28 October 2022 are addressed 
and clarified in this Impact Assessment in the following manner: 

Recommendations of the RSB 
Elements to improve (section (C) of the 
Opinion) 
(1) The report needs to better identify and 
explain the substantive problem and 
shortcomings in the current framework it 
seeks to address and substantiate it with 
robust evidence. In doing this, it should 
draw on the conclusions of the evaluation 
that the EU resolution framework is 
sparsely used. It should examine exactly 
why this is a problem and what the drivers 
behind it are by clearly setting out the 
disincentives for Member States (and 
banks) to practical bank resolution using 
the EU framework. It should explain why 
the current arrangements and incentives 
have failed and why Member States have 
shown a strong preference for resolution 
outside of the EU framework. It should 
demonstrate why this poses a risk to the 
wider financial stability of the EU. It 
should show why the current arrangements 
would not be fit for purpose in a large scale 
financial crisis scenario. Finally, it should 
better explain the international experience 
in handling bank failures and the lessons 
that can be drawn from these. 

(2) While the resolution framework is 
designed to cover all banks in the EU, in 

How the comments have been addressed 

  Clarifications of the objective, design 

and scope of the crisis management and 
deposit insurance framework and the 
merits of resolution compared to 
national insolvency proceedings 
(Chapter 1 and Annex 4 for additional 
details).  

  Summary of the problems identified 
during the implementation of the 
framework and the reasons why this 
reform is necessary, in particular why 
the framework should also be 
applicable to small and mid-sized 
banks; additional evidence showing 
that the failure of smaller banks can 
also impact financial stability including 
a stylised example to illustrate these 
problems (Chapter 2, Annex 4, Box 6) 
  Details on the nature and magnitude of 
the risk of maintaining the framework 
as it stands, considering the problems 
identified and their impacts on financial 
stability, depositor protection and 
public finances (Chapter 5, section 5.3) 

  Update of relevant figures on the 

implementation of the framework to 
take into account a recent resolution 
case in Poland (Chapter 2 and Annexes 
5 and 9) 

  Details on the how recent cases of 
failure managed under the CMDI 
framework relate to the identified 
problems (Boxes 8, 10 and 11, Annex 
5) 

  Explanations on how the principle of 
subsidiarity is addressed in the reform 

96 

 
practice its use has been limited. The report 
should recall and better explain that all 
banks are covered by the existing 
framework and demonstrate, with evidence, 
the need to facilitate the practical use of the 
EU resolution framework for smaller and 
mid-sized banks. It should demonstrate 
how this is consistent with the principle of 
subsidiarity. This should include evidence 
to demonstrate the clear cross-border 
nature of the problem including by 
providing evidence on the composition of 
the banking sector in different Member 
States and the differing scale and 
geographical spread of the potential 
recipients. It should provide evidence of 
the risk of EU-wide contagion in the 
internal market and for public finances if 
the current arrangements persist. Finally, it 
should better set out the division of roles 
between the EU state aid framework (and 
its upcoming revision) and the resolution 
framework and how coherence will be 
ensured between the two. 
(3) The report should better explain the 
links between the EBA advice and the 
options set out in the report. It should 
clarify the envisaged bridging facility, its 
scope and limitations, and its envisaged 
impacts. It should explain that EDIS under 
the most comprehensive option 4 is 
different from the 2015 EDIS proposal. It 
should better articulate how the analytical 
and policy coherence between option 3 
(which does not include EDIS and for 
which a further legislative proposal is 
envisaged) and the pending 2015 EDIS 
proposal will be ensured. In view of this 
specific context and the results of the 
presented analysis the report should reflect 
whether analytically it is not more useful to 
leave the choice of the preferred option 
open. 
(4) The report should be revised to make it 
self-standing and accessible to the non 
specialist reader. While technical language 
is necessary in certain parts for experts 
practitioners, and in particular in annexes, 
it is important that the main narrative 
remains clear for political decision makers. 

and  evidence on risk of contagion and 
systemic nature of small banks 
(Chapter 3, section 3.2, Annex 4, Box 
6) 

  Details on the interactions between the 
CMDI and the State aid rules under the 
current framework and how 
consistency will be achieved with the 
revision of the CMDI framework 
(Chapter 5, section 5.2 and Annex 4)  

Some amendments listed to address 
recommendation (1) are also relevant for 
recommendation (2). 

  Details on how the advice provided by 
EBA has been taken into account in the 
design of the policy options (Chapter 6, 
section 6.3, Box 4) 

  Details on the functioning of the DGS 
bridge financing, including on the 
scope and safeguards and a stylised 
example with a visual presentation of 
the CMDI reform on this point 
(Chapter 6, section 6.1.1.2, Box 2) 
  Clarification that EDIS envisaged 
under option 4 in the packages of 
policy options is not the same 
mechanism as envisaged as the 
Commission 2015 proposal (Chapter 6, 
section 6.1.3 - Option 4, section 6.1.2.6 
– Option 3 and footnote in Chapter 7) 

  Executive summaries of EBA and JRC 
reports used in, and annexed to, this 
impact assessment respectively 
(Annexes 11 and 12) 

  A general review of the core impact 

assessment and the glossary to clarify 
technical terms and contribute to make 
the report more self-standing for a non-
expert audience. 

  Additions to, and review of, the 

97 

 
 
 
 
 
(5) The report should better integrate the 
views of all stakeholders in the main report, 
by better distinguishing between the views 
of different groups on all key aspects. 

glossary 

  Additional information on stakeholder 
views with a distinction between small 
and large banks (Chapter 6, sections 
6.1.1.6 Assessment of Option 2 – 
Overall assessment and 6.1.2.6 
Assessment of Option 3 – Overall 
assessment) 

The  limited  suggestions  raised  by  the  second  RSB’s  opinion  of  17  January  2023  are 
addressed and clarified in this Impact Assessment in the following manner: 

Recommendations of the RSB 
Elements to improve (section (C) of the 
Opinion) 
(1) The report should address the ‘One In: 
One Out’ requirements. If quantitative 
estimates cannot be produced, or if these 
are negligible, or the proposal is considered 
to have no ‘One In: One Out’ implications, 
this should be explained. 
(2) While the report presents general views 
of large and small banks on the policy 
options, Annex 2 still does not provide a 
general overview of differentiated 
stakeholder views. Annex 2 should 
consider responses by type of stakeholder. 

4. 

EVIDENCE, SOURCES AND QUALITY 

How the comments have been addressed 

  Additional information on the ‘One In 
One Out’ clarifying the neutral effect 
of the initiative on administrative costs 
added in Annex 3 and referenced also 
in Chapter 7 when describing the 
preferred option.  

  Additional information on stakeholder 
views with a distinction between small 
and large banks included in Annex 2, 
in line with the description of 
stakeholder views in Chapter 6. 

The impact assessment evaluation drew on a broad range of information sources such as 
results  of  consultations  with  stakeholders,  reports  from  the  EBA,  and  additional  desk 
research by the Commission services. More specific sources included: 

  Eurogroup’s Statement of June 2022143; 
  The Commission’s 2019 review report of the BRRD and SRMR144;  
  Overview of past cases of bank failures, including those handled under State aid 

rules145;  

  11 expert group meetings with Member States as part of the Commission’s Expert 

Group on Banking, Payments and Insurance (EGBPI);  

  The European Parliament’s 2021 report on the Banking Union146; 

143 Eurogroup (June 2022), Eurogroup statement on the future of the Banking Union of 16 June 2022. 
144 European Commission (April 2019), Report from the Commission to the European Parliament and the 
Council  on  the  application  and  review  of  Directive  2014/59/EU  (BRRD)  and  Regulation  806/2014 
(SRMR). 
145 See Annex 9. 
146 European Parliament (June 2022), European Parliament 2021 annual report on Banking Union. 

98 

 
 
 
                                                           
  Feedback  from  the  inception  impact  assessment  which  took  place  between  10 
November  –  8  December  2020  and  gathered  15  responses  from  EU  and  third 
countries (see Annex 2); 

  Two  public  consultations  on  the  experience  with  the  application  of  the  CMDI 

framework and views on its revision (see Annex 2):  

o  a  public  (general)  consultation147  which  ran  for  12  weeks  from  25 
February–  20  May  2021  and  gathered  over  90  responses  from  a  broad 
range of stakeholders across the EU, and 

o  a targeted (technical) consultation148 which took place between 26 January 
and 20 April 2021 with over 90 responses received from a broad range of 
stakeholders across the EU, as well as third countries; 

  Feedback from DG FISMA’s conference organised on 18 March 2021 discussing 
the  challenges  in  the  current  CMDI  framework  and  exploring  potential  avenues 
for its review149 (see Annex 2); 

  An  administrative  arrangement  (N FISMA/2020/003/D3/AA)  with  the  Joint 
Research  Centre  in  2020/21  on  Financial  Safety  Nets  in  the  European  Union 
(FinSafEU)  for  analytical  assessments  in  particular  on  risk-based  contributions, 
temporary  high  balances,  different  EDIS  designs  and  the  review  of  the  BRRD 
framework (see Annex 12); 

  A  Call  for  advice  to  the  EBA  targeted  on  funding  issues  in  the  CMDI 

framework150 (see Annex 11); 

  Four reports from the EBA on the implementation of the DGSD151; 
  EBA reports, i.e. on the application of early intervention measures in the EU152; 
  ECB’s  occasional  paper  on  why  DGSs  in  the  EU  should  be  able  to  support 

transfers of assets when a bank fails153; 

  A study  financed under  the European Parliament’s pilot  project  “Creating a true 
Banking Union” on the options and national discretions under the DGSD and their 
treatment in the context of a European Deposit Insurance Scheme (EDIS)154; 
  A  study  financed  under  the  European  Parliament  Pilot  Project  “Creating  a  true 
Banking  Union”  on  the  differences  between  bank  insolvency  laws  and  their 
potential harmonisation155; 

147 Public consultation on the review of the bank crisis management & deposit insurance framework. 
148 Targeted consultation on the review of the bank crisis management & deposit insurance framework. 
149  High-level  conference  –  Strengthening  the  EU’s  bank  crisis  management  and  deposit  insurance 
framework: for a more resilient and efficient banking union. 
150 European Commission (19 April 2021) Call for advice to the EBA regarding funding in resolution and 
insolvency as part of the review of the crisis management and deposit insurance framework. 
151  EBA  opinions  of  8  August  2019,  30  October  2019,  23  January  2020  and  28  December  2020  issued 
under Article 19(6) DGSD in the context of the DGSD review. See also Annex 6. 
152 EBA (27 May 2021), Report on the application of early intervention measures in the European Union 
in accordance with Articles 27-29 of the BRRD, EBA/REP/2021/12. 
153 ECB (October 2022), Protecting depositors and saving money - why DGS in the EU should be able to 
support transfers of assets and liabilities when a bank fails. 
154 European Commission (28 November 2019) under the European Parliament’s Pilot Project “Creating a 
true Banking Union” Study on the Options and national discretions under the DGSD and their treatment in 
the context of a European Deposit Insurance Scheme. 
155 European Commission (28 November 2019) under the European Parliament’s Pilot Project “Creating a 
true  Banking  Union”  Study  on  the  differences  between  bank  insolvency  laws  and  on  their  potential 
harmonisation. 

99 

 
                                                           
  50 bilateral meetings with resolution and competent authorities between 2019 and 

2022; 

  Third  party  events  (e.g.  seminars,  workshops,  conferences)  on  the  topic  of  the 

CMDI framework156; 

  58  bilateral  stakeholder  meetings  with  banks,  industry  associations,  think-tanks 

(between 2019 and 2022); 

  The  Risk  reduction  monitoring  report  prepared  jointly  by  the  Commission 
services, the ECB and the SRB for the Eurogroup meeting of 30 November 2020 
in view of the political decision to approve the ESM Treaty reforms and the early 
introduction  of  the  backstop  to  the  SRF157  and  the  Eurogroup  meeting  of  May 
2021158 and subsequent edition of November 2021159. 

  Discussions  in  the  High  Level  Working  Group  (HLWG)  on  EDIS  and  the 

Council’s Working Party (CWP)160; 

  Eurogroup  conclusions  of  November  2020161,  calling  for  a  review  of  the  CMDI 
framework and which agreed the early introduction of a common backstop to the 
SRF in 2022; 

  The Fit for the Future (F4F) Platform’s opinion on the completion of the Banking 

Union. 162 

  The Financial Stability Board’s (FSB) Too big to fail (TBTF) report163 evaluating 
the application of resolution frameworks for global systemically important banks 
around the world. 

The Commission services also took into consideration the report by the European Court 
of Auditor’s on the functioning of the Single resolution mechanism164 and on the control 
of State aid to financial institutions165.  

156 For example, workshop at the Banca d’Italia on The crisis management framework for banks in the EU - 
How can we deal with the crisis of small and medium-sized banks. 
157 European Commission, ECB and SRB (November 2020), Joint monitoring report on risk reduction 
indicators. 
158 European Commission, ECB and SRB (May 2021), Joint monitoring report on risk reduction 
indicators.  
159 European Commission, ECB and SRB (November 2021), Joint monitoring report on risk reduction 
indicators.  
160 The outcome of these discussions is mostly in public domain on the Council webpage.  
161 Eurogroup (30 November 2020), Eurogroup conclusions. 
162 F4F Platform Opinion (10 December 2021), Completing the Banking Union. 
163 Financial Stability Board (1 April 2021), Too big to fail report. 
164  European  Court  of  Auditors  (January  2021),  Special  report:  Resolution  planning  in  the  Single 
Resolution Mechanism.  
165 European Court of Auditors (October 2020), Special Report 21/2020,  Control of State aid to financial 
institutions in the EU: in need of a fitness check. 

100 

 
 
                                                           
ANNEX 2: STAKEHOLDER CONSULTATION 

1. 

INTRODUCTION 

The European Commission is currently reviewing its CMDI framework and is expected 
to make legislative proposals in Q1 2023. In order to understand better the performance 
of  the  framework  as  well  as  the  possible  scope  for  improvements,  the  Commission 
undertook  extensive  exchanges  through  different  consultation  tools  to  reach  out  to  all 
stakeholders  involved.  Annex  2  provides  a  summary  of  the  consultation  activities  that 
were considered while preparing the impact assessment.  

2. 

CONSULTATION STRATEGY 

To ensure that the Commission’s proposal on the CMDI framework review adequately 
takes  into  account  the  views  of  all  interested  stakeholders,  the  consultation  strategy 
supporting this initiative builds on the following main consultation activities: 

-  An Inception Impact Assessment  
-  A targeted consultation open for a total period of 12 weeks 
-  A public consultation open for a total period of 12 weeks  
-  Targeted  consultations  of  Member  States  and  bilateral  exchanges  with 

stakeholders and resolution/competent authorities 

-  A high-level conference  
-  EBA opinions  
-  The F4F Platform’s opinion on the completion of the Banking Union 

The results of each component are presented in the synopsis report below. 

3. 

FEEDBACK ON THE COMBINED INCEPTION IMPACT ASSESSMENT/ROADMAP 

The  combined  Inception  Impact  Assessment  and  roadmap  aim  to  provide  a  detailed 
analysis on the actions to be taken at the EU level and the potential impact of different 
policy options on the economy, the society and the environment.  The feedback period 
for  the  Inception  Impact  Assessment  lasted  four  weeks  (10  November  –  8  December 
2020).  The  Commission  received  15  responses  through  the  “Have  Your  Say!”  portal 
from  different  stakeholder  groups:  banking  associations  (5),  public  authorities  (4), 
company/business organisations (2), trade union (1), academia (1) and “other” (2).  

All respondents acknowledged the need for a targeted review of the CMDI framework 
to  increase  its  efficiency,  proportionality  and  overall  coherence.  Some  respondents 
emphasised the need for improving the applicability of existing resolution tools. 

Most  feedback,  including  from  both  large  and  small/medium-sized  banks,  supports 
levelling the playing field in the management of bank failures, in particular, by reducing 
discretion  and  ensuring  more  consistency  in  the  application  of  the  public  interest 
assessment (PIA) and by limiting incentives for resorting to solutions outside resolution. 
One  respondent  underlined  that  any  initiatives  for  further  harmonising  the  creditor 
hierarchy and increasing the level of protection of (certain) creditors, should be treated 

101 

 
 
with  caution,  while  a  detailed  assessment  of  the  associated  costs  will  need  to  be 
reflected in the impact assessment. 

As regards funding solutions (sources, access conditions) in resolution and insolvency, 
most  feedback  supported  that  the  CMDI  framework  should  include  proportionate  and 
adequate  solutions  for  the  management  of  failures  of  any  type  of  bank,  but  without 
compromising the principle of burden sharing which is inherent to the Bank Recovery 
and  Resolution  Directive  (BRRD).  According  to  most  respondents,  a  review  of  the 
conditions  for  granting  State  aid  in-  and  outside  resolution  would  be  necessary.  One 
respondent  called  for  a  simpler  and  more  transparent  methodology  for  calculating  the 
contributions  to  the  Single  Resolution  Fund  (SRF),  and  requested  the  same  for  the 
methodology for contributions to a European deposit insurance scheme (EDIS). 

As  regards  depositor  protection,  some  feedback  called  for  a  preservation  of  national 
protection systems and of national options such as preventive and alternative measures 
that have worked well in the past. However, most of the views converged that there is a 
need for improving the efficiency of these measures, in particularly through clarification 
of  their  conditions,  limits  and  purpose.  One  respondent  flagged  that  risk-reducing 
specificities of institutional protection schemes (IPS) should be duly considered. 

Most  respondents  underlined  that  any  policy  options  should  consider  the  potential 
ramifications with regard to the discussions on EDIS. Three respondents support that the 
pooling of funds from various sources should be avoided or not form part of the review. 
Two respondents were of the view that EDIS should not be part of the review. 

4. 

PUBLIC AND TARGETED CONSULTATIONS 

The  Commission  launched  two  consultations166  to  seek  stakeholder  feedback  on  the 
application of the CMDI framework and views on possible modifications. The targeted 
consultation,  covering  39  general  and  specific  technical  questions,  was  available  in 
English  only  and  open  from  26  January  to  20  April  2021.  The  public  consultation 
consisted  of  10  general  questions167,  available  in  all  EU  languages  and  the  feedback 
period  ran  from  25  February  to  20  May  2021.  Both  consultations  were  open  for  12 
weeks.  In  total,  the  Commission  received  188  official  responses  and  three  additional 
replies were submitted informally. All but five respondents were stakeholders from the 
EU.  Responses  received  were  from  a  variety  of  stakeholders  representing  EU  citizens 
(26%),  business  organisations  (24%),  business  associations  (16%),  public  authorities 
(19%),  consumer  organisations  (2%)  and  academia  (3%).  It  is  also  important  to  point 
out that numerous answers provided (in particular to the public consultation) were of the 
same wording and stance, thereby suggesting that certain respondents cooperated when 
drafting their response prior to submitting their final answers. 

The  Commission  services  published  a  ‘summary  report’  on  the  feedback  to  both 
consultations on 7 July 2021 on the respective consultation pages. Below is a summary 
of the views expressed  with  regard to  the experience  with  the framework so far and to 
future action to make the framework more resilient. 

166 See consultation pages of the targeted consultation and the public consultation.  
167 The questions of the public consultation were a subset of the questions of the targeted consultation.  

102 

 
                                                           
I.  General objectives and review focus 

a.  Policy objectives  

Respondents overall agreed that the CMDI framework is an improvement compared to 
the situation pre-2014/15 and that the objectives of the framework have been achieved 
to  a  large  extent.  Nevertheless,  improvements  are  warranted.  While  respondents  were 
satisfied  with  the  protection  of  depositors  and  the  reduced  risk  for  financial  stability 
stemming  from  bank  failures,  the  framework,  however,  seemed  to  have  failed  in 
protecting  taxpayer  money  and  breaking  the  bank/sovereign  loop.  Respondents  noted 
that more could be done with respect to minimising the recourse to taxpayer money and 
improving  the  level  playing  field  among  banks  from  different  Member  States,  with 
certain respondents perceiving EDIS as a missing element to reach this objective. 

b.  Available measures in the CMDI framework  

The  majority  of  respondents  who  provided  a  view  (88%)  believed  that  some  of  the 
measures in the CMDI framework succeeded in fulfilling the intended policy objectives 
and the management of banks’ crisis, notably precautionary measures, provided that the 
latter remain limited in use. Early Intervention Measures (EIMs), however, were widely 
criticised by stakeholders pointing out the need to eliminate the overlap between EIMs 
and supervisory powers, with a significant preference for a merger in order to increase 
efficiency.  The  resolution  tools  were  overall  described  as  satisfying  with  certain 
institutions  calling,  however,  for  a  more  appropriately  tailored  mechanism  for  smaller 
and medium-sized banks and for an instrument for liquidity in resolution. Opinions on 
deposit  guarantee  scheme  (DGS)  preventive  measures  were  split,  with  several 
respondents  being  in  favour,  while  others  demanding  further  harmonisation  and 
clarifications on the relationship between State aid and DGSs. It  was also noted that a 
harmonised European insolvency framework should be provided.  

c.  Exclusivity of the BRRD tools  

Several  respondents,  including  small  and  medium-sized  banks  as  well  as  other 
stakeholders  (ministries  of  finance),  expressed  caution  to  mix  resolution  tools  with 
national  insolvency  systems,  claiming  that  this  would  increase  complexity  and  legal 
uncertainty.  They  suggested  that  smaller  and  medium-sized  banks  should  continue 
undergoing  national  insolvency  proceedings.  Conversely,  most  respondents  in  the 
targeted consultation suggested that the tools and powers in the BRRD should be subject 
to changes and supported the extension, particularly through a wider use of the PIA to 
cover  smaller  and  medium-sized  banks.  In  terms  of  the  different  funding  sources  in 
resolution and insolvency, 55% of respondents were against a potential alignment of the 
access conditions (i.e. imposing the access condition to the resolution fund everywhere), 
fearing 
the 
proportionality principle. By contrast, those in favour of the introduction of harmonised 
tools  outside  resolution  strongly  highlighted  their  preference  for  the  creation  of  a 
harmonised “orderly liquidation tool”, notably for smaller and medium-sized banks, to 
prevent divergences in handling failing banks under national insolvency systems.  

the  creation  of  additional  complexities  and 

infringement  of 

the 

103 

 
The need for a reform is generally supported by the industry, which sees merit in targeted 
amendments  aimed  at  improving  its  practical  application.  Respondents  from  large  and 
small/medium-size banks support an improved transparency and predictability of the PIA 
and agree to avoid paying additional contributions into industry-funded safety nets.  

In  terms  of  the  possible  expansion  of  the  scope  of  resolution,  several  respondents 
representing smaller/medium-sized banks,  in  particular cooperatives  and  savings banks, 
may  prefer  to  stay  outside  the  scope  of  resolution  to  avoid  costs  related  to  additional 
requirements  or  possible  ex  post  contributions  to  the  safety  nets.  By  contrast,  several 
respondents  representing  large  banks  generally  support  bringing  more  smaller/medium 
sized  banks  into  resolution  to  ensure  a  level  playing  field  in  the  single  market  and 
improve the credibility of the framework. In this vein, these respondents also support the 
need to minimise moral hazard and the risks for public finances through holdings of loss-
absorption  buffers  as  a  first  and  main  line  of  defence,  calling  for  caution  over  an 
extended  use  of  industry  funded  safety  nets  for  small/medium-sized  banks  and  the 
prospect of additional future contributions to address replenishment needs.  

d.  Measures available before a bank’s failure  

EIMs:  Respondents  showed  broad  support  for  improving  the  conditions  for  EIMs  or 
other  features  of  the  framework  in  order  to  facilitate  their  use.  However,  a  few 
stakeholders  (banks)  are  of  the  opinion  that  EIMs  should  be  deleted  as  supervisory 
powers are sufficient, while a few stakeholders (IPS, public sector) mentioned that they 
do not see an overlap between EIMs and supervisory powers.  

Precautionary  recapitalisation:  Most  respondents  expressed  a  wish  to  maintain 
precautionary recapitalisation within the crisis management toolbox in order to provide 
flexibility  and  address  exceptional  situations.  However,  respondents  consider  that  its 
application  should  remain  limited  to  specific  circumstances  and  be  sufficiently  strict. 
Others considered conditions as too strict. A few respondents called for a phase-out of 
the provision or refer explicitly to the need to avoid using precautionary recapitalisation. 
Most respondents are in favour of targeted amendments for clarification.  

Preventive  measures:  Broad  consensus  was  visible  on  the  necessity  to  provide 
clarifications for the application of DGS preventive measures. Most respondents would 
welcome  a  more  harmonised  approach  in  the  least  cost  test  application.  Several 
stakeholders (public sector, banks) highlighted that the conditions for the application of 
preventive  measures  should  be  aligned  with  the  conditions  for  precautionary 
recapitalisation,  while  many  respondents  underlined  the  need  to  clarify  that  using  the 
measures does not trigger a declaration of failing or likely to fail (FOLF). Regarding the 
application of State aid rules, DGS respondents supported that minimum burden sharing 
requirements  should  apply  irrespective  of  the  governance  arrangements  in  place. 
Conversely, a sizeable number of respondents (mainly banks) believe that State aid rules 
should not be applicable for the DGS’ use for preventive measures, independently from 
the DGS private or public legal nature. Respondents from Member States that have IPSs 
noted the indispensability of preserving the well-proven national discretion for granting 
preventative measures.  Some respondents  from  these Member States stressed that it is 
important  that  the  functioning  of  IPSs  recognised  under  Article  113(7)  CRR  can 

104 

 
continue unchanged. In view of EDIS, the ring-fencing of losses absorbed by a national 
DGS  within  the  local  Member  State  to  avoid  that  these  losses  are  borne  by  other 
banking  sectors  is  important  for  stakeholders  from  the  banking  industry.  Views  were 
split  about  the  need  for  changing  or  not  the  creditor  hierarchy  (and  extending  the 
coverage to all deposits), in order to encourage or mitigate, respectively the use of such 
measures.  

II.  Experience with the framework and lessons learned for the future framework  

a.  Resolution, liquidation and other measures to handle banking crisis  

In  general,  the  majority  of  respondents  consider  that  the  resolution  toolbox  already 
caters  for  all  types  and  sizes  of  banks,  provided  that  the  available  tools  are  applied 
consistently in case of a failure of banks that are of public interest. Insolvency laws are 
generally seen as providing an appropriate framework for a liquidation of an institution, 
bearing in mind Member States’ specificities, but possibly at the expense of consistency 
in  public  interest  assessments  or  scope  of  interventions  of  DGS  due  to  the  differing 
counterfactual  insolvency  scenarios.  Regarding  the  accessing  conditions  to  funding 
sources  in  resolution,  the  majority  noted  that  DGS  and  EDIS  funds  should  remain 
separated  from  the  RF/SRF,  with  a  few  stakeholders  underlining  the  necessity  to 
improve  the  liquidity  provision  to  banks  post-resolution.  A  limited  amount  of 
respondents  demanded  an  alignment  between  the  source  of  funding  and  governance 
structures,  stating  that  for  national  funding  sources  national  authorities  should  have  a 
prominent  role.  If  funding  were  to  rely  mostly  on  European  centralised  funds, 
governance should accordingly be more centralised. 

PIA: Most respondents acknowledge that the PIA must offer room for interpretation by 
authorities,  but  consider  that  the  provision,  as  regulated  now,  gives  opportunity  for 
many  different  interpretations,  thereby  creating  level  playing  field  issues  and 
uncertainty. Many respondents argue that the outcome of the PIA in the planning phase 
should be more predictable.  

Small  and  medium-sized  banks:  While  the  extension  of  the  PIA  threshold  to  facilitate 
small  and  medium-sized  banks’  access  to  resolution  funds  has  been  partly  supported, 
numerous respondents defined the funding sources for smaller and medium-sized banks 
as  sufficient.  Many  state  that  bail-in  of  shareholders  and  creditors  should  remain  the 
main source of financing in resolution and stressing the existence of other relevant tools 
to help smaller and medium-sized banks (i.e. winding-up under insolvency proceedings 
sometimes involving State aid). The importance  of the minimum  requirement for own 
funds  and  eligible  liabilities  (MREL)  was  emphasised  due  to  its  role  in  preserving 
financial  stability  and  ensuring  depositor  protection.  Other  respondents  stressed  that 
small  and  medium-sized  banks  should  be  liquidated  and  that  therefore  their  MREL 
should  not  exceed  the  loss  absorption  amount.  A  few  noted  the  role  that  retained 
earnings and other forms of equity could play in ensuring that small and medium-sized 
banks comply with their MREL. 

FOLF:  Regarding  the  existing  legal  provisions  and  their  alignment  between  the 
conditions  required  to  declare  a  bank  FOLF  and  the  triggers  to  initiate  insolvency 
proceedings, the majority supports full or maximum possible alignment, bearing in mind 

105 

 
restrictions in  national  law. Others raised caution when the FOLF assessment is  based 
on  likely  infringements  of  prudential  requirements.  Furthermore,  the  vast  majority  of 
participants  support  the  possibility  of  granting  power  to  the  supervisor  to  withdraw  a 
licence,  but  not  in  all  FOLF  cases,  typically  covering  resolution  scenarios  where  such 
withdrawal  would  not  be  appropriate  to  preserve  critical  functions.  The  definition  of 
FOLF was perceived as sufficiently flexible to assess scenarios on a case-by-case basis, 
while  others  highlighted  the  challenge  to  trigger  FOLF  based  on  likely  infringements 
that are not related to the bank’s financial position.  

Potential introduction of an orderly liquidation tool: The introduction of such tool, while 
welcomed  by  a  few  respondents,  raised  concerns  with  respect  to  its  implementation. 
Several respondents insisted on the need to avoid amending/deteriorating existing tools, 
or  considered  possible  impacts  on  constitutional  features  and  existing  national  legal 
frameworks. In terms of differences between a liquidation tool and the sale of business 
tool in resolution, some respondents pointed at the fact that the orderly liquidation tool 
and  normal  insolvency  proceedings  pursue  different  goals,  with  the  former  aiming  at 
mitigating effects on financial stability while the latter striving to maximise the proceeds 
for the creditor.  

b.  Level  of  harmonisation  of  creditor  hierarchy  and  impact  on  no  creditor 

worse off (NCWO) principle 

A  large  majority  of  respondents  indicated  that  the  differences  between  bank  creditor 
hierarchies across Members States could complicate the application of resolution action 
as they viewed these divergences as a source of increased fragmentation in the EU and 
differentiated treatment amongst creditors. The respondents who did not agree with the 
need to further harmonise the creditor hierarchy noted that insolvency laws are deeply 
rooted in national tradition/practices and interlinked with other (non-bank related) fields 
of  law.  With  regard  to  the  ranking  of  deposits,  some  respondents  were  in  favour  of  a 
general depositor preference and of removing the super-priority of covered deposits, the 
latter with  the purpose of allowing the effective  use of DGS  funds. However,  a larger 
number  of  respondents  were  against  this  super-priority  elimination,  on  the  basis  of 
minimising  DGSs’  costs  and  liquidity  needs,  maintaining  depositor  confidence  and 
financial stability and avoiding moral hazard.  

c.  Deposit insurance  

Most  respondents  noted  that  deposits  of  public  and  local  authorities  should  also  be 
protected  by  the  DGS,  given  that  their  exclusion  creates  additional  management 
difficulties  (consumer  organisations  and  saving  banks).  Conversely,  several  banks  and 
associations  opposed  adding  additional  groups,  fearing  it  would  increase  their  costs 
since both the target levels of national DGS and SRF would increase. The view of the 
majority  of  banks  and  DGSs  is  that  the  current  regular  information  disclosure  is 
sufficient  and  that  no  changes  were  necessary.  Digital  communication  was  often 
considered  as  the  most  suitable  to  save  costs.  Consumer  organisations  demanded  that 
Article  16  of  the  Deposit  Guarantee  Scheme  Directive  (DGSD)  on  depositor 
information as well as the template in Annex I of the DGSD should be updated, clarified 
and  more  consumer  friendly.  Savings  banks  from  one  Member  State  highlighted  that 

106 

 
disclosure should take place only at the beginning of the business relationship, in case of 
relevant changes and only in digital format.  

Regarding the EDIS, a majority of respondents supported its introduction. Some of them 
considered  that  national  DGSs  are  limited  in  size  and  firepower  and  a  fully-fledged 
EDIS would be an  essential  piece of the  Banking  Union. Moreover, others underlined 
that  a  fully-fledged  EDIS  would  reduce  the  burden  on  banks,  while  minimising  the 
probability  of  a  call  for  ex  post  contributions,  also  avoiding  pro-cyclical  impacts  on 
banks’  balance  sheets.  In  contrast,  other  respondents  underscored  that  EDIS  would 
make  the  European  financial  system  riskier  because  of  contagion  effects  from  one 
national  banking  sector  to  the  other.  As  regards  the  efficiency  of  EDIS,  some 
respondents considered that the more resources are shared in a common central pool, the 
more  cost-effective  the  system  would  be.  In  contrast,  other  respondents  believed  that 
EDIS  would  not  be  cost  efficient  and  that  it  would  entail  higher  administrative  costs, 
and more payout cases than under the current framework. Numerous respondents raised 
different  concerns  in  relation  to  the  transfer  of  funds  from  the  national  DGSs  to  the 
central fund of EDIS.  

Some respondents (especially IPSs) highlighted that IPSs recognised as a DGS must be 
excluded from  EDIS.  In the event  that they  were included, being a member of an  IPS 
should  be  considered  as  risk  reducing  factor  when  calculating  the  contributions. 
Conversely, other respondents insisted that IPSs should be included in EDIS in order not 
to weaken its firepower, to maintain a level playing field and depositor confidence.  

Concerning specific parameters of EDIS, participants raised various views and concerns 
with  the  majority  of  responses  underlining  the  need  for  caps  in  order  mitigate  the  first 
mover  advantage  while  others  mentioned  the  maturity  of  the  loans  from  EDIS  to  the 
national  DGS  as  a  crucial  parameter.  In  relation  to  options  and  national  discretions 
(ONDs),  views  were  split,  with  some  expressing  opposition  to  the  financing  of  ONDs 
covered  by  central  financing,  others  being  in  favour  of  expanding  the  common  deposit 
insurance  mechanism  to  include  the  coverage  of  ONDs  and  some  calling  for  a 
harmonisation  of  ONDs.  Views  were  split  as  regards  to  whether  SRF  and  EDIS  funds 
should be merged, with those against stressing that the roles of these funds are different. 

5. 

TARGETED CONSULTATIONS OF MEMBER STATES 

From 2019-2021, the Commission discussed topics analysed in this impact assessment 
with  Member  States,  resolution  authorities  and  designated  authorities  for  the  DGS 
during 11 meetings of the Expert Group on Banking, Payments and Insurance (EGBPI). 
To this effect, 17 non-papers including questionnaires were prepared: 

   On 5 December 2019, the two studies commissioned by the Commission to external 
contractors, with the financial support of the European Parliament, under the  Pilot 
project  “Creating  a  true  Banking  Union”  were  presented.  The  studies  covered  the 
national options and discretions under the DGSD and their treatment in the context 
of  EDIS168  and  the  differences  between  bank  insolvency  laws  and  their  potential 

168 See CEPS study.  

107 

 
                                                           
harmonisation169.  There  was  also  a  presentation  on  protection  of  client  funds  of 
payment and e-money institutions. 

   On  27  January  2020,  members  were  invited  to  comment  on  the  advice  from  the 
EBA  regarding  the  DGSD  review,  more  specifically  on  the  EBA  opinions  on 
eligibility  of  deposits,  coverage  level  and  cooperation  between  DGS,  payouts, 
funding and uses of DGS funds. 

   On  20  February  2020,  the  Commission  presented  possible  approaches  on  further 
triggers,  clarification  of  certain  aspects  of 

harmonisation  of 
precautionary recapitalisation and improvements to the use of EIM. 

insolvency 

   On 23 and 24 June 2020, there was an exchange of views with members on the use 
of DGS funds under DGSD and BRRD  and continued the discussion on the EBA 
opinion regarding the DGSD review. 

   On  16  July  2020,  the  Commission  invited  members  to  provide  their  views  on  the 

PIA and continued the discussion on the EBA opinion on the DGSD review. 

   On  28  September  2020,  the  Commission  continued  the  discussions  on  resolution 
and  insolvency  triggers  and  on  the  least  cost  test  methodology  for  the  use  of  the 
DGS, and consulted members on the harmonisation of the ranking of deposits in the 
creditor hierarchy in insolvency. 

   On  15  October  2020,  the  Commission  presented  a  preliminary  assessment  of  the 
funding sources in the EU crisis management framework through stylised examples 
and gathered views on further elements on the creditor hierarchy harmonisation in 
insolvency and the protection of client funds of payment and e-money institutions. 
   On 12 November 2020, members were asked for their views on the use of DGS in 
resolution and insolvency through stylised examples and on the legal feasibility of a 
potential harmonised liquidation tool in insolvency.  

   On 14 December 2020, members discussed funding in resolution and enhancement 
of market integration through the application of existing legal provisions in a home-
host balanced manner. One member presented their experience with high recovery 
rates for subordinated creditors and the impact of NCWO. 

   On 25 February 2021, the SRB presented its views on the resolution of smaller to 
medium-sized banks reliant on deposit funding and members were asked to provide 
feedback  on  the  EBA  opinion  on  the  interplay  between  the  DGSD  and  the  anti-
money laundering Directive (AMLD).  
On 26 April 2021, the Commission presented the outcome of surveys distributed in 
previous meetings. 

In addition to the written input provided by the EGBPI members to the questionnaires 
following  each  meeting,  two  detailed  surveys  were  circulated  to  members:  (i)  on  the 
harmonisation of insolvency for banks (December 2019) and (ii) on mapping of DGSs 
in Member States (January 2020). 

In parallel to the discussions in the Commission’s Expert Group, the issues addressed in 
this  impact  assessment  were  also  covered  in  meetings  of  the  Council’s  preparatory 

169 See VVA study. 

108 

 
 
                                                           
bodies, namely the Council Working Party on financial stability and the Banking Union 
(CWP) and the High-Level Working Group on EDIS (HLWG).  

In what concerns the most recent discussions, in the second semester of 2020 the CWP 
was  chaired  by  the  German  Presidency.  Of  relevance  for  this  impact  assessment, 
Member  States  exchanged  views  on  the  following  topics:  interaction  between 
supervisory powers under the Capital Requirement Directive (CRD) and EIM in BRRD, 
the resolution triggers and possible alignment with the national bankruptcy triggers, the 
creditor  hierarchy  in  insolvency,  the  crisis  management  framework  for  smaller  banks 
(with references to the PIA, a possible “EU bank liquidation regime”, the least cost test 
for  the  DGS  and  governance)  and  furthering  market  integration.  In  the  CWP,  the 
Commission presented an overview of the data collection exercise carried out to support 
the  development  of  the  methodology  for  calculating  risk-based  contributions  under 
EDIS and the results of a survey on the parameters of the hybrid model.170 

In the first semester of 2021, when the CWP was chaired by the Portuguese Presidency, 
the discussions focused on the design of the hybrid model for EDIS (with focus on the 
inclusion  of  non-CRD/CRR  entities,  IPS  recognised  as  DGS  and  third  country 
branches),  the  treatment  of  the  ONDs  in  the  DGSD  (particularly  the  financing  of 
preventive  and  alternative  measures),  the  risk-based  contributions,  the  build-up  of  the 
central  deposit  insurance  fund,  the  transition  to  the  steady-state  and  the  articulation 
between EDIS and the CMDI framework171.  

In what concerns the HLWG, the discussions held at that level were structured  around 
four work streams.172 Of relevance to this impact assessment were the work streams on 
crisis management (which discussed topics such as early intervention measures, targeted 
amendments to the insolvency legislation for banks in the EU, handling of the failure of 
banks  whose  resolution  is  not  in  the  public  interest  and  need  for  expansion  of  the 
liquidation  toolbox)  and  on  EDIS  (parameters  and  sequencing  for  the  hybrid  model, 
scope  of  common  deposit 
risk-based  contributions, 
transitional path towards the steady state, articulation with the CMDI framework). 

insurance,  conditionality, 

Further,  50  bilateral  meetings  with  resolution  and  competent  authorities  as  well  as  58 
bilateral stakeholder meetings (banks, industry associations, think tanks) took place over 
the  period  2019-2022.  In  those  meetings  counterparts  explained  their  country  or 
business model specific situation and/or expressed their views on the CMDI framework 
orally,  as  also  done  through  the  consultations.  More  recent  meetings  in  2021-2022 
focused  on  the  possible  policy  options  and  their  calibration  possibilities.  Requests  for 
bilateral exchanges were accepted to the extent that the overall balance was maintained. 
The input provided is reflected in the impact assessment.  

The views heard from Member States and industry stakeholders confirmed many of the 
Commission  findings  regarding  the  functioning  of  the  current  framework  and  need  for 
reform. The input provided has been considered throughout the impact assessment. 

170  European  Council  (23  November  2020),  German  Council  Presidency  Progress  Report  on  the 
Strengthening of the Banking Union. 
171 European Council (2 June 2021), Portuguese Council Presidency Progress Report on strengthening the 
Banking Union.  
172 See Letter by the HLWG Chair to the President of the Eurogroup (December 2019). 

109 

 
                                                           
6. 

HIGH-LEVEL CONFERENCE 

On  18  March  2021,  the  Commission  hosted  the  High-level  conference  “Strengthening 
the EU’s bank crisis management and deposit insurance framework: for a more resilient 
and  efficient  Banking  Union”.173  Amongst  keynote  speakers  and  panellists: 
representatives  from  the  banking  industry/associations,  Ministries,  national  resolution 
authorities, DGSs,  the SRB, the ECB, Members of the European Parliament, the EBA 
and  academia.  Many  speakers  confirmed  the  importance  of  an  effective  CMDI 
framework but also highlighted the current weaknesses. Although views were not fully 
converging,  there  was  consensus  regarding  room  for  improvement  to  make  the 
framework  fit  for  purpose  for  all  banks  while  protecting  financial  stability  and 
preserving depositors’ trust.  

The  keynote  speakers  emphasised  as  core  elements  of  a  robust  CMDI  framework  and 
Banking Union: (i) setting up EDIS, (ii) a careful calibration of the tools in resolution 
and insolvency to cater for specificities of smaller banks and (iii) a more effective use of 
funds in resolution and insolvency, including access to funding for smaller banks.  

In  the  first  panel,  dedicated  to  issues  pertaining  to  the  tools  in  resolution  and 
insolvency, most panellists agreed that changes to the toolbox are warranted. Panellists 
shared their experience with the framework and stressed the importance of predictability 
and  called  for  an  alignment  of  the  Commission’s  Banking  Communication  with  the 
resolution  framework.  There  was  broad  agreement  on  extending  resolution  to  more 
banks, however on the exact scope views differed. Panellists stressed the importance of 
a clarification of the PIA. Some also noted the benefits of a harmonisation of insolvency 
frameworks.  One  panellist  highlighted  that  the  review  should  not  hinder  the  role  of 
banks to support the real economy and should strengthen financial stability.  

In  the  second  panel,  dedicated  to  the  issues  of  funding  in  resolution  and  insolvency, 
speakers highlighted that the current rules were too constraining and proposed different 
solutions  to  overcome  the  lack  of  access  of  smaller  and  medium-sized  banks  to 
financing sources. Panellists shared their experiences and noted that circumventions to 
resolution  and  burden  sharing  should  be  prevented.  Further,  the  need  to  review  the 
constraints to the use of the DGS and EDIS, to tailor MREL to the resolution strategy of 
each  bank  and  to  make  the  8%  requirement  more  flexible  were  highlighted.  Some 
harmonisation of bank insolvency laws would also be welcomed. 

The third panel voiced their views on how the deposit insurance framework could be 
further enhanced taking into account experiences from anti money-laundering cases or 
fintech  companies.  The  increase  in  fintech  players  and  the  COVID-19  response 
measures led to a strong increase in deposits. Panellists noted that the current framework 
would  benefit  from  further  harmonisation  and  a  better  interplay  of  the  DGSD  with 
AMLD  rules,  the  Payment  Services  Directive  and  State  aid  rules.  Also,  consumer 
confidence and trust should be reflected in the DGSD review (pointing at the Greensill 
case) as well as the situation of smaller markets. Further, panellists called for EDIS, to 
strengthen depositor confidence and reduce costs for the banking sector.  

173 See  the  European Commission’s  conference webpage for  details on the programme, the speakers and 
the recoding of the event.  

110 

 
                                                           
The  Commission  services  invited  stakeholders  to  provide  their  views  through  the  two 
open consultations, which would be duly considered in the assessment and proposal. 

7. 

EBA OPINIONS 

The  Commission  requested  advice  from  the  EBA  on  possible  areas  where  the  DGSD 
could  be strengthened.  In 2019 and 2020, the EBA issued  four opinions under Article 
19(6)  DGSD174.  See  EBA  opinions  and  Annex  6  for  more  information  on  the 
recommendations and how these were integrated into the impact assessment. 

8. 

THE F4F PLATFORM OPINION 

The Banking Union completion topic and the CMDI review were included in the 2021 
Annual Work Programme of the F4F Platform. In its final opinion, which was issued on 
10 December 2021, the F4F Platform  considers that there is  room for improvement to 
make  the  CMDI  framework  fit  for  purpose  for  all  banks,  in  a  proportionate  manner, 
taking  into  consideration  potential  impact  on  depositors’  confidence  and  on  financial 
stability.  The  Platform  also  considers  important,  given  the  technical  complexity  and 
significance of the objectives pursued with the legislation, to factor in a proper time for 
allowing  the  markets  and  the  public  authorities  to  deploy  the  regulation  correctly.  To 
this end, the Platform brings forward five concrete suggestions for improvements:  

Suggestion 1: Broadly merging of supervisory powers and EIM  

The Platform calls for broadly merging the supervisory powers under the CRD with the 
early intervention powers under the BRRD and leaving only the most intrusive measures 
in the BRRD. According to the F4F Platform, this improvement will help ensuring that 
measures do not overlap but complement each other, thus increasing the consistency of 
EIM and its overall usage. The Platform also highlights that it should be ensured that the 
application of the EIM does not pose legal uncertainties with regard to the application of 
the Market Abuse Regulation which requires public disclosure. 

See Annex 5 (evaluation) and section 4 of Annex  8, for more information on how the 
relevant  suggestion  of  the  Platform  has  been  taken  into  consideration  in  this  impact 
assessment. 

Suggestion  2:  Clarification  of  Article  16  DGSD  –  Periodic  information  on  deposit 
protection 

The Platform suggests that the provision of periodic information on deposit protection to 
depositors, as per Article 16(1) DGSD, should only take place  at  the beginning of the 
business relationship, or in case of relevant changes, as this could help in reducing the 
administrative burden. 

Suggestion  2  flags  an  issue  that  is  analysed  in  this  impact  assessment.  However,  as 
explained in section 3.2.8 of Annex 6, the approach proposed on this issue is to follow 
the EBA recommendation, which was supported by the vast majority of the experts in 
the EGBPI, that the annual information disclosure should not be altered because of its 
positive impact for depositor awareness. 

174 See Annex 1. 

111 

 
                                                           
Suggestion  5:  Improve  the  consistency  between  the  DGSD,  Payment  Services  and  E-
Money Directives and increase the protection of client funds of e-money institutions and 
payment institutions  

The  Platform  expresses  the  view  that  an  improvement  in  the  interaction  between  the 
DGSD,  the  Payment  services  and  E-money  Directives  is  warranted  for  increasing 
depositor protection and public trust in digital payment services offered by non-banks. 
In  particularly,  the  Platform  calls  for  improvements  in  the  DGSD  for  clarifying  the 
conditions,  under  which,  client  funds  deposited  with  a  credit  institution  by  payment 
institutions or e-money institutions would be eligible for depositor protection under the 
DGSD. See Annex 5 (evaluation) and section 3.2.4 of Annex 6 for more information in 
how the relevant suggestion was taken into consideration in this impact assessment. 

Finally,  the  Platform  formulated  suggestions  for  improving  the  legal  clarity  in  the 
provisions concerning the FOLF triggers (Suggestion 3) and the assessment of the public 
interest for resolution (Suggestion 4). According to the Platform, legal changes in these 
two  areas  would  be  helpful  for  increasing  the  legal  certainty  and  consistency  in  the 
handling of failed banks. 

112 

 
 
 
 
ANNEX 3: WHO IS AFFECTED AND HOW? 

1. 

PRACTICAL IMPLICATIONS OF THE INITIATIVE 

The  objectives  of  this  Annex  are  to  summarise  how  option  3  (assessed  as  technically 
superior)  addresses  the  identified  problems  and  to  set  out  the  practical  implications  for 
the  main  stakeholders  affected  by  this  initiative,  mainly  the  banking  sector  and  their 
shareholders  and  creditors,  resolution  and  supervisory  authorities,  as  well  as  depositors 
and the taxpayers. The initiative aims to simultaneously address the following problems 
described in Chapter 2:  

  Problem  1:  Insufficient  legal  certainty  and  predictability  in  the  management  of 

bank failures; 

  Problem  2:  Ineffective  funding  options  and  divergent  access  conditions  in 

resolution and insolvency; and 

  Problem 3: Uneven and inconsistent depositor protection and lack of robustness 

in deposit guarantee scheme (DGS) funding. 

By  ensuring  a  timelier  and  expanded  scope  for  resolution,  which  would  limit  the 
destruction  of  banks’  value  when  compared  to  liquidation  proceedings,  option  3  would 
enhance  financial  stability  and  generate  net  overall  gains  for  taxpayers,  depositors, 
including  small  and  medium  enterprises  (SMEs),  resolution  authorities,  but  also  the 
markets and the society at large. Banks’ costs may increase due to a broader use of DGS 
funds which would require replenishment through ex post industry contributions, which, 
in  the  absence  of  a  European  deposit  insurance  scheme  (EDIS)  cannot  be  lowered. 
Banks’  creditors  may  lose  under  these  options  due  to  bail-in  when  resolving  more 
smaller/medium-sized  banks,  however  this  would  contribute  to  reducing  moral  hazard 
and  ensuring  that  losses  are  internalised  to  the  bank’s  claim  holders  rather  than 
externalised to the society.  

Option 3 would address the three problems identified by strengthening the legal certainty 
and  clarity  of  the  presumptive  path  for  action  in  case  of  failing  banks,  ensuring  more 
effective funding options and harmonised conditions to access them. Legal certainty and 
level playing field would be achieved through more standardisation and harmonisation of 
rules  on:  the  application  of  the  public  interest  assessment  (PIA),  use  of  DGS  funds  for 
various interventions, early intervention measures and failing or likely to fail declaration, 
the requirement to wind-down banks and foster market exit in case of negative PIA (to 
avoid  legal  limbo  situations)  and  the  harmonisation  of  depositor  preference  in  the 
hierarchy  of  claims175.  The  revision  of  the  least  cost  test  for  DGS  interventions  would 
improve the effectiveness and efficiency of the use of DGS funds, ensuring coherent and 
consistent approaches across Member States. 

While  most  of  these  elements  are  similar  across  the  option  packages  presented  in 
Chapters  5  and  6,  the  changes  proposed  to  the  PIA  under  option  3  deliver  a  more 

175 As explained in Chapter 2.  

113 

 
 
                                                           
significant  expansion  of  the  scope  for  resolution  than  other  options.  This  goes  hand  in 
hand with the ease of accessing funding under the retained option.  

Option 3 would improve the access to the resolution funds (RF) or the Single Resolution 
Fund  (SRF)176  and  DGS  funds  in  resolution  for  an  increasing  number  of  smaller  and 
medium-sized  banks  coming  in  the  scope  of  resolution  through  an  extended  PIA.  This 
implies,  in  particular,  that  the  restructuring  of  failing  smaller  and  medium-sized  banks, 
possibly  under  transfer  strategies  in  resolution  or  alternative  measures  in  insolvency 
would be financed more credibly and with more proportionality than under other options. 
The  access  to  the  RF/SRF  would  be  facilitated  without  compromising  the  principle  of 
minimum bail-in condition, which safeguards against moral hazard (i.e. making sure the 
bank’s  shareholders  and  creditors  are  first  in  line  to  bear  losses  before  any  industry 
funded safety nets are employed).  

The  implementation  of  option  3  would  largely  benefit  depositors  (i.e.  retail  clients, 
SMEs,  municipalities,  other  public  institutions,  large  corporates,  financial  institutions) 
and  taxpayers  by  shielding  them  from  losses,  which  would  be  covered  by  the  bank’s 
internal  loss  absorbing  capacity  and  industry  funded  safety  nets.  Depositors  would 
benefit  from  placing  more  smaller/medium-sized  banks  in  resolution  and  having  their 
deposits  transferred  to  a  healthy  bank  with  the  help  of  the  DGS  funds,  as  they  would 
preserve continued access to their accounts, avoid a run on the bank and benefit from a 
more  efficient  use  of  DGS  funds.  Taxpayers  would  benefit  as  well  since  handling 
distressed  banks  would  be  more  likely  financed  through  industry-funded  safety  nets 
rather than public money. The size of available funding to enable transfer transactions is 
directly proportional with the protection of the respective depositors and taxpayers in the 
EU. 

Banks  and  their  shareholders,  investors,  employees  and  depositors  would  also  benefit 
from the retained option from the perspective of enhanced legal clarity and level playing 
field in the application of rules and enhanced standardisation. While depositors would be 
more  protected  from  losses  under  these  options,  other  investors  may  see  their  claims 
written-down  or  converted  into  capital  by  applying  bail-in.  However,  option  3  would 
benefit  most  stakeholders  through  the  preservation  of  banks’  franchise  value  and  the 
safeguarding  of  commercial  relations  through  a  transfer  transaction  of  parts  or  all  the 
failing business to a healthy acquirer rather than by applying piece-meal liquidation. This 
may  come  at  a  cost  for  banks,  as  the  more  extensive  use  of  DGS  funds  would  require 
recouping  the  funds  (possibly)  disbursed  through  ex  post  industry  contributions. 
However,  this  tendence  would  be  compensated  by  a  more  efficient  use  of  funds  in 
resolution/alternative measures as opposed to a full payout in insolvency.  

Resolution authorities would also benefit from the retained option, by relying on clearer 
and more harmonised rules when implementing the provisions of the law, reducing legal 
risks.  Their  incentives  to  decide  on  the  application  of  certain  crisis  management  tools 
would  be  more  aligned  and  focused  on  the  preservation  of  value,  effectiveness  and 
efficiency of outcome.  

176 Through the use of DGS funds to bridge the gap towards the minimum access condition to the RF/SRF, 
as explained in Chapter 6.  

114 

 
                                                           
The  initiative  is  neutral  in  terms  of  impact  on  administrative  costs177,  meaning,  on 
aggregate,  it  neither  adds  nor  removes  administrative  burden  on  banks,  citizens  or 
resolution authorities. Therefore, the initiative does not have a significant impact on the 
Commission’s  ‘one  in,  one  out’  approach178,  seeking  to  scrutinise  and  monitor  new 
and/or removed administrative costs (both one-off and recurring) for businesses. This is 
because, on one hand, banks earmarked for liquidation under the current framework and 
which  would  be  entering  the  scope  of  resolution  for  the  first  time  under  this  initiative, 
would be subject to the obligation to enhance their recovery plans, provide information to 
resolution  authorities  on  a  more  frequent  basis  for  the  preparation  of  more  extensive 
resolution  plans  and  ensure  they  become  resolvable.  While  this  would  involve  some 
additional costs for banks, these are estimated to be marginal, because banks earmarked 
for liquidation already report data to resolution authorities who prepare resolution plans 
albeit  on  a  less  frequent  basis  (under  simplified  obligations).  On  the  other  hand,  the 
initiative offsets these effects by providing some relief through waiving the need to adopt 
MREL decisions for a scope of banks earmarked for liquidation, where MREL is equal to 
own  funds  requirements  (see  Annex  8,  section  8).  The  impact  of  this  change  is  more 
meaningful  for  resolution  authorities  than  for  banks  (due  to  the  reduction  in  MREL 
decisions  to  be  adopted  and  communicated  to  banks)  and  is  rather  localised  in  those 
Member  States  with  less  concentrated  banking  sectors  (many  small  banks  which  have 
liquidation  as  preferred  strategy  in  case  of  failure)  and  where  the  MREL  requirement 
would not exceed own funds.  

Additionally,  the  society  would  benefit  from  financial  stability  and  the  protection  and 
continuation  of  critical  functions  that  banks  deliver  to  citizens,  more  convergence  and 
clarity  on  the  presumptive  path  in  the  application  of  the  rules  and  level  playing  field, 
fostering more confidence in the banking sector and the single market in banking.  

Tables 2 and 3 summarise the impacts of the preferred option. 

177  According  to  the  Commission’s  Better  Regulation  Toolbox  (#58),  administrative  costs  are  the  costs 
incurred  by  enterprises,  the  voluntary  sector,  public  authorities,  and  citizens  in  meeting  administrative 
obligations  towards  public  authorities  or  private  parties.  Administrative  obligations  in  a  broad  sense 
include labelling, reporting registration, monitoring, and assessment needed to provide the information. In 
some cases, the  information  must be transferred to public authorities or private  parties.  In others, it only 
must be available for inspection or supply on request. 
178 The Commission has committed to the ‘one in, one out’ (OIOO) approach (see Political Guidelines of 
President  von  der  Leyen,  ‘better  regulation’  Communication  of  29  April  2021,  COM(2021)  219).  This 
means offsetting new burdens resulting from the Commission’s proposals by reducing existing burdens in 
the same policy area. The ‘better regulation’ Communication COM(2021) 219, sets out the main principles 
of the approach (identification through cost estimation  methods and reporting  for the purpose of OIOO). 
OIOO only applies to cost implications originating from Commission proposals and covers the impact of 
new regulatory requirements (not ‘business as usual’ costs). Costs imposed by other parties – co-legislators 
or by Member States and local, regional authorities – are not included.  

115 

 
                                                           
Table 2: Overview table depicting winners and losers 

Summary of winners and losers 

Taxpayers 

Depositors  

Banks 

Creditors 

Resolution 
authorities 

Problem 1: Insufficient legal certainty and predictability in the management of bank failures 

Problem 2: Ineffective funding options and divergent access conditions for the financing of resolution and insolvency 
Problem 3: Uneven and inconsistent depositor protection and lack of robustness in DGS funding 

Baseline: Do nothing 
Option 3: Substantially improved resolution funding 
and commensurate resolution scope 

0 

++ 

0 

+++ 

0 

+/- 

0 

+/-179 

0 

+++ 

Table 3: Overview table depicting to what extent the options achieve the objectives 

Effectiveness 

Efficiency 

Coherence 

Financial stability 

Minimise recourse 
to taxpayer money, 
weaken bank-
sovereign loop 

Level playing field, 
single market 

Depositor 
protection 

Proportionality 

Problem 1: Insufficient legal certainty and predictability in the management of bank failures 
Problem 2: Ineffective funding options and divergent access conditions for the financing of resolution and insolvency 
Problem 3: Uneven and inconsistent depositor protection and lack of robustness in DGS funding 

Baseline: Do nothing 
Option 3: Substantially improved 
resolution funding and 
commensurate resolution scope 

0 

+++ 

0 

+++ 

0 

+++ 

0 

++ 

0 

++ 

0 

+++ 

0 

++ 

179 Bank’s creditors would benefit from a higher valuation in resolution than under piecemeal liquidation and preservation of the franchise value of the bank, however, some of them 
may be bailed-in if the access to the RF/SRF is required to resolve the bank. 

116 

 
 
 
 
 
 
 
 
                                                           
2. 

SUMMARY OF COSTS AND BENEFITS 

Table 4: Overview of the benefits 

I. Overview of Benefits (total for all provisions) – Retained Options 

Description 

Enhanced legal certainty, 
harmonisation and simplification 
of certain rules leading to 
convergence and level playing 
field.  

Amount 

Direct benefits 

No available amount ex ante. Strengthening the single rulebook and harmonising 
crisis management rules will unify the regulatory environment and increase the 
level playing field, possibly fostering more integration in the single market, 
which could be monitored in the future.  
By harmonising the application of the PIA, the depositor preference in the 
hierarchy of claims, the least cost test to access DGS funding for various 
interventions, the retained option would enhance legal clarity and achieve a 
significant simplification of rules.  

Reduced recourse to taxpayer 
money. 

No amount available ex ante. Taxpayer money would be more protected when 
handling failing banks by using resolution or alternative measures more 
consistently, mainly because shareholders, creditors and, if needed, the resolution 
fund/ DGS would bear losses and support executing the resolution strategy.  
Estimating the amount of taxpayer funds savings that would be enabled by these 
reform would be bank-specific. As an indication based on the past, when 
considering the examples of failing banks between 2015 and 2022, taxpayer 

117 

Comments 

Resolution authorities would be the main 
recipients of these benefits, especially when 
working on cross-border banking groups, mainly 
due to increased standardisation, simplification 
and streamlining of rules. Additional legal 
clarity would reduce the risk of legal challenge 
for authorities related to the planning, 
formulation of requirements to banks and 
execution of the preferred strategy.  
Market participants would also benefit from 
standardisation, as they would be in a better 
position to assess risks related to banks.  
Depositors would also be the recipients of these 
benefits, as the harmonisation of depositor 
preference in the hierarchy of claims would 
ensure their fair their treatment across Member 
States.  

Taxpayers would be the main recipients of this 
benefit. A more efficient use of DGS funds 
would reduce the risk of DGS liquidity shortfall 
and the need of public intervention as a backstop 
to the DGS.  

 
 
Strengthened depositor 
confidence through continued 
access to accounts, greater 
protection of eligible deposits 
(also non-covered) and avoidance 
of bank runs. 

More efficient use of DGS funds 
in managing banks in crises. 

exposures to such contingent liabilities reached EUR 58.2 bn (out of which EUR 
28.1 bn were used for liquidity support). However, future uses of taxpayer money 
cannot be gauged on past cases.  

No amount available ex ante. Alternative use of DGS for paying out covered 
deposits under insolvency would limit the disruption caused by blocked deposit 
accounts. It would be confidence enhancing and less prone to contagion/bank 
run. Moreover, non-covered deposits (above EUR 100 000) in the EU (amounts 
not reported to EBA) would also be more protected from bail-in under transfer 
strategies as per the retained option, while they are not protected under a payout 
scenario (only covered deposits are protected in that case). This prospect would 
potentially deter depositors from running on the bank.  
In a payout event, where depositors must be reimbursed within seven days, 
interrupted access to accounts, social benefits and credit facilities for even a short 
period in prevalently cashless societies, using or operating with credit and debit 
cards and electronic systems, could impact the overall economy. The failure of 
smaller and medium-sized banks can also create substitutability issues because of 
challenges for a high number of depositors and banks to simultaneously open 
new accounts to receive their reimbursement.  

No amount available ex ante. The cost of a DGS intervention measure either in 
resolution or under alternative measures in insolvency would be cheaper than the 
cost of paying out covered depositors under a piecemeal liquidation. A payout of 
covered depositors is usually cash consuming as the DGS would be required to 
reimburse the amount of covered deposits to all eligible covered depositors 
before recovering (part of) this amount during the insolvency proceedings. 
Moreover, the least cost test ensures that the DGS contributions under resolution 
or alternative measures in insolvency are always lower than those in a payout 
event. Therefore, facilitating other measures than payout would better preserve 
the financial means of the DGS, reducing the amounts of losses that may arise 
through the DGS intervention.  
However, it is very challenging to provide an amount corresponding to the cost 
reduction for the DGS as this would be bank-specific.  

118 

Covered and non-covered eligible depositors are 
the main recipients of these benefits because 
their deposits would be less likely to be bailed-
in. More generally, depositor confidence in the 
banking sector would be strengthened by 
limiting DGS payout events and facilitating the 
use of DGS funds for measures preserving their 
continued access to their accounts (e.g. 
resolution or alternative measures in 
insolvency).  

Banks contributing to the DGS funds and DGS 
authorities are the main recipients of this 
benefit.  
By preserving DGS available financial means, 
banks would be called on to contribute less to 
replenish the spent funds. Additionally, DGS 
authorities would benefit from a more efficient 
usage of DGS available financial means.  

 
 
More credible and proportionate 
access to RF/SRF for smaller and 
medium-sized banks. 

Franchise value of a failing bank 
preserved when facilitating 
transfer strategies. 

No amount available ex ante. A more credible and proportionate access to 
RF/SRF for smaller and medium-sized banks would lead to a wider application of 
resolution tools (transfer of deposit book), preserving more value, in particular 
when compared to a piecemeal liquidation or a procedure under non harmonised 
national insolvency rules. The use of the industry-funded safety net would 
replace in many cases the bail-in of non-covered depositors.  
However, estimating the amount of the RF/SRF that would be required is not 
possible ex ante because it would depend on a case by case analysis and the 
specific circumstances of each bank at the moment of failure (e.g. level of losses 
at the point of failure, the financial fundamentals of the bank, the composition of 
its liabilities, all of which feed into the results of the valuation exercise). 

No amount available ex ante. The transfer of the (whole or partial) business 
would preserve the franchise value to a greater extent than under a piecemeal 
liquidation approach. It would avoid the destruction of the business brand, 
preserving the commercial relationships with the clients and consequently better 
maintaining the profitability of, and the return on the assets. Transfer strategies 
could be applied in resolution. Where resolution is discarded (negative PIA), 
alternative measures in insolvency maintain an incentive to maximise the 
franchise value, thereby minimising the cost for the DGS. However, an amount 
reflecting the preservation of value cannot be estimated. Doing so would be fully 
case-dependant and specific to the circumstances of each bank at the moment of 
failure. 

Non-covered depositors would be the main 
recipients of this benefit. They would not see 
their deposits wiped out in case their bank 
would be failing and resolved under a transfer 
strategy. Rather, the DGS and the RF/SRF 
which are industry-funded safety nets would 
step in to facilitate the resolution of that 
respective bank.  

Stakeholders in a failing bank, the other banks 
contributing to safety nets, as well as taxpayers 
are the main recipients of this benefit.  

119 

 
 
 
 
Better aligned incentives to apply 
resolution tools and benefit from 
funding solutions to execute the 
strategy. 

Indirect benefits 

No amount available. Improving the incentives to apply an improved and 
more standardised framework would lead to less circumvention in application 
and more level playing field at EU level.  
However, this cannot be quantified, as it would be the sum of the benefits 
stemming from the protection of taxpayers and depositors, more efficient use 
of DGS funds and more legal certainty in using tools for the banks, resolution 
authorities and markets.  

Taxpayers, depositors, resolution authorities, 
banks and markets would all be recipients of 
this benefit.  

Preservation of Europe’s diversity in 
banking business models.  

No amount available. Fixing the tools and the funding to deal with 
smaller/medium-sized banks which are predominantly deposit taking would 
preserve such traditional business models across the EU, on the condition 
that they remain viable.  

The society at large is the recipient of this 
benefit.  

n/a 

Administrative cost savings related to the ‘one in, one out’ approach* 
n/a 

n/a 

(1)  Estimates  are  gross  values  relative  to  the  baseline  for  the  preferred  option  as  a  whole  (i.e.  the  impact  of  individual  actions/obligations  of  the  preferred  option  are  aggregated 
together); (2) Please indicate which stakeholder group is the main recipient of the benefit in the comment section;(3) For reductions in regulatory costs, please describe details as to how 
the saving arises (e.g. reductions in adjustment costs, administrative costs, regulatory charges, enforcement costs, etc.); (4) Cost savings related to the ’one in, one out’ approach are 
detailed in Tool #58 and #59 of the ‘better regulation’ toolbox. * if relevant. 

120 

 
 
 
 
Table 5: Overview of costs 

II. Overview of costs – Retained options 

Citizens/Consumers /Businesses 

Banks 

Administrations 

One-off 

Recurrent 

One-off 

Recurrent 

One-off 

Recurrent 

n/a 

n/a 

Expanding the 
scope of 
resolution 
through clarified 
PIA 

Direct adjustment costs 

More banks coming 
into the scope of 
resolution would 
require investing in 
projects enhancing 
their resolvability (e.g. 
IT systems, timely 
data reporting, legal 
structure, review 
contracts in view of 
implementing 
resolution stays, 
valuation capabilities, 
liquidity monitoring, 
etc.). As resolution 
authorities continue to 
retain discretion in 
their decision to place 
banks in resolution vs 
insolvency, the 
number of banks that 

Raise MREL eligible 
instruments in case 
of shortfalls against 
the set targets. This 
cost cannot be 
estimated upfront 
because it depends 
on the features of the 
bank180, its potential 
bank-specific MREL 
target, the 
outstanding stock of 
eligible instruments 
already held and 
market conditions.  

Applying resolution 
tools presumably 
more often, due to 
the expansion of the 
resolution scope, 
depending on the 
occurrence of failure 
events. 
This cost cannot be 
estimated upfront, as 
resolution authorities 
continue to retain 
discretion in their 
decision to apply 
resolution vs 
insolvency. 

Preparing more 
resolution plans, 
conducting more 
resolvability 
assessments and 
setting MREL 
requirements for more 
banks as part of 
yearly resolution 
planning cycles. The 
number of banks 
which would enter the 
resolution scope and 
therefore this cost 
cannot be estimated 
upfront, as resolution 
authorities continue to 
retain discretion in 
their decision to apply 
resolution vs 
insolvency. 

180 E.g. rating, creditworthiness, financial fundamentals (such as quality of assets, capitalisation, etc.). 

121 

 
 
 
                                                           
II. Overview of costs – Retained options 

Citizens/Consumers /Businesses 

Banks 

Administrations 

One-off 

Recurrent 

One-off 

Recurrent 

One-off 

Recurrent 

would enter the scope 
of resolution cannot 
be estimated. 
Moreover, the 
additional costs that 
each bank may incur 
to become more 
resolvable depends on 
the specific situation 
of each bank (efficacy 
of management 
information systems, 
valuation capabilities, 
etc.) 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

Direct administrative 
costs 

Direct regulatory fees 
and charges 

Direct enforcement 
costs 

Indirect costs 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

Additional costs 
for banks may be 
passed on to 
clients. However, 

n/a 

n/a 

n/a 

122 

 
 
 
 
 
 
 
 
 
 
 
Facilitating the 
use of funds in 
resolution and 
alternative 
insolvency 
measures  

Direct adjustment costs 

II. Overview of costs – Retained options 

Citizens/Consumers /Businesses 

Banks 

Administrations 

One-off 

Recurrent 

One-off 

Recurrent 

One-off 

Recurrent 

such costs should 
be limited.  

More complex 
processes and 
additional tasks for 
resolution authorities 
when DGS can 
contribute towards 
the minimum 8% 
TLOF bail-in 
condition to access 
the RF/SRF.  

Facilitating the use of 
DGS funds may 
increase the costs for 
the banking sector 
due to additional 
contributions to 
replenish the DGS 
upon depletion. No 
quantification 
available, as an 
estimate would 
strongly depend on 
the amount of funds 
the DGS would use 
which reflects the 
losses in case of a 
failure. However, 
this cost would be 
compensated through 
more efficient use of 
DGS in resolution 
compared to payout 
in insolvency. 

123 

 
 
 
 
 
 
 
II. Overview of costs – Retained options 

Citizens/Consumers /Businesses 

Banks 

Administrations 

Direct administrative 
costs 

Direct regulatory fees 
and charges 

Direct enforcement 
costs 

Indirect costs 

n/a 

n/a 

n/a 

One-off 

Recurrent 

One-off 

Recurrent 

One-off 

Recurrent 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

Costs by 
small/medium-sized 
banks which have 
already raised MREL 
instruments and can 
access RF/SRF 
without DGS 
contribution. 

Direct adjustment costs  n/a 

Indirect adjustment 
costs 

Administrative costs 
(for offsetting) 

n/a 

n/a 

Costs related to the ‘one in, one out’ approach 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

(1) Estimates (gross values) to be provided with respect to the baseline; (2) costs are provided for each identifiable action/obligation of the preferred option otherwise for all retained 
options  when  no  preferred  option  is  specified;  (3)  If  relevant  and  available,  please  present  information  on  costs  according  to  the  standard  typology  of  costs  (adjustment  costs, 

124 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
administrative costs, regulatory charges, enforcement costs, indirect costs;); (4) Administrative costs for offsetting as explained in Tool #58 and #59 of the ‘better regulation’ toolbox. 
The total adjustment costs should equal the sum of the adjustment costs presented in the upper part of the table (whenever they are quantifiable and/or can be monetised). Measures 
taken with a view to compensate adjustment costs to the greatest extent possible are presented in the section of the impact assessment report presenting the preferred option. 

3. 

RELEVANT SUSTAINABLE DEVELOPMENT GOALS (SDGS) 

Relevant SDG 

Expected progress towards the Goal 

Comments 

III. Overview of relevant Sustainable Development Goals – Retained option 

SDG no. 8 – decent work and 
economic growth, nr. 13 – climate 
action, no. 9 – industry, innovation 
and infrastructure181 

Increased financial stability, a more integrated single market and level playing field will 
lead to increased resilience for the EU banking sector, which in turn, is more likely to 
finance the economy creating growth and contribute to the sectors’ green and digital 
transition (‘twin transition’). These contributions to economic growth and the twin 
transition cannot be quantified in relation to this initiative.   

181 United Nations’ Sustainable Development Goals (2015).  

125 

 
 
 
                                                           
ANNEX 4: ‘ZOOM-IN’ ON CORE ELEMENTS OF THE CRISIS 
MANAGEMENT AND DEPOSIT INSURANCE FRAMEWORK 

This  Annex  explains  the  core  elements  of  the  CMDI  framework  for  a  deeper 
understanding of the topic.  

Since  2014,  the  Bank  Recovery  and  Resolution  Directive  (BRRD)  lays  down  a 
comprehensive  and harmonised regime for the  recovery and  resolution  of failing  banks 
across the EU. The Single Resolution Mechanism Regulation (SRMR) complements that 
harmonised framework for the Banking Union. The Deposit Guarantee Scheme Directive 
(DGSD)  lays  down  a  set  of  harmonised  rules  for  depositor  protection.  Besides 
reimbursing depositors in case of a failure of the institution up to EUR 100 000, deposit 
guarantee schemes (DGS) funds can be used to prevent the failure or to finance measures 
in insolvency (subject to the national transposition of this option) or in the resolution of 
credit institutions under certain conditions. On the contrary, insolvency is not harmonised 
and national bank insolvency proceedings differ substantially across the EU.  

The CMDI framework was designed to avert and manage the failure of credit institutions 
of any size while protecting depositors and taxpayers. The framework provides for a set 
of  instruments  that  can  be  applied  in  the  different  stages  of  the  lifecycle  of  banks  in 
distress.  Before  a  bank  is  declared  failing  or  likely  to  fail  (FOLF),  these  instruments 
allow  a  timely  intervention  to  address  a  financial  deterioration  (early  intervention 
measures), to prevent the failure of a bank (preventive measures with funding from the 
DGS182) or precautionary recapitalisation measures financed by the public budget under 
strict  conditions.  When  a  bank  is  considered  FOLF  and  there  is  a  public  interest  in 
resolving it183, the resolution authorities will intervene in the bank by using the tools and 
powers granted by the BRRD184 in absence of a private solution. These include the power 
to  sell  the  bank  or  parts  of  it  to  one  or  more  buyers,  to  transfer  critical  functions  to  a 
bridge institution and to transfer non-performing assets to an asset management vehicle. 
Moreover,  it  includes  the  power  to  bail-in  the  bank’s  shareholders  and  creditors  by 
reducing  their  claims  or  converting  them  into  capital,  to  provide  the  bank  with  loss-
absorbing or recapitalisation resources. In the Banking Union, the resolution of systemic 
banks and cross-border groups is  carried out  by  the Single Resolution  Board (SRB).  In 
the absence of a public interest for resolution, the bank failure should be handled through 
national  orderly  winding  up  proceedings,  sometimes  with  financing  from  the  DGS  or 
other sources, carried out by national authorities. 

182 Article 11(3) DGSD. 
183 Resolution is considered in the public interest when resolution is necessary for the achievement of and 
proportionate to one or more resolution objectives and normal insolvency proceedings would not achieve 
the resolution objectives to the same extent (Article 32 BRRD).  
184  In  the  following,  reference  to  the  BRRD  should  be  understood  as  including  also  corresponding 
provisions in the SRMR. 

126 

 
 
 
 
                                                           
Figure 10: Measures and bodies of the CMDI framework 

Source: European Commission 

The  framework  is  intended  to  provide  a  combination  of  funding  sources  to  manage 
failures in an economically efficient manner, while preserving the bank’s franchise value 
and reducing recourse to the public budget and ultimately the cost to the taxpayers. The 
costs  of  resolving  the  bank  (i.e.  the  losses)  are  first  allocated  to  the  shareholders  and 
creditors of the bank itself (bank’s internal loss absorbing capacity), which also reduces 
moral  hazard.  If  needed,  resources  can  be  complemented  by  resolution  financing 
arrangements funded by  the industry (through the national  resolution  funds  (RF) or the 
Single  Resolution  Fund  (SRF)  in  the  Banking  Union  and  the  DGSs)  to  cover  the 
remaining losses. In the Banking Union, these rules were further integrated by entrusting 
the  SRB  with  the  management  and  oversight  of  the  SRF,  which  is  funded  by 
contributions  from  credit  institutions  and  certain  investment  firms  in  the  participating 
Member States of the Banking Union. Depending on the tool applied to a bank in distress 
(e.g. preventive, precautionary, resolution or alternative measures) and the specificities of 
the case, compliance with the State aid rules may be necessary for interventions by a RF, 
a DGS or public funding from the State budget.  

The State aid rules for banks185 are intrinsically interconnected with, and complementary 
to  the  CMDI  framework.  The  two  frameworks  are  applied  consistently  by  the 
Commission (e.g. the Commission checks if a a public or private support qualified as a 
State  aid  measure  violates  intrinsically  linked  provisions  of  the  CMDI  framework  and 
cannot authorise it, if it does so). Despite their natural interlinkages, the two frameworks 

185 The Commission has direct enforcement powers in relation to EU State aid rules, which derive from the 
Treaty  (Article  107  TFEU).  In  the  context  of  the  global  financial  crisis,  the  Commission  clarified  its 
assessment  of  compatibility  of  State  aid  measures  to  banks  under  Article  107(3)(b)  TFEU  in  several 
Commission Communications, including the 2013 Banking Communication. 

127 

 
 
                                                           
are meant to tackle different issues: State aid rules’ main purpose is to limit competition 
distortions from such support to banks, while the CMDI framework’s primary objective 
is  to  limit  risks  to  financial  stability  from  the  disorderly  management  of  bank  failures 
while avoiding or minimising the use of public funds and ensuring depositors’ protection.  

In  order  to  ensure  consistency  between  the  two  frameworks,  in  November  2020,  the 
Eurogroup  invited  the  Commission  to  carry  out  and  finalise  its  review  of  the  State  aid 
rules for banks, in parallel to the review of the CMDI framework, ensuring its entry into 
force at the same time as the revised CMDI framework. Such timeline aims at ensuring 
consistency  between  the  two  frameworks,  adequate  burden  sharing  of  shareholders  and 
creditors to protect taxpayers and depositors, and preserve financial stability186. In June 
2022, the Eurogroup took note of the intention of the European Commission to finalise 
the review of the State aid framework for banks, to ensure consistency between the State 
aid framework and the renewed CMDI framework. 

Having  the  objective  of  coherence  in  mind,  it  is  important  to  underline  that  the  CMDI 
framework  is  subject  to  co-legislation,  which  will  require  time,  and  its  outcome  as 
compared to the Commission proposal is uncertain, while an update of the State aid rules 
requires a Commission Communication, which, when decided by the Commission, could 
take effect immediately.  

Notwithstanding  the  interactions  between  the  various  components  of  the  current 
legislative framework, the reform of the State aid rules is not part of the present impact 
assessment  nor  of  the  subsequent  legislative  proposal.  A  separate  process  to  assess  the 
need for a review of the State aid rules is ongoing, in parallel to the review of the CMDI 
framework, also in light of different procedures to amend the relevant acts187.  

In  terms  of  deposit  protection,  deposits  are  protected  up  to  EUR 100 000  per  depositor 
and per bank, under the DGSD, regardless of whether the bank is put into resolution or 
insolvency.  In  insolvency188,  the  primary  function  of  a  DGS  is  to  pay  out  depositors 
within  seven  days  of  a  determination  of  unavailability  of  their  deposits.  Under  the 
DGSD,  DGSs  may  also  have  other  functions  (all  aimed  at  preserving  depositor 
confidence) such as financing preventive measures or, financing measures in insolvency 
other than payout, i.e. a transfer of assets and liabilities to a buyer, to preserve the access 
to covered deposits (DGS alternative measures). The DGSD provides a limit as regards 
the  costs  of  such  preventive  and  alternative  measures.  They  can  never  be  more  costly 
than  a  payout  of  the  covered  amount.  Moreover,  DGSs  can  contribute  financially  to  a 
bank’s resolution, under certain conditions.  

186 Eurogroup (November 2020),  Statement of the Eurogroup in inclusive format on the ESM reform and 
the early introduction of the backstop to the Single Resolution Fund. The intention of the Eurogroup is to 
ensure that the outcome of the State aid rules review is aligned with the outcome of the negotiations of the 
CMDI review by co-legislators. 
187 In March 2022, the Commission has launched a Call for Evidence together with a public and targeted 
consultation to seek stakeholder feedback on the evaluation of State aid rules for banks in difficulty. The 
input collected and a study will feed into the evaluation that the Commission aims to publish. 
188 Insolvency proceedings across the EU are unharmonised; some allow for certain transfer tools similar to 
resolution financed by DGSs, others only allow for piece-meal liquidation proceedings.  

128 

 
                                                           
The functioning of the DGSs and the use of their funds cannot be seen in isolation from 
the broader debate on the European deposit insurance scheme (EDIS).  

Notwithstanding  the  progress  achieved,  areas  for  further  strengthening  and  adjustment 
were  identified  with  regard  to  both  the  resolution  and  depositor  insurance  framework. 
The  evaluation  of  the  current  rules  (see  Annex  5)  has  identified  issues  with  the 
framework’s  design,  implementation  and  application.  The  review  of  the  CMDI 
framework should provide solutions to address these issues and enable the framework to 
fully achieve its objectives189 and be fit for its purpose. 

The  revision  of  the  CMDI  framework  as  well  as  a  possible  further  harmonisation  of 
insolvency laws are foreseen in the respective review clauses of the legislative texts. The 
review is part of the agenda for the completion of the Banking Union, as emphasised in 
President  von  der  Leyen’s  Political  Guidelines.  Although  the  political  guidelines 
included the creation of EDIS, it will not be part of the current initiative because political 
discussions on EDIS and other workstreams of the Banking Union completion plan have 
yet to be finalised. 

Insolvency 

National  insolvency  proceedings  are  not  part  of  the  CMDI  framework,  but  they  are 
alternative to it. The resolution authority may conclude that the bank does not need to be 
put  in  resolution  because  its  failure  would  not  have  a  significant  impact  on  financial 
stability  or  would  not  endanger  any  critical  function  and  that  the  tools  available  in  the 
insolvency law of the relevant Member State are adequate to manage the bank’s failure 
(i.e. the public interest assessment is negative). In this case, the bank is put in insolvency 
according  to  national  law.  Very  small  banks  are  likely  candidates  for  being  credibly 
handled when they fail through insolvency proceedings, without creating ripple effects in 
the financial system or the real economy.  

The procedure and tools available in this case depend on the national legislation. These 
may  vary  widely  from  Member  State  to  Member  State.  Some  foresee  a  judicial 
“atomistic” insolvency procedure, leading to the sale of the assets in a piecemeal fashion 
to repay the creditors in order of their ranking in the hierarchy of claims, similar to the 
insolvency available for regular corporations (in some countries the insolvency procedure 
is actually the same for banks and other companies). 

Certain  Member  States’  legislations  provide  for  administrative  insolvency  proceedings 
for  banks.  These  are  generally  managed  by  an  administrative  authority  in  cooperation 
with the relevant court. Concretely, these procedures provide for measures similar to the 
resolution  tools,  such  as  selling  the  whole  business  (i.e.  also  the  liabilities)  to  a  buyer 
without the consent of the failing bank’s creditors. 

Normally,  funding  from  sources  outside  of  the  bank’s  assets  should  not  be  required  in 
insolvency, as creditors are expected to bear losses and share any value realised through 
the  liquidation  (sale)  of  assets,  in  order  of  their  ranking  in  the  hierarchy  of  claims. 

189 See Chapter Error! Reference source not found. on the objectives. 

129 

 
                                                           
However, for the insolvency of banks, the DGS has the possibility to use an alternative 
measure to payout, aiming at preserving the depositors’ access to covered deposits, such 
as a transfer of the assets and liabilities and deposit book to an acquiring bank. This tends 
to be a more efficient and effective solution than payout, however it is only available in 
11  Member  States  (who  transposed  this  national  option).  Actions  under  national 
insolvency law can also be financed with support from the public budget (State aid). 

Merits of resolution versus insolvency, including for smaller and mid-sized banks in 
the CMDI framework 

The  fundamental  principle  of  the  EU  harmonised  resolution  framework  is  to  provide  a 
common  toolbox  to  deal  effectively  with  any  bank  failure  (irrespective  of  its 
geographical  location,  its  size  or  business  model  i.e.  domestic  or  operating  across  the 
border) in an orderly way, preserving financial stability and protecting depositors without 
relying  on  public  funds.  For  many  banks,  such  objectives  cannot  be  met  to  the  same 
extent  under  national  insolvency  frameworks,  which,  in  some  cases,  are  not  adapted  to 
the specificities of bank failures.  

The  CMDI  framework  implements  in  the  EU  regulatory  framework  the  international 
consensus  emerging  after  the  global  financial  crisis  (G20,  Financial  Stability  Board 
decisions) that banks should never again be bailed out with public money. The set-up of 
the resolution frameworks around the world constituted a major paradigm shift from bail-
out  to  bail-in  (i.e. banks should pay for their own resolution/liquidation  with  their own 
resources as well as with industry-funded resources as opposed to public bail out). 

This  principle  of  not  using  taxpayer  money  for  the  financial  industry  is  already  well 
rooted  in  the  EU.  As  an  illustration,  the  Recovery  and  Resilience  Facility190,  an 
instrument part of NextGenerationEU adopted in the context of the COVID-19 pandemic 
and  aimed  at  helping  the  EU  emerge  stronger  and  more  resilient  from  that  crisis 
explicitly excluded funding to banks and the financial sector. Similarly, the EU state Aid 
Temporary  Framework191  adopted  in  2020  to  enable  Member  States  to  use  the  full 
flexibility  foreseen  under  State  aid  rules  to  support  the  economy  in  the  context  of  the 
coronavirus outbreak also explicitly excluded State Aid to banks.  

This  principle  of  protecting  taxpayer  money  was  also  at  the  heart  of  the  CMDI 
framework  when  adopted  in  2014.  In  addition  to  this  objective,  a  common  resolution 
framework  and  toolbox  has  a  number  of  very  important  benefits  compared  to  national 
insolvency proceedings:  

  provides predictability and level playing field when handling (any) failing banks, 
which means that taxpayers, deposits  and bank creditors are treated in  the same 
manner across the EU, 

  enhances preparedness, through recovery and resolution planning for crisis times, 
including  by  imposing  requirements  on  banks  to  become  resolvable  and  absorb 
possible losses internally or via the safety nets (thereby shifting away losses from 
taxpayers and internalising losses with the industry), 

190 European Commission (February 2021), The Recovery and Resilience Facility. 
191 European Commission (2020), The State Aid Temporary Framework.  

130 

 
                                                           
 

 

increases efficiency in handling bank failures as it facilitates a restructuring/ sale 
of  business  to  a  buyer,  preserving  the  bank’s  franchise  value  without  cutting 
access to client accounts and client relationships, 
fosters consumer confidence in the banking sector, significantly reducing the risk 
of  spiralling  contagion  to  other  banks  and  mitigating  the  risks  that  bank  clients 
may  start  questioning  the  solidity  of  the  system  and  its  safety  nets  as  it  could 
happen under normal insolvency proceedings,  

  ensures losses can be internalised by in the industry, by requiring banks to build 
resolution  buffers  and  setting  up  industry-funded  safety  nets  complementing 
internal  bank buffers to  absorb losses and avoid  recourse to  public funds for all 
banks and not only cross-border ones, 
fosters confidence between Member States that banks failures will be addressed 
in an effective way, thus preserving financial stability in the single market and the 
Banking Union, and  

 

  protects Member States’ fiscal capacity which may be limited in crisis times. 

However, despite the widely shared intention of protecting taxpayer money embedded in 
the CMDI framework since 2014, some Member States have continued to make recourse 
to  taxpayer  money  when  handling  failing  banks,  since  the  establishment  of  the 
framework,  as  evidenced  in  Chapter  2  and  Annex  5.  This  is  not  because  they  find  it 
acceptable politically or economically to do so, but because they had to choose between 
protecting financial stability and deposits on one hand and protecting taxpayer money on 
the  other  hand.  The  current  framework  poses  entry  barriers  for  certain  small  and  mid-
sized  banks  through  the  onerous  access  condition  to  resolution  funding,  which  some 
banks can only attain if deposits bear losses. However, bailing-in depositors would pose 
a significant risk to financial stability, as depositors would lose confidence in the banking 
sector and likely provoke bank runs and spiralling contagion, which can reverberate also 
into  the  real  economy,  as  seen  during  the  global  financial  crisis.  There  is  therefore,  a 
political consensus among Member States that the CMDI framework needs to be fixed in 
a way that resolution can be used for any bank where needed.  

Background  on  the  principle  of  subsidiarity  in  the  CMDI  framework  (why  should 
small/mid-sized  banks  be  dealt  with  under  the  harmonised  resolution  framework  vs 
national insolvency proceedings) 

The resolution  framework as  it was created in  2014 was meant  to  be applicable to  any 
bank when it fulfils the objectives of protecting financial stability, taxpayer money and 
depositors  better  than  national  insolvency  proceedings192.  The  merits  of  resolution  vs 
insolvency  are  assessed  through  the  PIA,  which  is  a  case  by  case  judgement,  based  on 
criteria on whether to place a bank in resolution or national insolvency proceedings. The 
PIA is, de facto, the subsidiarity test in the CMDI framework, as also indicated by recital 
13 and Article 32(5) of BRRD I193.  

192 Recital 29 BRRD I: “Due to the potentially systemic nature of all institutions, it is crucial, in order to 
maintain financial stability, that authorities have the possibility to resolve any institution”,  
193 Recital 13 BRRD I: “The use of resolution tools and powers provided for in this Directive may disrupt 
the rights of shareholders and creditors. In particular, the power of the authorities to transfer the shares or 

131 

 
 
                                                           
 
In the Banking Union, the PIA decisions are made by the SRB for banks under its remit 
(systemic  banks  and  less  systemic  cross  border  banks)  and  by  the  national  resolution 
authorities for smaller banks, for which they are responsible (less significant institutions). 
Outside the Banking Union, national resolution authorities have the role to determine the 
path for managing a failing bank in all cases (PIA). This governance structure embedded 
in  the  CMDI  illustrates  the  flexibility  of  resolution  authorities  to  decide  what  is  the 
pathway  that  best  attains  the  sought  objectives.  The  EU  level  rules  do  not  impose  or 
prescribe  a  treatment  for  any  bank  of  any  size,  it  provides  the  necessary  discretion  to 
resolution  authorities  to  take  the  best  decision.  At  the  same  time,  to  enable  such 
decisions, the continuum of tools, including the harmonised resolution tools and national 
tools  (preventive  measures,  administrative  insolvency  measures,  piece-meal  judicial 
insolvency measures) to handle failing banks are preserved in the framework.  

In  terms  of  scope  of  application,  the  framework  applies  to  all  banks.  CMDI  rules  are 
appropriate for systemic banks, which are “too big to fail” and which will likely go into 
resolution  (in  general  open-bank  bail-in  strategy)  and  be  bailed-in  if  they  failed.  The 
framework is also deemed appropriate for very small banks, which are more likely to be 
placed in insolvency and be liquidated if they failed. However, there is a middle category 
of  banks,  which  are  not  “too  big  to  fail”  but  “too  big  to  liquidate”  for  which  the 
framework cannot be credibly used in all cases where it would be needed and for which 
other  avenues  involving  taxpayer  money  were  used  in  the  past  (see  Chapter  2,  the 
evaluation in Annex 5 and Annex 9 showing past cases of bank failures). 

The  CMDI  review  aims  to  improve  the  rules  in  a  way  that  the  harmonised  resolution 
framework  can  also  be  used  for  this  category  of  small  to  mid-sized  banks,  when 
resolution  best  achieves  the  objectives.  To  do  so,  the  initiative  will  revisit:  the  PIA  to 
include  additional  criteria  to  help  authorities  decide  on  the  best  avenue,  the  access  to 
funding in resolution by using the DGS funds in certain framed circumstances, the least 
cost  test  for  using  DGS  funds  in  and  outside  resolution  to  make  sure  it  is  harmonised 
among  the  various  DGS  funds  uses.  This  would  align  incentives  between  choosing 
resolution and other avenues and ensure the choice is based on merits/objectives and not 
on cheaper access to funding.  

Box  6:  Evidence  depicting  the  systemic  impact  of  failing  small/mid-sized  banks  on 
financial stability 

Small and medium-sized banks, whether purely domestic or cross-border, have an impact 
on  financial  stability;  albeit  a  commensurately  smaller  one  than  that  of  large  global 
systemic banks. In line with their size, risk footprint, their interconnectedness and their 
business  strategy,  the  prudential  and  liquidity  requirements  that  small  and  mid-sized 
banks are asked to comply with, are proportionately lower than those of large systemic 
banks. They  may be  also  granted access to  liquidity assistance by  central  banks (under 

all or part of the assets of an institution to a private purchaser without the consent of shareholders affects 
the  property  rights  of  shareholders.  […]  Accordingly,  resolution  action  should  be  taken  only  where 
necessary  in  the  public  interest  and  any  interference  with  rights  of  shareholders  and  creditors  which 
results  from  resolution  action  should  be  compatible  with  the  Charter  of  Fundamental  Rights  of  the 
European Union (the Charter)…” 

132 

 
                                                                                                                                                                            
eligibility  conditions)  if  needed.  They  should  be  also  able  to  fail  in  an  orderly  manner 
under the harmonised resolution framework if it best achieves the objectives. 

This  box  aims  to  provide  additional  references  and  examples  depicting  the  impact  of 
small and mid-sized banks on financial stability. 

The  Financial  Stability  Institute  (FSI),  part  of  the  Bank  for  International  Settlements 
argues in its paper “How to manage failures of non-systemic banks” from 2018194 that 
“the social and economic significance of banks’ activities mean that even the failure of 
small,  non-systemic  banks  may  entail  public  interest  concerns”.  The  paper  notes  that 
insolvency  regimes  may  provide  a  viable  alternative  to  resolution,  while respecting  the 
principle  of  no  bailout  agreed  internationally  after  the  global  financial  crisis  of  2008-
2009. The paper also states that “the unique susceptibility of banks to runs and the role of 
even non-systemic banks in the functioning of the real economy through activities such as 
deposit-taking  and  provision  of  credit  and  transmission  of  payments  mean  that  bank 
failure  is  significantly  more  likely  to  give  rise  to  public  policy  concerns  than  ordinary 
corporate  failures”.  It  analyses  the  appropriateness  of  insolvency  regimes  for  dealing 
with  failing  banks  and  finds  that  these  should  fulfil  four  features  in  order  to  be 
considered  adequate  to  deal  with  bank  failures:  (i)  include  depositor  protection  in  the 
objectives of the insolvency in addition to that of maximising proceeds from asset sales 
to  satisfy  creditor  claims,  (ii)  include  wider  range  of  grounds  for  opening  insolvency 
regimes  (forward  looking  criteria  and  likelihood  of  failure);  (iii)  role  of  administrative 
authorities and courts; and (iv) more reduced role of creditors in bank versus corporate 
insolvency regimes. Otherwise, ordinary corporate insolvency regimes are not best suited 
to the specific characteristics of banking business and particular risks that arise when a 
bank fails, which motivated the development of resolution regimes.  

In  a  subsequent  occasional  paper  called  “Bank  failure  management  in  the  European 
banking union: What’s wrong and how to fix it” from 2020, the FSI195 notes that the 
EU  CMDI  framework  cannot  guarantee  the  handling  of  bank  failures  without  taxpayer 
money, which is deemed unacceptable as per the international consensus which emerged 
following  the  global  financial  crisis  of  2008-2009.  It  suggests  focusing  the  reform  on 
options  for  dealing  with  the  failures  of  small  and  medium-sized  banks,  by  facilitating 
greater  use  of  resources  from  deposit  guarantee  schemes  to  fund  transfer  transactions 
(sale  of  business)  in  resolution  and  insolvency.  The  paper  clarifies  that  there  are  no 
adequate strategies in the Banking Union for dealing with the failure of mid-sized banks 
that are too large to be liquidated, but too small and too traditional to be resolved using 
bail-in.  It  recommends  that  transfer  strategies  could  be  the  most  suitable  strategy  for 
facilitating an orderly exit for failed small and mid-sized banks, but this is hindered by 
restrictions to access funding to support such transfer tools (industry funded safety nets).  

194 Financial Stability Institute (FSI), (October 2018), How to manage failures of non-systemic banks. 
195  Financial  Stability  Institute  (FSI),  (July  2020),  Bank  failure  management  in  the  European  banking 
union: What’s wrong and how to fix it 

133 

 
                                                           
A working paper by the European Systemic Risk Board (ESRB) from 2021196 analyses 
the impacts of bank failures on the real economy by focusing on the credit channel (i.e. 
interruptions to lending causing a temporary credit shortfall due to a sudden closure of a 
bank  when  placed  in  insolvency  proceedings).  The  paper  found  that,  the  application  of 
the  harmonized  CMDI  framework  is  especially  useful  for  medium-sized  banks,  which 
can be considered “grey area” or “middle class” institutions, as defined by Restoy et al. 
(2020), as it provides insights to reduce the uncertainty on whether their resolution is in 
the public interest. At the same time, simulations suggest that the failure of similar banks 
could have effects of heterogeneous severity across jurisdictions.  

The US savings and loan crisis from the 1980s197 refers to very wide-spread contagion 
among very small financial institutions dealing with mortgage financing (i.e. exposed to 
similar  sector  of  activity),  on  the  backdrop  of  high  inflation  and  rising  interest  rates. 
There were more than 4,000 such savings and loans institutions in the US in 1980, with 
assets  totalling  USD  600  bn.  Given  the  very  high  costs  to  taxpayers  of  paying  insured 
deposits in these institutions (roughly USD 25 bn), regulatory forbearance led to having a 
large  number  of  insolvent  (zombie)  institutions  still  operating  on  the  market,  which 
worsened the situation. In 1989, the Resolution Trust Corporation closed 747 savings and 
loans  institutions  with  assets  over  USD  407  bn,  with  an  ultimate  cost  to  taxpayers  of 
USD  124  bn.  The  use  of  public  money  was  needed  to  shield  the  clients  of  these 
institutions  from  losing  their  life  savings,  as  it  would  have  happened  were  they  simply 
put in bankruptcy proceedings.  

A study by the Dutch National Bank conducted in 2018198 looked at the implications of 
banking  sector  size  on  financial  stability.  Their  analysis  suggests  that  the  relationship 
between banking sector size and financial stability is not clear-cut. For example, several 
countries with a large banking sector relative to GDP, such as Iceland and Ireland, were 
hit very hard during the crisis, as they bailed-out large banks with significant impact on 
sovereign debt.  At the same time, however, countries with  small, domestically oriented 
banking sectors, such as Greece, Italy and Portugal, also turned out to be very vulnerable. 
The  study  finds  that,  the  size  of  the  banking  sector  relative  to  GDP  is  significantly 
correlated with most systemic risk measures (as defined by the European Systemic Risk 
Board  (ESRB)  in  2013).  However,  indicators  like  domestic  orientation  and  sovereign 
exposures are negatively correlated with size, meaning that small banking sectors are less 
diversified and tend to be more focused on their home country and government, creating 
high  concentration  risks.  Among  the  conclusions  of  the  paper  is  that  the  large 
discretionary power of authorities in deciding how to resolve bank failures may also be 
an issue. 

A study entitled ‘Too many to fail’ tabled for a seminar on systemic risk and financial 
regulation  seminar199  in  2010  found  that  it  is  not  only  the  size  that  can  cause  an 

196  ESRB  (European  Systemic  Risk  Board)  (June,  2021),  Measuring  the  impact  of  a  bank  failure  on  the 
real economy: an EU wide analytical framework.  
197 Federal Reserve, Federal Reserve History – Savings and Loans crisis 1980 – 1989.  
198 Dutch National Bank (2018), Size of the banking sector: implications of financial stability.  
199  Johannes  Gutenberg  University  Mainz  (2010),  Too  many  to  fail,  thesis  in  the  course  of  the  seminar 
‘systemic risk and financial regulation’.  

134 

 
                                                           
individual bank to be of systemic importance. It is the nature of the bank’s strategy and 
its interconnectedness to other banks that can also make it systemic.  Many small banks 
that are exposed to the same risk factors can be systemic together because they could all 
fail  at  the  same  time,  which  would  in  aggregation  have  a  large  effect  on  the  financial 
system (“too many to fail”). Archaya et al (2009) also defines systemic risk as the “joint 
failure risk arising from the correlation of returns on asset side of bank balance sheets.” 
The paper also recalls the significant social cost of liquidating insolvent banks, which can 
increase drastically with the number of such banks. 

The examples of bank failures shown in Annex 9 clearly illustrate that, in many cases of 
small/mid-sized banks failing, public money or other forms of financial aid (DGS) were 
used in the national insolvency proceedings. The reason for using these resources was to 
protect  financial  stability  and  avoid  imposing  losses  on  depositors,  which  proves  that 
even  small  or  mid-sized  banks  cannot  be  left  to  simple  liquidation,  which  would  not 
require additional financial resources. 

Other main features of the CMDI framework 

Preparedness and prevention 

In order to prevent banking crises, all banks in the EU are required to  prepare recovery 
plans  under  the  supervision  of  competent  authorities.  Those  plans  set  up  a  monitoring 
system  integrated  in  the  banks’  risk  management,  leading  to  the  implementation  of 
recovery  options  by  the  banks  to  restore  their  financial  position  at  an  early  stage  of 
distress  (before  failure).  Additionally,  resolution  authorities  draw  up  resolution  plans 
outlining  the  preferred  strategy  and  course  of  action  in  case  of  failure  and  setting  a 
minimum  requirement  for  own  funds  and  eligible  liabilities  (MREL)  with  the  aim  of 
ensuring  that  the  shareholders  and  creditors  of  the  bank  can  absorb  its  losses  and 
contribute  to  its  recapitalisation200.  If,  during  the  planning  process,  the  authorities 
identify obstacles to recovery or resolvability, such obstacles will be removed by taking 
appropriate  measures201.  For  significant  institutions  within  the  Banking  Union,  the 
ECB/SSM is the relevant authority assessing the recovery plans, taking into account the 
recommendations of the SRB202. The SRB is responsible for the resolution of significant 
and  cross-border  institutions,  after  consulting  with  the  ECB  or  the  national  competent 
authorities.  For  all  other  banks,  inside  and  outside  the  Banking  Union,  the  relevant 
resolution authorities remain national203. 

200  For  and  cross-border  banking  groups,  the  BRRD  requires  that  resolution  colleges  of  home  and  host 
authorities  are  set  up  to  coordinate  group-wide  resolution  strategies  and  implementation  of  resolution 
action. 
201 Such measures can be of a structural, organisational, financial or information-related nature. 
202 Article 6(4) BRRD. 
203 Nevertheless,  within the Banking  Union,  national  competent and resolution authorities  carry out their 
functions  within  the  framework  laid  down  by  Single  Supervisory  Mechanism  Regulation  (SSMR)  and 
SRMR  and  under  the  general  guidance  of  the  ECB  and  the  SRB.  Moreover,  if  the  implementation  of 
resolution action to a less significant institution requires the use of the SRF, the resolution scheme must be 
adopted by the SRB. 

135 

 
 
 
                                                           
Before failure – early intervention, preventive and precautionary measures 

In  case  of  a  deteriorating  financial  position,  the  BRRD,  SRMR  and  DGSD  foresee 
specific  intervention  measures  at  an  early  stage  to  prevent  a  bank  from  failing.  In 
particular,  the  supervisors  have  an  expanded  set  of  powers  to  intervene  via  so-called 
early intervention measures204. These powers include, for example, the ability to dismiss 
the board or management of a bank and appoint a temporary administrator, or to require 
the bank to draw up a debt restructuring plan with its creditors. Similarly, DGS funds can 
be  used  to  prevent  the  failure  of  a  bank  under  certain  conditions  (so  called  preventive 
measures205).  Finally,  under  certain  conditions,  the  BRRD  and  SRMR  exceptionally 
allow for the use of State aid without triggering resolution – the so-called precautionary 
recapitalisation and precautionary liquidity206. Such a public support to solvent banks is 
allowed to cover capital shortfalls identified during a supervisory stress test.  

Failing or likely to fail  

If a bank’s failure is deemed inevitable, the BRRD and SRMR require the competent207 
(or the resolution) authority to determine that it is “failing or likely to fail” (FOLF). The 
resolution  authorities  assess  whether  resolution  is  in  the  public  interest,  via  a  public 
interest  assessment  (PIA)  on  the  basis  of  the  need  to  pursue  the  resolution  objectives, 
having also in mind the applicable national insolvency proceedings. In case of a positive 
PIA,  the  resolution  authority  will  apply  resolution  tools.  These  may  include  selling  the 
business  to  a  private  purchaser,  setting  up  a  temporary  bridge  bank  to  operate  critical 
functions, separating bad assets through the transfer to an asset management vehicle and 
writing  down  debt  or  converting  it  to  equity  (bail-in).  When  the  PIA  is  negative,  the 
failing institution must be orderly wound up under national proceedings. The applicable 
creditor hierarchy208 plays an important role in this context because it provides the order 
in which claims bear losses both in resolution and insolvency.  

Financial safety nets 

The framework sets up industry-funded safety nets that contribute to reducing the risk of 
bail-out by taxpayers. Resolution and deposit guarantee funds, financed by the industry, 
can provide financial support to failing banks in resolution if needed to complement the 
internal loss-absorbing capacity. 

With  the  BRRD  and  SRMR,  national  resolution  funds  and  the  SRF  for  banks  in  the 
Banking Union209 were set-up in 2015 and 2016 respectively. National resolution funds 
are established in each Member State and managed by the national resolution authorities. 

204 These powers are laid down both in the BRRD as well as in the CRD and SSMR.  
205 Article 11(3) DGSD. 
206 Article 32(4) BRRD. 
207 ECB/SSM  as  the  competent  authority  for all significant banks  in the Banking Union  and the  national 
competent authority for all other banks. 
208 Each Member State has a specific insolvency hierarchy of claims. Hence, when a bank goes into normal 
insolvency  proceedings,  creditors  are  allocated  to  different  classes,  according  to  the  national  ranking  of 
creditors.  See  VVA,  Grimaldi  &  Bruegel  (2019)  Study  on  the  differences  between  bank  insolvency  laws 
and on their potential harmonisation 
209 Further, the Eurogroup agreed in November 2020 to introduce a common backstop to the SRF. It will 
be  provided  by  the  ESM  and  its  size  will  be  aligned  to  the  size  of  the  SRF,  up  to  a  nominal  cap  of 
EUR 68 bn. The backstop will be introduced by 2022.  

136 

 
                                                           
The  SRF  is  established  in  the  Banking  Union  and  it  is  managed  by  the  SRB.  The 
resolution funds are expected to reach their target levels by 2024, which correspond to at 
least  1%  of  the  covered  deposits  of  all  credit  institutions  operating  in  their  remit.210 
Banks'  (including  certain  investment  firms)  annual  contributions  to  the  national 
resolution funds and the SRF are based on their liabilities and risks. The resolution funds 
may  be  used  only  to  the  extent  necessary  to  ensure  the  effective  application  of  the 
resolution  tools and as  a last resort. Resolution  measures financed by  a  resolution  fund 
can take the form of contributions in lieu of the bail-in of certain creditors and loans or 
asset guarantees.  

In order to access the RF/SRF for solvency (loss coverage) support, a minimum bail-in of 
8% of total  liabilities and own funds of shareholders and  creditors (which may include 
depositors) must be carried out  beforehand. A series of liabilities in the banks’ balance 
sheets  are  mandatorily  excluded  from  bail-in,  including  covered  deposits211.  Although 
not explicitly stated in BRRD and SRMR, a systematic interpretation of the relevant legal 
provision  indicated  that  the  minimum  bail-in  condition  does  not  apply  when  accessing 
the RF/SRF for liquidity support. If the RF/SRF does not have sufficient financial means 
to fund resolution, ex post contributions are raised to cover the additional amounts212. On 
an  annual  basis,  the  RF/SRF  is  replenished  by  ex  ante  industry  contributions  to  ensure 
that the level of available funds is not below the target level213.  

In  line  with  the  DGSD,  national  DGSs  were  established  in  each  Member  State  and 
managed by the national DGS authorities. DGS funds are expected to reach a target level 
equivalent to at least 0.8%214 of covered deposits in the respective Member State by July 
2024.  The  primary  objective  of  DGS  funds  is  to  ensure  a  harmonised  protection  of 
EUR 100 000 (or equivalent amount in the local currency) across the EU by paying out 
covered depositors up to that level in case their deposits become unavailable. Beyond the 
so-called  “pay  box  function”,  DGSs  can  also  support,  under  specific  conditions, 
proceedings  in  resolution215  and  insolvency216,  as  well  as  preventive  measures  to  avoid 
the failure of a credit institution217. 

The conditions to access DGS funds for resolution, preventive measures and alternative 
measures  diverge218.  In  resolution,  the  DGS  may  be  liable  for  the  losses  that  covered 
depositors would have borne were they not excluded from loss absorption, up to the limit 
of the losses the DGS would have suffered in insolvency. 

In  insolvency,  the  DGS  has  the  possibility  to  use  an  alternative  measure  to  payout219 
aiming at preserving the depositors’ access to covered deposits, such as a transfer of the 

210 As of July 2021, the SRF holds approximately EUR 52 bn, see SRB (2021) Compartments. 
211  Article  44(2)  BRRD  listing  mandatory  exclusions  from  bail-in.  Article  44(3)  lists  discretionary 
exclusions from bail-in. 
212 Articles 71 SRMR and 104 BRRD. 
213 Articles 70 SRMR and 103 BRRD. 
214 In certain cases, this level is lowered to 0.5%.  
215 As laid down in Article 109 BRRD. 
216 As alternative measures laid down in Article 11(6) DGSD. 
217 As laid down in Article 11(3) DGSD. 
218 As laid down in Article 109 BRRD, Article 11(3) DGSD and Article 11(6) DGSD respectively. 
219 Article 11(6) DGSD. 

137 

 
                                                           
assets and liabilities and deposit book to an acquiring bank. Under Article 11(6) DGSD, 
the  DGS  can  finance  an  alternative  measure  if  its  cost  is  limited  to  the  “net  amount  of 
compensating covered depositors”. In this context, the DGS has to compare the cost of 
the payout and the cost of the alternative measure (i.e. the least cost test), and applies the 
least costly option. 

For non-failing banks, preventive measures aim to prevent the failure of a bank so that it 
continues  as  a  going  concern.  Such  intervention  is  subject  to  conditions.  Under 
Article 11(3)(c) DGSD, the cost of the measures cannot exceed “the costs of fulfilling the 
statutory or contractual mandate of the DGS”. The interpretation of this condition varies 
among Member States. Some apply a least cost test similar for preventive and alternative 
measures, while others do not apply any least cost assessment for preventive measures. 

When the financial means of the DGS are not sufficient to fund the necessary measures, 
the DGS may seek to obtain the missing funds through ex post contributions raised with 
the  industry,  through  borrowing  with  other  DGSs  and/or  through  a  loan  from  the  State 
budget (which is the backstop of the DGS). Once the DGS funds have been depleted, the 
fund is replenished through ex ante industry contributions220. 

220 Two requirements have to be met: (i) the target level must be reached by 2024, and (ii) after 2024, if the 
fund is depleted, it has to be replenished within 6 years (Article 10(2) DGSD).  

138 

 
 
 
                                                           
Figure 11: EU resolution and insolvency framework 

Timing 

Measure/procedure 

Stress test (by EBA) 
Enhanced supervision 
Recovery plans (to be prepared by banks) 
Resolution plans*, MREL decision (drawn up by resolution authorities) 
Supervisory powers (CRD/CRR/SSMR)  
Early intervention measures (BRRD) 

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Responsible 
authority 

  Supervision: 
For systemic 
banks in the 
Banking Union: 
SSM 

For all others: 
national 
competent 
authorities 

* See “resolution” 
below 

Solvency 
Assessment: 
ECB/national 
supervisor 

For BRRD 
precautionary 
measures: 
Member State, 
COM 

For DGSD 
preventive 
measures: 
DGS authority 

Resolution: 
For Banking 
Union: SRB as 
a central 
authority 

For all others: 
National 
resolution 
authorities 

Insolvency: 
National 
authorities 

Source: Commission services

139 

  Is it in the public interest to put the bank into resolution? Resolution under the BRRD Funding through bail-in mechanism and resolution funds Tools and powers: selling (parts of) the bank to an acquirer, transfer critical functions to a bridge bank, transfer bad assets to an asset management vehicle or apply bail-in by reducing creditors’ claims or converting them into capital to recapitalise the bank Is the institution falling or likely to fail?  
 
 
 
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEX 5: EVALUATION OF THE CMDI FRAMEWORK 

1. 

EXECUTIVE SUMMARY 

The EU bank crisis management and deposit insurance framework lays out the rules for 
handling bank failures and ensuring the protection of depositors. It was built around the 
objectives  of  maintaining  financial  stability,  protecting  depositors,  minimising  taxpayer 
losses,  limiting  moral  hazard  and  improving  the  internal  market  for  financial  services. 
The  EU  CMDI  framework  implements  the  commitments  by  the  G20  leaders  in 
September  2009  that  bank  failures  should  be  managed  in  an  orderly  manner  through 
cross-border  resolutions  and  that  the  moral  hazard  stemming  from  banks  being 
considered  “too  big  to  fail”  should  end221.  The  EU  went  beyond  the  recommendations 
addressed to the global systemically important banks, implementing a crisis management 
framework for all banks.  

While  the  CMDI  framework  applies  to  all  EU  Member  States,  in  the  Banking  Union, 
further integration is achieved with the Single Supervisory Mechanism (first pillar of the 
Banking Union), the Single Resolution Mechanism (second pillar of the Banking Union) 
and the European deposit insurance scheme (EDIS  – the still missing third pillar of the 
Banking Union)222. 

The  framework  covers  three  EU  legislative  texts  which,  together  with  the  related 
implementing and delegated acts and relevant national legislation form the rulebook for 
handling bank failures: the Bank Recovery and Resolution Directive (BRRD), the Single 
Resolution  Mechanism  Regulation  (SRMR)  and  the  Deposit  Guarantee  Schemes 
Directive (DGSD)223. All three legislative texts have been applicable for over five years 
at the time of the review and the evaluation will cover the period since their introduction 
until the present. The three legislative texts contain review clauses anticipating a possible 
revision of the resolution framework, further harmonisation of insolvency law as well as 
a report on the progress concerning the implementation of depositor protection rules224. 
This  evaluation  also  provides  a  state  of  play  regarding  the  third  pillar  of  the  Banking 

221 G20 Pittsburgh Summit (September 2009), Leaders Statement, paragraph 13, last bullet point.  
222  In  its  Communication  of  12  September  2012,  “A  Roadmap  towards  a  Banking  Union”,  COM 
(2012)0510  final,  the  Commission  called  for  a  Banking  Union  that  would  place  the  banking  sector  on  a 
more  sound  footing  and  restore  confidence  in  the  euro  as  part  of  a  longer  term  vision  for  economic  and 
fiscal integration. The  report by the Presidents of the European Council, the  Commission, the Eurogroup 
and  the  European  Central  Bank  of  26  June  2012  “Towards  a  genuine  Economic  and  Monetary  Union” 
endorsed this vision. 
223  Provisions  complementing  the  crisis  management  framework  are  also  present  in  the  Capital 
Requirements  Regulation  (CRR  –  Regulation  (EU)  575/2013)  and  the  Capital  Requirements  Directive 
(CRD – Directive 2013/36/EU). The winding up Directive (2001/24/EC) is also relevant to the framework. 
224  Under  Article  19(6)  DGSD,  the  Commission,  supported  by  EBA,  shall  submit  to  the  European 
Parliament and the Council a report on the progress towards its implementation by 3 July 2019. This report 
has been postponed due to EBA’s work on the technical advice that was completed in January 2020. In this 
context, four opinions were submitted by EBA: on eligibility, coverage level and cooperation agreements, 
on  DGS  payouts,  on  DGS  funding  and  use  of  DGS  funds  and  on  the  AMLD  and  DGSD  interplay.  The 
evaluation covers the assessment of the progress of the implementation of depositor protection rules based 
on this work conducted by EBA. Consequently, there will be no other progress report issued. 

140 

 
 
                                                           
Union.  The  Commission  put  forward  a  proposal  for  EDIS  in  2015225  which,  to  date, is 
still not agreed by the co-legislators, leaving the Banking Union incomplete.  

This  evaluation  complements  the  impact  assessment  of  the  CMDI  review  and  its 
conclusions  feed  into  the  problem  definition.  It  is  based  primarily  on  the  results  of 
consultations with stakeholders, regular exchanges with experts from the Member States 
(Ministries  of  Finance,  resolution  authorities,  deposit  guarantee  schemes  authorities), 
reports from the EBA, studies commissioned by the European Parliament and exchanges 
with Members of the European Parliament, discussions with the European Central Bank 
ECB  and  the  SRB  –  the  central  supervisory  and  resolution  authorities  in  the  Banking 
Union and additional desk research of the Commission services. A detailed description of 
the  methods  used  to  conduct  this  evaluation  and  inform  the  impact  assessment  for  the 
review of the framework are provided in Section 5.  

On the basis of the evidence and in line with better regulation principles, the framework 
was  evaluated  against  five  criteria:  efficiency,  effectiveness,  relevance,  coherence  and 
added-value of EU action.  

This  evaluation  concludes  that  the  application  of  the  framework  brought  important 
benefits  in  terms  of  maintaining  financial  stability,  mainly  through  more  robust  crisis 
preparedness and contingency planning, enhanced banks’ resolvability, including through 
the build-up of resolution buffers and pre-funded deposit guarantee and resolution funds, 
improved  market  discipline  and  curbed  moral  hazard.  The  implementation  of  the 
framework  significantly  improved  depositor  protection  and  contributed  to  boosting, 
overall, consumer confidence in the EU banking sector.  

Yet,  the  practical  application  failed  to  achieve  some  important  objectives  or  achieved 
them only partially. Experience with the application of the CMDI framework from 2015 
until  now  reveals  that,  while  it  can  be  a  very  effective  tool  in  addressing  problems  of 
bank failures, in some areas, there is scope to improve its functioning. The Commission 
is  therefore  reviewing  it  as  part  of  the  work  on  completing  the  Banking  Union.  This 
review  represents  an opportunity to  improve the functioning  of the second pillar  of the 
Banking Union (the Single Resolution Mechanism) to revisit areas of risks related to its 
application and ensure it is fit for purpose. It also aims to evaluate the need for and make 
progress on EDIS, the third and still missing pillar of the Banking Union. 

The four opinions  and reports226 from  the EBA on the implementation  of the depositor 
protection rules  also  substantiate the need for clarifying a number of DGSD provisions 
and improving depositor protection and payout processes in the context of this review.  

Considering the effectiveness criterion, two out of the four objectives of the framework 
have been evaluated as being partially achieved, while the others have not been achieved 
in  a  satisfactory  manner,  except  in  a  limited  number  of  cases.  More  specifically,  the 
framework  partially  achieved  its  objective  of  containing  risks  to  financial  stability  and 
protecting  depositors,  but  it  failed  to  achieve  other  key  overarching  objectives,  notably 

225  European  Commission  (November  2015)  Commission  proposal  for  a  Regulation  of  the  European 
Parliament  and  of  the  Council  amending  Regulation  (EU)  806/2014  in  order  to  establish  a  European 
Deposit Insurance Scheme ( “the 2015 EDIS proposal”). 
226 See Annex 1. 

141 

 
                                                           
enhancing  the  functioning  of  the  single  market  and  minimising  recourse  to  taxpayer 
money. In a significant  number of cases, the fulfilment of objectives cannot be directly 
attributed  to  the  European  framework,  but  to  the  application  of  tools  at  national  level, 
outside  of  resolution  and  with  recourse  to  public  budgets  and  taxpayers’  funds.  The 
management of bank failures differed across Member States, depending on the existing 
national regime, which raises questions about the coherence of the framework, resulting 
in sub-optimal outcomes for level playing field and the single market in banking. 

Figure 12: Overview of effectiveness – traffic light analysis 

Source: Commission services assessment. 

Under  the  efficiency  criterion,  the  evaluation  found  that  the  CMDI  framework  is  not 
sufficiently  cost-effective.  On  one  hand,  the  main  benefits  of  the  framework  include 
enhanced crisis preparedness, contingency planning, increased loss-absorption capacity in 
banks and the disciplining influence that the existence of the framework exerts on banks 
and  markets.  On  the  other  hand,  the  operationalisation  of  the  CMDI  framework  came 
with  costs  for  the  banking  industry,  Member  States  and  resolution  authorities.  Yet, 
despite  the  costs,  the  framework  and  its  tools  and  powers  have  been  scarcely  used  in 
practice, especially in the Banking Union under the SRMR. The Single Resolution Fund 
(SRF)  has  remained  idle  so  far  and  beyond  the  losses  absorbed  by  the  banks,  deposit 
guarantee scheme (DGS) have been used often backed by public funds. In addition, the 
use of public funding in recent  cases of bank failures indicates  a redistribution of costs 
from banks’ senior unsecured creditors to the taxpayers, despite scrutiny on such usage of 
public  funds  through  the  EU  State  aid  rules.  Furthermore,  available  evidence  suggests 
that  these  costs  are  uneven  between  Member  States,  as  national  requirements  and 
practices diverge widely.  

From  a  coherence  perspective,  further  improvements  are  necessary  to  ensure  a  better 
internal interaction and consistency between the various pieces of legislation forming the 
CMDI  framework,  in  particular  the  coherence  between  the  CMDI  framework  and  the 
State  aid  rules227  most  prominently  in  respect  of  access  to  funding  requirements  to 

227  State  aid  rules  are  intrinsically  interconnected  with  and  are  complementary  to  the  CMDI  framework. 
These  rules  are  not  subject  to  this  review  and  this  impact  assessment.  In  order  to  ensure  consistency 
between  the  two  frameworks,  the  Eurogroup  invited  the  Commission  in  November  2020  to  conduct  a 

142 

 
 
                                                           
 
support  tools  outside  resolution,  the  Capital  Requirements  Directive  (CRD)  and  the 
Single  Supervisory  Mechanism  Regulation  (SSMR)  in  what  concerns  the  early 
intervention  measures,  the  Anti-Money  Laundering  Directive  (AMLD),  the  Payment 
Services and the E-money Directives in what concerns interactions with the DGSD.  

The  framework  remains  very  relevant  and  adds  EU  value  because  cross-border  crisis 
management cannot be left to the national level without consequence on public finances, 
the bank-sovereign nexus, the single market in banking and level playing field for banks, 
creditors, depositors and taxpayers. The  addition  of a common safety net such as EDIS 
would further boost the framework’s relevance and EU-value added.  

Identified problems are grouped as follows: 

  uneven playing field and uncertainty in the management of bank crisis situations – 
mainly driven by the lack of legal clarity and framing of the application of DGSD 
preventive measures and BRRD precautionary measures, broad legal discretion in 
the  PIA  when  placing  banks  in  resolution  (under  EU  framework)  versus 
insolvency228  (under  national  rules),  divergence  in  the  triggers  for  national 
insolvency  proceedings,  divergence  in  the  hierarchy  of  claims  in  national 
insolvency laws229, an inadequate early intervention framework and timeliness of 
the FOLF determination; 
ineffective  funding  options  and  divergent  access  conditions  for  the  financing  of 
resolution and insolvency – mainly driven by structural challenges for some banks 
in  fulfilling  the  conditions  to  gain  access  to  resolution  funds/SRF,  divergent 
requirements  to  access  funding  from  the  resolution  fund  and  other  sources  of 
funding outside resolution and unclear rules to access DGS funding in resolution 
and insolvency; 

 

  uneven  and  inconsistent  depositor  protection  and  lack  of  robustness  in  DGS 
funding – mainly driven by different national provisions as well as vulnerability 
to large shocks in national depositor protection in the Banking Union due to the 
lack of centralised safety nets (e.g. EDIS).  

2. 

INTRODUCTION 

Purpose of the evaluation 

The  focus  of  the  evaluation  is  to  assess  whether  appropriate  tools  and  means  exist  to 
manage in an orderly manner the failure of all banks irrespective of their location, size or 
business  model.  In  addition,  it  evaluates  whether  adequate  mechanisms  are  in  place  to 
ensure  depositor  protection,  in  particular  in  the  Banking  Union  considering  the  third 
missing pillar.  

review  of  the  State  aid  framework  for  banks  and  to  complete  it,  in  parallel  with,  the  CMDI  review, 
ensuring its entry into force at the same time with the updated CMDI framework. 
228 Insolvency proceedings across the EU are unharmonised; some allow for certain transfer tools similar to 
resolution financed by DGSs, others only allow for piece-meal liquidation proceedings. 
229 Throughout this document the terms ‘hierarchy of claims in insolvency’, ‘hierarchy of claims’, ‘creditor 
hierarchy’, ‘ranking of claims’ are used as synonyms and describe the same concept.  

143 

 
                                                                                                                                                                            
In line with better regulation principles, the evaluation of the EU CMDI framework seeks 
to assess the extent to which the requirements and the application of the framework have 
fulfilled the principal objectives in an efficient and effective way, while at the same time 
being  coherent,  relevant  and  providing  EU  added-value.  In  particular,  with  regard  to 
effectiveness, the evaluation assesses whether the implementation of the framework has 
met its objectives and identifies the areas where there is room for improvement.  

This  retrospective  evaluation  was  conducted  back-to-back  with  the  impact  assessment 
and it feeds into the problem definition chapter. Where the framework fails to fulfil the 
policy objectives across these criteria, the review initiative aims to propose solutions to 
address identified issues that would enable the framework to achieve fully its objectives.  

Scope of the evaluation 

The  scope  of  the  evaluation  covers  all  institutions  and  entities  within  the  scope  of  the 
BRRD,  SRMR  and  DGSD.  It  covers  the  measures  preparing  for  and  preventing  bank 
failures, those applicable once a bank has been declared failing or likely to fail and those 
concerning  depositor  protection.  In  the  area  of  prevention,  the  evaluation  focuses  on 
preventive  measures  under  Article  32  of  the  BRRD  (the  so  called  “precautionary 
measures”),  as  well  as  on  measures  by  the  competent  authorities  (early  intervention 
measures) to address financial deterioration at an early stage or to prevent a bank’s failure 
using funding from the DGS (preventive measures under Article 11(3) DGSD) subject to 
the safeguards set out in the DGSD. In the area of execution of resolution, the evaluation 
looks  at  the  overall  incentive  set-up  in  bank  crisis  management,  the  determination  to 
place banks in resolution or insolvency, the coherence of various triggers, the application 
of resolution tools, funding issues, including the use of DGS funding prior to resolution, 
in  resolution  and  insolvency,  the  level  of  depositor  protection  and  its  vulnerability  to 
financial shocks from the perspective of financial stability.  

The updates to BRRD/SRMR adopted in 2019230 are out of the scope of this evaluation, 
as  they  have  only  been  applicable  for  a  short  period  of  time  and  the  effects  of  their 
implementation are still to be observed. 

3. 

BACKGROUND TO THE INITIATIVE 

The global financial crisis revealed structural issues accumulated in our inter-connected 
global financial system, some of which had wrongly been considered part and parcel of 
an inter-connected global financial system delivering deep markets and liquidity. Banks 
were  generally  undercapitalised  and  became  highly  leveraged  in  search  for  ever  higher 
yields and return on equity, which the customer deposit funding model could not deliver. 
The  maturity  transformation  function  that  banks  had  historically  provided  to  the  real 
economy became a point of weakness and fragility once short-term funding could not be 
extended to support long-term assets. Moral hazard and other agency issues were widely 
spread. When coupled with accelerated financial innovation and securitisation as well as 
regulatory  forbearance,  this  generated  substantial  financial  misconduct  and  poor 
management of risks.  

230 See section 3 of the Evaluation, for further details on the 2019 updates of the BRRD/SRMR. 

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The supervisory tools available at the time of the crisis did not capture this complexity 
nor  addressed  the  underlying  issues.  They  did  not  provide  for  well-structured  action 
plans  to  deal  with  bank  failures  based  on  ex  ante  prepared  scenarios.  This  forced 
regulators and supervisors into unchartered territory such as: massive bail-outs including 
through  asset  relief  programs,  capital  injections,  guarantees  and  provision  of  liquidity 
directly  into  the  financial  system,  unprecedented  "lender  of  last  resort"  operations, 
nationalisations as a temporary measure to stabilise systemic banks, or capital controls to 
reduce  the  effects  of  liquidity  flight  and  buy  time  for  devising  restructuring  and 
restoration plans. 

through 

Once the situation was stabilised, albeit with considerable burden for public finances (aid 
granted  by  the  Member  States  between  2007  and  2014  amounted  to  EUR  671 bn  in 
capital  and  repayable  loans  and  EUR  1  288 bn  in  guarantees231),  significant  reforms 
meant  to  address  the  root  causes  of  the  crisis  were  enacted,  including  to  address  poor 
capital  adequacy  ratios  and  loopholes  in  risk  management  practices,  agency  issues,  the 
lack  of  resolution  regimes  and  the  insufficient  depositor  protection  in  some  countries. 
This wave of measures set the foundation of the Banking Union and its pillars. The first 
pillar  set  up  a  Single  Supervisory  Mechanism  (SSM)  and  implemented  Basel  III  in 
Europe 
revised  Capital  Requirements  Regulation  and  Directive 
(CRR/CRDIV)  finalised  in  2013.  The  second  pillar  set  up  a  Single  Resolution 
Mechanism  (SRM),  adopted  the  first  recovery  and  resolution  regime  for  banks 
(BRRD/SRMR)  and  revised  the  DGSD  in  2014.  The  BRRD  established  an  orderly 
resolution  mechanism  for  all  banks  (including  those  with  cross-border  operations), 
requiring  banks  to  build  up  internal  loss-absorbing  capacity  and  providing  resolution 
authorities  with  comprehensive  powers  and  tools  (including  a  bail-in  tool)  to  intervene 
when  a  bank  meets  the  conditions  for  resolution.  A  legislative  proposal  by  the 
Commission in 2015 for an EDIS, and which would constitute the Banking Union’s third 
pillar, is not yet adopted.  

the 

The BRRD was published in the Official Journal on 12 June 2014 and became applicable 
starting 1 January 2015. The provisions related to the bail-in tool became applicable from 
1 January 2016. The SRMR was published in the Official Journal on 30 July 2014 and 
became applicable starting 1 January 2016 with the exception of some provisions which 
became  applicable  earlier.  Technical  aspects  and  the  phase-in  schedule  of  certain  core 
requirements were further specified via implementing and delegated acts, including rules 
on:  preparation  of  recovery  and  resolution  plans232,  determination  of  critical  functions 
(contributing  to  the  public  interest  assessment)233,  conduct  of  the  resolvability 

231  European  Commission  (February  2015)  Competition  State  aid  brief-  State  aid  to  European  banks: 
returning to viability. 
232 European Commission (March 2016), Commission delegated regulation (EU) 2016/1075 specifying the 
content  of  recovery  plans,  resolution  plans  and  group  resolution  plans,  […],  the  conditions  for  group 
financial support, the requirements for independent valuers, the contractual recognition of write-down and 
conversion powers, […] and the operational functioning of the resolution colleges. 
233 European Commission (February 2016),  Commission delegated regulation (EU) 2016/778 with regard 
to the circumstances and conditions under which the payment of extraordinary  ex post contributions may 
be […] deferred, and on the criteria for the determination of […] critical functions. 

145 

 
                                                           
assessment,  calibration  of  the  MREL  requirement234,  valuation  rules  and  calculation  of 
contributions to national resolution funds and the SRF235.  

The  DGSD  was  published  in  the  Official  Journal  on  16  April  2014  and  most  articles 
became applicable on 3 July 2015, following transposition, while other parts (depositors’ 
access to funds to cover the cost of living) became applicable on 31 May 2016.  

Yet  for  all  the  post-crisis  progress  achieved,  areas  for  further  strengthening  and 
adjustment  were  identified  both  with  regards  to  the  prudential  and  resolution 
frameworks.  As  a  result,  the  Banking  package  (also  known  as  the  “risk  reduction 
package”) proposed by the Commission in 2016 was adopted in 2019236. The Directive 
(EU) 2017/2399  (the so-called  Bank  creditor hierarchy  Directive) amending the BRRD 
was  adopted  and  published  earlier  in  2017237.  Building  on  the  previous  prudential  and 
resolution  legislation,  the  2019  Banking  package  included  measures  delivering  on 
Europe's commitments made in international fora238 and acted on the EU commitment to 
take  further  steps  towards  the  completion  of  the  Banking  Union  by  providing  credible 
risk  reduction  measures  to  mitigate  threats  to  financial  stability,  as  published  in  the 
European  Commission's  2015  Communication239.  This  targeted  update  of  the  CMDI 
framework through the 2019 Banking package is out of scope of this evaluation due its 
recent  entry  into  force.  The  effects  of  its  implementation  are  still  to  be  observed,  in 
particular where transitional arrangements extend until 2024.  

The general policy objectives of the CMDI framework are to: (i) limit potential risks of 
adverse  effects  for  financial  stability  caused  by  the  failure  of  banks,  including  by 
preventing  contagion  and  ensuring  market  discipline  and  the  continuity  of  critical 
functions for society240, (ii) minimise losses for society, in particular mitigate recourse to 
taxpayers’ money241 and weaken the bank-sovereign nexus, (iii) enhance the functioning 
of  the  single  market  in  banking,  including  by  handling  of  cross-border  crises  and 
fostering a level playing field among banks from different Member States, particularly in 

234 European Commission (May 2016),  Commission delegated regulation (EU) 2016/1450 specifying the 
criteria relating to the methodology for setting the MREL. 
235 European Commission (October 2014), Commission delegated regulation (EU) 2015/63 with regard to 
ex ante contributions to resolution financing arrangements.  
236  As  part  of  the  Banking  package  (also  referred  to  as  the  “risk  reduction  package”)  published  in  the 
Official  Journal  of  the  EU  (OJEU)  in  June  2019,  Regulation  (EU)  2019/876  (CRR  II),  Regulation  (EU) 
2019/877 (SRMR II) and Directive (EU) 2019/879 (BRRD II) implement a minimum TLAC requirement 
for EU G-SIIs applicable as of 27 June 2019 and a revision of the MREL requirement for all banks with 
strengthened eligibility and subordination criteria (applicable upon transposition, from 28 December 2020).  
237  European  Commission  (December  2017)  Directive  (EU)  2017/2399  (Bank  Creditor  Hierarchy 
Directive),  amending  the  BRRD  as  regards  the  ranking  of  unsecured  debt  instruments  in  insolvency 
hierarchy. 
238  International  fora  refer  to  the  Basel  Committee  on  Banking  Supervision  and  the  Financial  Stability 
Board (FSB). EU commitments in these fora refer to incorporating elements of the prudential framework 
and extending the resolution framework to tackle the "too big to fail" problem by implementing the Total 
Loss Absorbing Capacity (TLAC) Standard into EU law.  
239  European  Commission  Communication  (November  2015),  Towards  the  completion  of  the  Banking 
Union. 
240 The continuation of critical functions is a resolution objective as provided by Article 31 BRRD. 
241 Overarching objective of the resolution framework as per Article 31 BRRD.  

146 

 
                                                           
the Banking Union242 and (iv) protect depositors and ensure consumer confidence across 
the EU irrespective of the place of incorporation of the bank243. 

Figure 13: General objectives of the CMDI framework 

Source: Commission services. 

The  evaluation  assesses  the  effectiveness  of  the  framework  with  regard  to  these 
overarching  general  objectives  of  the  BRRD/SRMR/DGSD  as  provided  in  the  2014 
legislative texts.  

The  intervention  logic  (Figure  14)  provides  a  description  –  in  a  summarised  diagram 
format – on how the CMDI framework (BRRD/SRMR/DGSD and EDIS (as a third and 
still missing pillar in the Banking Union) was expected to work. It is also used to carry 
out the evaluation and answer specific questions. 

242  General  objective  in  both  BRRD/SRMR  and  DGSD.  Level  playing  field  and  the  even  treatment  of 
creditors and of banks across Member States is an overarching principle in BRRD/SRMR. In DGSD it is 
mentioned as an objective in Recitals 3 and 54 as well as in the 2012 impact assessment.  
243 General objective in both BRRD/SRMR and DGSD. 

147 

CMDI framework4. Protect depositors, ensure consumer confidence1. Financial stability, market discipline, continuity of critical functions for society3. Minimiserecourse to taxpayer money, weaken bank-sovereign loop2. Single market functioning, level playing field 
 
 
 
                                                           
Figure 14: Intervention logic 

Context 
1. G20 commitment to reduce risks to financial stability stemming from banking crises (September 2009) 

2. Communication from the Commission to the European Parliament and the Council ‘A Roadmap 
towards a Banking Union’ (September 2012) 

Need 
Create a European framework to manage the failure of banks by ensuring level playing field, an effective 
resolution toolkit and the protection of depositors 

EU input 

1. Bank Recovery and Resolution Directive (BRRD) 
2. Single Resolution Mechanism Regulation (SRMR) 
3. Deposit Guarantee Scheme Directive (DGSD) 
4. The 2015 EDIS proposal (not yet agreed by the co-legislators) 

Objectives 

1. Limit risks to financial stability, reduce moral hazard 
2. Minimise losses for society, mitigate recourse to taxpayer money, reduce bank-sovereign link 
3. Enhance single market in banking, fostering level playing field 
4. Protect depositors and ensure consumer confidence 

Output 
Consistent and legally 
predictable rules for handling 
failed banks across the EU 

Output 
Effective early intervention and 
resolution toolkit and funding 
solutions to manage any failed 
bank with minimised recourse to 
taxpayer money 

Output 
Removed discrepancies, 
increased robustness and 
resilience in depositor 
protection across the EU 

Result  

Result 

Result 

Failed banks treated in consistent 
manner and with legal certainty 
across the EU 

Access to funding solutions is 
effective and proportionate for all 
banks and impact on taxpayers 
reduced  

Depositors are protected in 
an even and robust manner 
across the EU 

Impacts  

- Enhanced level playing field for the banking sector in the EU 
- Reduced recourse to tax-payer money, weakened bank-sovereign loop 
-
- Reduced moral hazard (shareholders and creditors bearing losses) and better market discipline 
-

Increased depositor confidence, reduced risk of deposit runs 

Improved financial stability 

Source: Commission services 

148 

 
 
 
 
 
 
 
 
 
 
Description of the situation before the adoption of the CMDI framework 

The baseline scenario, assuming  the CMDI  framework had not  been adopted, is  one in 
which the EU would continue to  rely on the limited (or non-existing) EU legislation244 
and diverging national legislations and arrangements in situations of bank crises.  

In  terms  of  preparation  and  prevention,  supervisors  would  continue  to  rely  on  previous 
practices  for  detecting  risks  at  credit  institutions.  In  the  absence  of  contingency  plans, 
they  would  lack  key  information  about  the  possible  de-risking  strategies  of  credit 
institutions or about their recovery or resolution possibilities (including their financing). 
Authorities  would  not  have  any  power  to  ask  overly  complex,  large  or  interrelated 
institutions to reorganise or simplify their operations, which could be a major hurdle in a 
possible  resolution.  This  would  entrench  moral  hazard  risk  in  banks  that  are  too  big, 
complex or interconnected to fail.  

In the case of early intervention by supervisors, the absence of the initiative would mean 
that supervisors in different Member States would have different powers and intervention 
tools  for  different  members  of  the  same  cross-border  banking  group.  They  would  be 
required  to  intervene  at  different  times,  under  different  conditions  and  implement 
different measures, leading to uneven playing field, ring fencing of resources and highly 
inconsistent outcomes, likely triggering contagion to other members of the group located 
in different Member States.  

If no special bank resolution tools and powers were granted to authorities, the resolution 
of banks (i.e. allocating losses and preserving the critical functions in the bank under an 
administrative procedure) would be impossible to execute and bail-out would remain the 
only  alternative.  If  authorities  could  intervene  in  certain  countries  only  when  banks  are 
formally  insolvent,  those  countries  would  bear  much  higher  social  cost  stemming  from 
banks’ failure.  

The lack of an EU framework would also represent a source of distortion in the internal 
market.  Faced with  a cross-border bank  insolvency, different  national  authorities would 
continue to focus only on the respective legal entity located in their territory. Conflicting 
interests would likely impede a more optimal reorganisation solution for the group as a 
whole, taking into consideration the interest of all Member States. National solutions with 
divergent  and  inadequate  resolution  tools  would  likely  be  costlier  for  citizens  and 
taxpayers than if the failure of banking groups was governed by comprehensive rules and 
arrangements  and,  in  the  case  of  the  Banking  Union  a  central  authority  (SRB).  There 
would  be  no  private  resources  (resolution  funds)  raised  from  the  industry  to  finance 
resolution. This accordingly means continuing to rely on prudential capital buffers at the 

244  Before  the  BRRD/SRMR,  there  were  no  comprehensive  arrangements,  at  EU  level,  governing  the 
orderly resolution of failing banks at national level or for tackling cross-border banking failures. Beyond a 
minimum set of arrangements for the winding-up and reorganisation of credit institutions with cross border 
branches  (Directive  2001/24/EC  on  the  reorganisation  and  winding  up  of  credit  institutions),  no  EU 
framework existed which set out how and under which conditions authorities should act in the event of a 
crisis  arising  in  a  bank.  Before  DGSD,  Directive  94/19/EC  on  Deposit  Guarantee  Schemes  set  out  a 
minimum  harmonisation  of  national  guarantee  systems  in  the  EU  Member  States  for  the  protection  of 
depositors,  which  however,  had  to  be  comprehensively  revised  to  restore  and  maintain  depositors’ 
confidence in the aftermath of the global financial crisis.  

149 

 
                                                           
level  of  individual  institutions  and  DGS  to  the  extent  that  these  are  able  to  finance 
resolution  measures.  If  losses  would  not  be  covered  by  those  means  and  in  view  of 
possible DGS shortfalls, recourse to public funds may continue to be the only option for 
governments to safeguard financial stability and protect depositors. 

From  a  DGSD  perspective,  in  the  baseline  scenario,  the  objectives  of  protecting 
depositors, preventing bank runs and contributing to financial stability would not be fully 
met. While the coverage level was already fixed at EUR 100 000, the risk of bank runs 
and  its  economic  consequences  would  not  be  avoided  or  reduced,  because  of  the  long 
payout  delays245  by  national  DGS  and  the  lack  of  financial  capacity  of  some  schemes. 
Further, the potential of the internal market would be hampered by fragmentation and a 
lack of coordination. A varying scope of covered products and different eligibility criteria 
for  protected  depositors  in  the  EU,  combined  with  the  lack  of  information  on  whether 
deposits  are  covered,  would  lead  to  depositors  searching  for  the  'best  DGS'  when 
depositing their money instead of looking for the 'best product' or 'best service'. This and 
the  lack  of  mutual  cooperation  between  schemes  in  cross-border  situations  and  the 
perspective of having to deal with a DGS in another language246 would lead to choosing 
between domestic banks only.  

Banks,  in  particular  those  operating  cross-border,  would  still  suffer  from  an  unlevel 
playing  field  due  to  divergent  ex  post  and  ex  ante  contribution  systems  implying  they 
would have to pay high contributions in one Member State, but none in another one so 
long as there is no bank failure. In the latter case, they would have to provide funding to 
the  DGS  in  times  of  general  stress  on  banks’  liquidity.  Banks  would  also  suffer  from 
adverse  selection,  if  a  sound  and  prudent  bank  had  to  pay  the  same  contributions  as  a 
bank  of  the  same  size  operating  under  an  aggressive  business  model  at  the  margin  of 
prudential regulation and incurring higher risks. 

4. 

EVALUATION QUESTIONS 

This section summarises the review questions addressed in this evaluation.  

Question  1  -  How  effective  has  the  EU  intervention  been?  What  have  been  the 
effects of the EU intervention?  

  To  what  extent  have 

the  CMDI  framework 
the  general  objectives  of 
(BRRD/SRMR/DGSD)  been  achieved  and  what  factors  were  relevant  in  that 
regard?  

Question 2: How efficient has the EU intervention been?  

  To  what  extent  have  the  rules  regarding  the  recovery  and  orderly  resolution  of 
banks under the BRRD/SRMR and the ones regarding depositor protection under 
the  DGSD  been  cost-effective?  Are  there  significant  differences  in  costs  or 
benefits between Member States and what is causing them? 

245 The payout delays of DGS were set at 4 to 6 weeks from the moment a bank is declared insolvent.  
246 As it has been the case after the failure of the Icelandic banks. 

150 

 
 
                                                           
Question 3: How relevant is the EU intervention?  

  To what extent are the rules still relevant and how well do the original objectives 
of  these  legislative  initiatives  (BRRD/SRMR/DGSD)  correspond  to  the  current 
needs within the EU? 

  To  what  extent  do  the  risks  to  financial  stability  stemming  from  bank  crises 

continue to require action at EU level? 

  Have new challenges arisen which were not existent at the time of introduction of 

the CMDI framework and which need to be tackled by the framework? 

  How  is  the  absence  of  a  common  depositor  guarantee  scheme  for  depositors,  in 

the Banking Union, such as EDIS affect the relevance of the framework? 

Question 4: How coherent is the EU intervention?  

  To  what  extent  are  rules  on  the  recovery  and  resolution  of  banks  and  depositor 
protection in the BRRD/SRMR/DGSD coherent as a framework, is the framework 
coherent  with  provisions 
legislation  or 
communications,  in  particular  State  aid  rules,  national  insolvency  regimes,  the 
CRD, AML/e-money, payment services and E-money Directives? 

in  other  pieces  of 

relevant 

Question 5: What is the EU-added value of the intervention?  

  Compared to the previous national approaches, to what extent have the provisions 
of  CMDI  framework  (BRRD/SRMR/DGSD)  helped  improve  the  functioning  of 
the single market in banking, contributed to financial stability and increasing the 
level playing field among banks, and consumer confidence taking into account the 
inherent cross-border nature of banking in the EU?  

  How  does  the  gap  of  the  third  missing  pillar  of  the  Banking  Union  (common 

depositor protection) affect the EU-added value of the framework? 

5. 

METHOD 

This  evaluation  draws  on  a  broad  range  of  information  sources  such  as  results  of 
consultations  with  stakeholders  (e.g.  two  public  consultations,  high-level  conference, 
bilateral  meetings),  exchanges  with  Member  States  (e.g.  expert  group  meetings,  ad-hoc 
working  party  meetings,  bilateral  meetings),  pilot  studies  of  the  EP,  exchanges  with 
relevant authorities (ECB, SRB and EBA), reports from the EBA (e.g. opinions, a call for 
advice, reports, discussion papers), reports from the JRC and additional desk research of 
the Commission services. A detailed list of all specific sources can be found in Annex 1 
of the impact assessment.  

Limitations 

First, the current evaluation of the effectiveness and efficiency of the CMDI framework 
is conducted while certain aspects of the framework are still in a transitional period. For 
instance, banks are still building their resolution buffers (MREL compliance with BRRD 
II requirements is expected by 2024 for most banks) and the resolution funds/SRF/DGS 

151 

 
will  have  reached  their  target  level  by  2024247.  Banks  are  also  making  progress  in 
improving  their  resolvability.  Resolution  authorities  continuously  improve  resolution 
planning  and  monitoring  resolvability,  updating  internal  policies,  in  particular  on  the 
rules regarding the MREL, setting requirements for resolution entities and subsidiaries in 
banking  groups,  enhancing  their  preparedness  for  the  application  of  resolution  action, 
collecting  contributions  to  the  resolution  funds/SRF  and  relevant  data  to  conduct  their 
work. In addition, some of the crisis cases that occurred since the entry into force of the 
framework were legacy situations, with their own particularities. However, these aspects 
are taken into account, when forming conclusions on the evaluation of the framework.  

Second,  it  is  not  always  possible  to  attribute  observed  outcomes  to  the  CMDI  reforms. 
The  evaluation  has  sought  to  establish  a  causal  link  between  the  reforms  and  observed 
outcomes. However, some CMDI reforms were only recently implemented, other reforms 
have  been  implemented  in  parallel,  and  the  evolution  of  monetary  policy  may  have 
affected  the  evolution  of  key  considerations  regarding  for  instance  the  preservation  of 
financial stability and depositor confidence.  

Third, certain aspects of this evaluation pertaining to the funding issues of the framework 
were  analysed  based  on  data  as  of  Q4  2019  (banks’  liability  structure).  A  dynamic 
analysis  showing  the  implementation  progress  over  several  reporting  periods  was  not 
feasible, due to lack of data and a lack of comparability owing to the significant evolution 
in  MREL  methodology  and  sample  coverage,  over  the  past  years248.  The  database  also 
did not capture the impact of the COVID-19 pandemic on the banking sector. This  was 
because existing data collection schedules set by resolution authorities and the EBA did 
not allow for more recent data. However, certain additional information pertaining to the 
MREL  targets,  issuances  and  shortfalls  available  as  of  Q3  2022  and  more  generally, 
certain qualitative considerations regarding the impact of the COVID-19 crisis have been 
integrated  in  the  analysis  in  order  to  partially  mitigate  this  caveat.  Similarly,  new 
supervisory  reporting  requirements  for  banks  came  into  force  with  the  adoption  of  the 
relevant secondary legislation in 2021, and public disclosure of MREL will be required 
from  2024  onwards249.  Nevertheless,  the  evaluation  draws  from  the  data  collected  by 
European public authorities and bodies (i.e. SRB, EBA) on the basis of rules, which were 
in  place  when  the  analysis  was  conducted,  as  well  as  the  responses  to  the  public 
consultations. For a comprehensive view, please refer to Annexes 7 and 13 of the impact 
assessment. 

Fourth,  the  database  which  informed  the  quantitative  analyses  for  this  evaluation  and 
impact assessment reflects a limited sample of EU banks, while remaining nevertheless a 
representative subset (see Annex 7 for details). Additionally, some evidence provided in 
this evaluation is drawn from SRB sources of data only, meaning that it is only limited to 

247 In 2023 as regards the SRF. 
248  Implementation  policies  created  by  resolution  authorities  evolved  between  2017  –  2019  to  reflect 
developments  in  delegated  regulations,  new  legal  interpretations,  increase  in  coverage  (number  of 
institutions) of applicability of the rules by resolution authorities as part of their phase-in of the rules and 
the coming into force of the 2019 Banking package.  
249 Public disclosure is only required from 2024 onwards (or from the date of the transitional period set for 
each entity, if the period ends after 2024), see Article 3(1), 3rd subparagraph, BRRD II. 

152 

 
                                                           
banks  under  its  remit  and  it  does  not  cover  less  significant  institutions  in  the  Banking 
Union and other non-Banking Union banks.  

6. 

IMPLEMENTATION STATE OF PLAY (RESULTS) 

Overview of requirements in place250 

The CMDI framework is in force since 1 January 2015 for the BRRD (except the bail-in 
provisions which came into effect one  year later), 1 January 2016 for the SRMR and 3 
July  2015  for  the  DGSD  with  the  exception  of  certain  provisions,  which  became 
applicable on 31 May 2016.  

The  framework  provides  for  a  set  of  instruments  that  can  be  used  before  a  bank  is 
considered failing or likely to fail (FOLF). These allow a timely intervention to address a 
financial  deterioration  (early  intervention  measures)  or  to  prevent  a  bank’s  failure 
(preventive measures under the DGSD or precautionary measures under the BRRD). In 
particular,  the  CMDI  framework  includes  measures  that  could  be  used  in  exceptional 
circumstances  of  serious  disturbance  to  the  economy.  In  these  circumstances,  it  allows 
external  financial  support  for  precautionary  purposes  (precautionary  measures)  to  be 
granted. 

When  a  bank  is  considered  FOLF  and  there  is  a  public  interest  in  resolving  it,251  the 
resolution authorities will intervene in the bank, absent of a private solution, by using the 
specific  powers  granted  by  the  BRRD252.  In  the  Banking  Union,  the  resolution  of 
significant institutions (or cross-border less significant institutions) with a positive public 
interest  assessment  is  carried  out  by  the  SRB.  In  the  absence  of  a  public  interest  for 
resolution,  the  bank  failure  should  be  handled  through  winding-up  under  normal 
insolvency proceedings available at national level.  

The  CMDI  framework  provides  for  a  wide  array  of  tools  and  powers  in  the  hands  of 
resolution authorities as well as rules on the funding of resolution actions. These include 
powers to sell the bank or parts of it, to transfer critical functions to a bridge institution 
and  to  transfer  non-performing  assets  to  an  asset  management  vehicle.  Moreover,  it 
includes the power to bail-in creditors by reducing their claims or converting them into 
equity capital, to absorb the losses of the bank and recapitalise it to the extent required.  

When it comes to funding, in order to reduce moral hazard, the overarching principle is 
that  the  bank  should  first  cover  losses  with  private  resources  (through  the  reduction  of 
shareholders’  equity  and  the  bail-in  of  creditors’  claims)  and  that  external  financial 
support can be provided only after certain requirements are met (access requirements to 
resolution funds and DGS). In line with their resolution strategy and preferred tools (e.g. 
open bank bail-in, sale of business, bridge banks, asset separation), banks are required by 
resolution  authorities  to  hold  MREL  instruments  in  an  amount  determined  in  order  to 

250 See also Annex 4 of the impact assessment. 
251 Resolution is considered in the public interest when resolution is necessary for and proportionate to one 
or more of the resolution objectives (Article 31 BRRD) and normal insolvency proceedings would not meet 
those objectives to the same extent.  
252  In  the  following,  reference  to  the  BRRD  should  be  understood  as  including  also  corresponding 
provisions in the SRMR. 

153 

 
                                                           
facilitate the execution of the selected strategy. The primary sources of external financing 
of resolution actions (should the bank’s own resources be insufficient) are provided by a 
resolution  fund  and  the  DGS,  funded  by  the  banking  industry,  rather  than  taxpayers’ 
money. Other (public) sources of external funding are possible under certain conditions. 
In the context of the Banking Union, for banks under the SRB remit, funding was further 
integrated by providing  for a Single Resolution  Fund (SRF)  composed of contributions 
from credit institutions and certain investment firms in the participating Member States 
of  the  Banking  Union.  However,  a  common  deposit  guarantee  scheme  in  the  Banking 
Union is still missing.  

Deposits  are  protected  up  to  EUR 100 000  regardless  of  whether  the  bank  is  put  into 
resolution  or  insolvency.  In  insolvency,  the  primary  function  of  a  DGS  is  to  pay  out 
depositors within seven days of a determination of unavailability of their deposits. In line 
with  the  law,  DGSs  may  also  have  functions  other  than  the  payout  of  depositors.  As 
payout may not always be suitable in a crisis scenario due to the risk of disrupting overall 
depositor confidence253, some Member States allow the DGS’ funds to be used to prevent 
the failure of a bank (preventive measures) or finance a transfer of assets and liabilities to 
a  buyer  in  insolvency  to  preserve  the  access  to  covered  depositors  (  alternative 
measures). The DGSD provides a limit as regards the amount of funds allowed to be used 
for such preventive and alternative measures. Moreover, DGSs can contribute financially 
to a bank’s resolution, under certain circumstances.  

State of play of transposition of the Directives (BRRD/DGSD) 

Both Directives have been transposed in all Member States.  

The  transposition  deadline  for  the  BRRD  was  31  December  2014.  Only  two  Member 
States  notified  complete  transposition  of  the  BRRD  within  that  deadline.  To  date,  all 
Member  States  have  notified  complete  transposition  and  the  respective  infringement 
cases for non-communication were closed. The deadline for DGSD transposition expired 
on  3  July  2015  and  all  Member  States  notified  a  complete  transposition254.  The 
Commission  has  verified  that  the  BRRD  and  the  DGSD  are  fully  transposed  in  all 
Member  States.  The  Commission  is  currently  concluding  its  verification  of  the 
correctness of national transposition measures, with only a limited number of outstanding 
issues concerning a small group of Member States needing to be finalised. 

State of play of implementation of the resolution framework by resolution authorities 

The  implementation  of  BRRD/SRMR  is  ongoing  in  the  EU.  Since  its  introduction,  a 
number of  resolution  colleges were set  up with  the objective to  jointly agree  resolution 
plans,  conduct  resolvability  assessments  and  set  MREL  requirements  among  home  and 
host  authorities  in  charge  of  resolving  banking  groups  in  the  EU255.  In  the  Banking 

253 The main challenges are related to (i) the short-term interruption of depositors’ access to their deposits 
for payouts, (ii) the cost to the DGS and to the economy, and (iii) the inherent risk of destruction of value 
in insolvency. 
254 The transposition deadline of Article 13 DGSD was – under specific circumstances laid out by Article 
20(1) DGSD – delayed to 31 May 2016. 
255 EBA (17 August 2021), Resolution colleges – Annual report 2020. 

154 

 
                                                           
Union, the SRB is  carrying out the process of preparing resolution plans and, when the 
need arises, executing resolution actions for banks under its remit.  

In  terms  of  coverage,  resolution  planning,  resolution  strategies  and  MREL  targets  have 
been  set  by  resolution  authorities  for  the  majority  of  banks  under  their  remit.  This  has 
allowed banks to make progress on removing impediments to resolvability and build-up 
MREL buffers. While good progress has been achieved to date by authorities in setting 
external MREL requirements and by resolution entities in issuing eligible instruments on 
the  market,  the  setting  of  internal  MREL  requirements  for  subsidiaries  in  groups 
following a single point of entry (SPE) resolution strategy and the pre-positioning of this 
capacity within groups is still ongoing, following a phased approach.  

Since its inception in 2015, the SRB prepared resolution plans for most banks under its 
remit (104 resolution plans for EU banks)256.  

Table 1: Overview of resolution planning for the Banking Union 

MS 

Number of SRB 
banks on 1 
January 2021 

Number of SRB 
banks on 31 
December 2021 

BE 
BG 
DE 
EE 
IE 
EL 
ES 
FR 
HR 
IT 
CY 
LV 
LT 
LU 
MT 
NL 
AT 
PT 
SI 
SK 
FI 
Total 
(*) Resolution Planning Cycle 2021 runs from April 2021 to March 2022 Source: SRB 2021 annual report.  

Resolution plans expected  
to be adopted in the 2021 
resolution planning 
cycle(*) 
6 
0 
21 
1 
6 
4 
11 
11 
0 
12 
3 
1 
1 
4 
2 
5 
8 
3 
3 
0 
2 
104 

MREL decisions 
expected during the  
2021 resolution planning  
cycle 
12 
4 
37 
1 
15 
4 
15 
22 
7 
41 
5 
1 
1 
12 
2 
12 
23 
9 
6 
5 
3 
237 

8 
1 
21 
3 
6 
4 
13 
12 
0 
12 
3 
3 
3 
5 
3 
6 
8 
4 
2 
0 
3 
120 

7 
1 
21 
3 
6 
4 
11 
13 
0 
12 
3 
3 
3 
5 
3 
7 
8 
4 
3 
0 
3 
120 

In  addition,  over  the  past  years,  the  SRB  developed  policy  guidance  to  ensure 
convergence in the implementation of the framework257. The SRB published operational 
implementation258,  critical  functions259, 
guidance  on  bail-in 
interest 
assessment260  as  well  as  on  Brexit  and  mergers  and  acquisitions  expectations.  In  its 

the  public 

256 SRB (2022), SRB Annual report 2021. 
257 SRB policy documents.  
258 SRB (2020), Operational guidance on bail-in implementation.  
259 SRB (2017), Critical functions: SRB approach. 
260  SRB  (2019),  Public  interest  assessment  (PIA):  SRB approach,  and  2021  and  2022  updates  on  system 
wide events in the PIA and on deposit guarantee scheme considerations.  

155 

 
                                                           
expectations for banks261 policy document, the SRB outlines best practice on key aspects 
of resolvability and sets out a roadmap with general phase-in dates for compliance with 
the  various  dimensions.  Over  the  next  four  years,  banks  are  expected  to  develop  full 
capabilities in a number of areas, including governance, MREL capacity, development of 
bail-in playbooks, liquidity and funding in  resolution, operational continuity and access 
to financial market infrastructures262, updating management information systems for bail-
in  execution  and  valuation  as  well  as  communication  plans,  separability  and 
restructuring, as appropriate. 

With  respect  to  the  MREL,  the  SRB’s  approach  has  evolved  from  being  based  on 
informative targets in 2016, to the gradual inclusion since 2017 of binding requirements 
for the largest and most complex banks and the set-up of internal MREL requirements for 
subsidiaries,  as  well  as  bank-specific  adjustments  addressing  both  the  quality  and 
quantity  of  the  MREL.  In  particular,  the  impact  of  the  introduction  of  the  2019  risk 
reduction  Banking  Package  has  been  factored  into  the  SRB  resolution  planning  cycles: 
already in 2019 with statutory requirements for global systemically important institutions 
(G-SIIs), and through the subsequent reviews to the MREL policy in 2020, 2021263 and 
2022264,  taking  into  account  developments  in  level  two  legislation  and  other  legal 
interpretations.  

In addition to implementation measures taken by the SRB, resolution authorities outside 
the  Banking  Union  have  also  published  policy  documents  guiding  the  operational 
implementation of the framework.  

For the EU as a whole and following the publication of the 2019 Banking package, the 
Commission  services  held  two  transposition  seminars  (February  and  July  2020)  and 
published two notices providing answers to transposition questions, which clarify certain 
legal  provisions  and  are  aimed  at  facilitating  implementation.265  More  generally,  the 
EBA’s Single Rulebook Questions and Answers tool provides replies to a large number 
of questions submitted by authorities and industry stakeholders on the interpretation and 
application of BRRD and DGSD provisions and of related delegated and implementing 
acts. In complement to level one provisions, seventeen implementing and delegated acts 
related to the BRRD have been published between 2016 and 2019, providing additional 
rules  on  implementation.266  Finally,  a  legislative  proposal  specifying  the  method  for 
indirect  issuances  of  loss  absorbing  capacity  in  groups  with  more  than  one  layer  of 
ownership (so-called “daisy chains”) has been adopted on 27 October 2022267.  

261 SRB (April 2020), Expectations for banks. 
262  SRB  (2020),  Operational  guidance on operational  continuity  in  resolution  and  Operational  guidance 
for FMI contingency plans.  
263 SRB (May 2021), 2021 MREL policy 
264 SRB (June 2022), 2022 MREL policy  
265 European Commission (September and November 2020), (2020/C 321/01) Commission notice relating 
to  the  interpretation  of  certain  legal  provisions  of  the  revised  bank  resolution  framework  in  reply  to 
questions raised by Member States’ authorities and (2020/C 417/02) - second Commission Notice.  
266 European Commission (2016 - 2019), Implementing and Delegated Acts on Directive 2014/59/EU 
267 European Commission (October 2022), Regulation (EU) 2022/2036 of the European Parliament and of 
the  Council  of  19  October  2022,  as  regards  the  prudential  treatment  of  global  systemically  important 

156 

 
                                                           
 
State of play of the implementation of the deposit insurance framework  

The  DGSD  has  been  implemented  in  all  Member  States.  Nevertheless,  the  four  EBA 
reports  and  opinions268,  a  study  contracted  by  the  Commission  on  national  options  and 
discretions269 and the outcome of the transposition check substantiate the need to clarify 
a number of DGSD provisions in the context of this review270.  

treatment,  but  also 

The  EBA  opinions  highlighted  the  scope  for  clarification  of  the  current  text  in  many 
aspects  in  order  to  ensure  a  consistent  application  of  the  depositor  protection  and 
depositors’  equal 
to  protect  financial  stability.  The  EBA 
recommended  that  the  protection  of  the  client  funds  safeguarded  on  accounts  by  non-
bank  financial  institutions,  such  as  payment  and  e-money  institutions,  or  investment 
firms  merits  clarification.  The  lack  of  protection  of  such  client  funds  in  some  Member 
States could be acute for both depositors and Fintech providers if bank failures occur and 
multiply.  In  particular,  in  light  of  the  Brexit  context,  the  treatment  of  third  country 
branches  should  be  clarified.  EBA  also  identified  the  need  to  clarify  the  interplay 
between  the  AMLD  and  DGSD  in  a  payout  situation.  In  terms  of  robustness  of  DGS 
funding  (e.g.  alternative  funding  arrangements  and  investment  strategy),  it  was 
highlighted  that  many  national  transpositions  do  not  cater  for  concrete  measures, 
available  to  obtain  funds  if  DGSs  are  depleted,  at  the  expense  of  sufficient  crisis 
preparedness.  DGS  funds  are  often  invested  in  sovereign  bonds  and,  in  two  instances, 
even integrated in the budget, which may have unpredictable consequences in the current 
COVID-19 induced circumstances271.  

Further, the DGSD contains more than 22 ONDs. In general, those ONDs allow the EU 
legislator to demonstrate respect for national legal traditions and regulatory practices as 
well  as  to  reduce  implementation  costs,  especially  in  Member  States  with  existing 
national frameworks. However, ONDs also have the potential to distort the level playing 
field and lead to fragmentation in the single market.  In addition, they can create higher 
complexity, including higher compliance costs, and reduce transparency. 

Most  notably,  the  Commission’s  conformity  assessment  of  national  transpositions 
revealed different approaches with respect to a number of issues and confirmed the need 

institutions with a multiple point of entry resolution strategy and methods for the indirect subscription of 
instruments eligible for meeting the minimum requirement for own funds and eligible liabilities.  
268 See also section 1 of the evaluation and Annex 1. 
269 CEPS study prepared for the Commission on national options and discretions under the DGSD and their 
treatment under EDIS (November 2019), CEPS study.   
270 See also Annex 6 of the impact assessment for more details on the DGSD review. 
271 In its  opinion of  23 January 2020, on the funding and use of DGSs funds, EBA highlighted that in a 
number  of  cases  funds  are  invested  exclusively  or  almost  exclusively  in  national  debt,  despite  the 
requirement  to  ensure  sufficient  diversification,  the  EBA  discussed  the  rationale  for  requiring  that  DGS 
funds should be invested in a sufficiently diversified manner. In this regard, it should be considered that the 
funds are available when needed in a crisis, irrespective of the situation in the market for a particular type 
of instrument; in particular, where funds are invested in national debt, to break the nexus between banking 
and sovereign crises (p. 106). 

157 

 
 
 
                                                                                                                                                                            
to  clarify  certain  provisions  within  the  context  of  the  DGSD  review.  While  several  of 
them  could  negatively  impact  either  the  deposit  protection  or  the  equal  treatment  of 
depositors, there are also issues which do not seem to  give rise to substantial problems 
(e.g.  as  there  are  no  third  country  branches  in  the  respective  Member  States).  The 
majority  of  instances  identified  were  divergent  approaches  i.e.  to  the  determination  of 
unavailable deposits under Article 2(1)(8) and 3(2) DGSD, the transfer of contributions, 
the  protection  of  temporary  high  balances,  alternative  and  preventive  measures,  client 
funds safeguarded by payment institutions on bank accounts, to the protection of public 
authorities272  or  to  the  share  of  payment  commitments  of  the  total  available  financial 
means under Article 10(3).  

State of play of the common deposit guarantee scheme (EDIS) in the Banking Union 

The Banking Union from its inception in 2012 was conceived to have three pillars, with 
the third being a common system for deposit  guarantees273. The Commission adopted a 
legislative  proposal  to  this  end  on  24  November  2015  on  EDIS274,  followed  by  the 
publication of an effects analysis in 2016275. This proposal was contentious from the start 
and  political  discussions  have  been  stalled  for  some  time,  though  technical  work 
remained ongoing. Discussions on the interaction between risk reduction and risk sharing 
had  an  impact  on  the  EDIS  negotiations,  both  within  the  Council  and  the  European 
Parliament,  despite  continued  acknowledgment  of  the  importance  of  EDIS  as  part  of  a 
fully-fledged  Banking Union,  such as in  the Five President’s Report of 2015276. This  is 
also reflected in the 2016 Banking Union roadmap277 by the Council, which signalled that 
negotiations at political level on EDIS would start as soon as sufficient further progress 
has been made on the measures on risk reduction. 

A  comprehensive  package  of  risk  reduction  measures  was  put  forward  by  the 
Commission  and  negotiated  by  the  co-legislators  since  then.  A  Communication  that  set 
out an ambitious yet realistic path to ensure agreement on all the outstanding elements of 
the Banking Union, based on existing commitments by the Council, was put forward by 
the  Commission  in  2017278.  Therein,  suggestions  were  also  outlined  with  regard  to  the 
EDIS proposal in order to facilitate progress in the European Parliament and the Council 
on the file. 

272 In some Member States, public authorities do not fall under the scope of the DGSD. For example, the 
recent  Greensill  Bank  AG  case  in  Germany  showed  that  public  authorities  were  not  protected  by  the 
mandatory DGS. According to the  German press, some public authorities (with around EUR 340 m) had 
deposits  with  Greensill  bank.  However,  it  remained  unclear  if  the  voluntary  top-up  scheme  reimbursed 
them. 
273 Communication from the Commission to the European Parliament and the Council, A Roadmap towards 
a  Banking  Union,  12  September  2012,  COM(2012)0510  final,  and  the  report  by  the  Presidents  of  the 
European Council, the Commission, the Eurogroup and the European Central Bank of 26 June 2012. 
274  Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  amending  Regulation  (EU) 
806/2014 in order to establish a European Deposit Insurance Scheme, 24 November 2015, COM(2015) 586 
final. For a more detailed description of the 2015 proposal, please see Annex 10 of the impact assessment. 
275 Effects analysis on the European Deposit Insurance Scheme, 11 October 2016. 
276 The Five President's Report: Completing Europe's Economic and Monetary Union, 22 June 2015. 
277 Council Conclusions on a Roadmap to complete the Banking Union, 17 June 2016Error! Bookmark n
ot defined.. 
278  Communication  to  the  European  Parliament,  the  Council,  the  European  Central  Bank,  the  European 
Economic  and  Social  Committee  and  the  Committee  of  the  Regions  on  completing  the  Banking  Union, 
11.10.2017, COM(2017) 592 final. 

158 

 
                                                           
In June 2018, the Euro Summit asked that work would start on a roadmap for beginning 
political negotiations on EDIS279 and in  December 2020, on a stepwise and time-bound 
work  plan  on  all  outstanding  elements  needed  to  complete  the  Banking  Union280.  This 
work, which took place in the intergovernmental format within the HLWG on EDIS, was 
broadened to encompass four files: (i) EDIS, (ii) the review of the CMDI framework, (iii) 
cross-border integration and (iv) the regulatory treatment of sovereign exposures. Despite 
intensive discussions among Member States and a major political effort by the Eurogroup 
president,  an  agreement  for  completing  the  Banking  Union  in  a  comprehensive  manner 
did not materialise in the June 2022 Eurogroup281. 

The technical discussions that took place on EDIS over the last years gave rise to various 
other  models  than  the  model  proposed  by  the  Commission  in  2015282.  The  so-called 
hybrid  model283  emerged  as  a  possible  compromise284  between  those  Member  States 
supporting the original proposal and those underlining the pre-condition of risk reduction 
before  agreeing  to  share  risks  across  the  EU  banking  sector.  As  outlined  in  the  impact 
assessment,  EDIS  and  the  review  of  the  CMDI  framework  are  closely  interlinked.  The 
set-up  of  EDIS  would  also  unlock  further  market  integration,  in  particular  cross-border 
consolidation. 

7. 

ANSWERS TO THE EVALUATION QUESTIONS 

This  section  presents  the  assessment  of  the  CMDI  framework  based  on  the  five 
evaluation  criteria  (effectiveness,  efficiency, relevance, coherence  and EU value added) 
and  related  evaluation  questions  set  out  in  section  4.  This  is  complemented  by  an 
assessment of the main issues coming from past experiences with the framework or raised 
by stakeholders during the various consultation activities, as summarised in Annex 2 of 
the impact assessment. 

7.1. Effectiveness 

How  effective  has  the  EU  intervention  been?  To  what  extent  have  the  general 
objectives of the CMDI framework (BRRD/SRMR/DGSD) been achieved and what 
factors influenced the achievements observed?  

As depicted in section 3, the general objectives of the CMDI framework are to: 

1.  limit potential risks of adverse effects for financial stability caused by the failure 
of  banks,  including  by  preventing  contagion,  moral  hazard,  ensure  market 
discipline and the continuity of critical functions for the society; 

2.  minimise  losses  for  the  society,  in  particular  mitigate  recourse  to  taxpayers’ 

money and weaken the bank-sovereign nexus;  

279 Statement of the Euro Summit, 29 June 2018. 
280 Statement of the Euro Summit, 11 December 2020. 
281 Eurogroup (16 June 2022), Eurogroup statement on the future of the Banking Union. 
282 For a more detailed description of the other models, please see Annex 10 of the impact assessment. 
283 For a more detailed description of the hybrid model, please see Annex 10 of the impact assessment. 
284  Letter  by  the  High-Level  Working  Group  on  EDIS  Chair  to  the  President  of  the  Eurogroup,  ‘Further 
strengthening  the  Banking  Union,  including  EDIS:  A  roadmap  for  political  negotiations’,  3  December 
2019. 

159 

 
                                                           
3.  enhancing the functioning of the single market in banking, including by handling 
of  cross-border  crises  and  fostering  level  playing  field  among  banks  from 
different Member States, particularly in the Banking Union; and 
(covered  deposits), 

investor 
compensation  schemes)  and  client  assets  and  funds,  thereby  ensuring  consumer 
confidence across the EU, irrespective of the place of incorporation of the bank. 

4.  protect  depositors 

(covered  by 

investors 

Summary assessment: 

Evidence  regarding  the  treatment  of  bank  crisis  situations  since  the  adoption  of  the 
framework shows that two of the four objectives of the framework have been partially 
achieved, while the others have not been achieved in a satisfactory manner, except in 
a limited number of cases.  

More specifically, the framework partially achieved its objectives of containing risks 
to  financial  stability  and  protecting  depositors,  but  it  failed  to  achieve  other  key 
overarching objectives, notably facilitating the functioning of the single market when 
handling  cross-border  crises,  including  by  ensuring  level  playing  field,  and 
minimising  recourse  to  taxpayer  money.  In  a  significant  number  of  cases,  the 
fulfilment  of  objectives  cannot  be  directly  attributed  to  the  framework,  but  to  the 
application of tools at national level, outside of resolution and with recourse to public 
budgets (taxpayers’ funds). The management of bank failures differed across Member 
States,  depending  on  the  existing  national  regime,  which  raises  questions  about  the 
coherence of the framework, resulting in sub-optimal outcomes for level playing field 
and the single market in banking. 

The assessment of the framework’s effectiveness has been done objective by objective. 

7.1.1.  Objective  (1):  did  the  framework  achieve  the  objective  of  limiting  risks  to 
financial  stability,  including  by  preventing  contagion,  moral  hazard, 
ensuring  market  discipline  and  the  continuity  of  critical  functions  for  the 
society? 

Risks to financial stability, contagion and spillover effects from the banking sector to the 
real economy were significantly reduced after the global financial crisis and the society’s 
access to critical banking functions285 was preserved. Certain elements of the framework 
and  their  application  such  as  pre-resolution  preparedness  had  a  positive  impact  on 
financial stability, the containment of contagion, reduction of moral hazard and ensuring 
market discipline. Similarly, the resolution framework introduced strategies, powers and 
tools  to  restructure  failing  banks  while  protecting  depositors,  financial  stability  and  tax 
payers.  However,  so  far  resolution  has  only  scarcely  been  applied,  in  particular  in  the 
Banking Union under the SRMR. A lack of application of those critical elements of the 

285 Examples of critical functions include the continued access to deposits and client funds, to payment and 
settlement systems, lending or other banking services which cannot be easily and timely substituted in case 
of a bank failure. 

160 

 
 
 
                                                           
framework in the majority of assessed cases of banks in distress286 was observed. In those 
cases,  the  preservation  of  financial  stability  was  possible,  to  a  great  extent,  through  the 
application of other tools and funding resources at national level, which were available to 
manage failing banks or to intervene before failure. The conditions to activate such tools 
vary substantially across countries, are sometimes not fully framed in the EU legislation 
or  leave  room  for  arbitrage287.  In  addition,  when  funding  (mostly  from  public  budgets) 
was  used  to  support  such  measures,  the  requirements  to  access  such  funding  were  very 
different  (and  more  specifically,  funding  outside  resolution  is  generally  more  easily 
accessible than in resolution, in particular for certain banks, as explained in more details 
in section 7.1.2.3). All in all, despite the good progress made in resolution preparedness 
and contingency planning, the lack of application of the resolution tools (in many cases), 
led to a lack of certainty and predictability in the handling of a distressed bank (break in 
the continuum of outcomes from going to gone concern) while the central principle that 
taxpayers’  money  should  not  be  used  in  the  handling  of  a  bank  failure,  was  not  fully 
respected. 

In conclusion, the partial achievement of this objective can only be partially credited to 
the  CMDI  framework,  which  was  applied  in  a  restricted  manner,  especially  in  the 
Banking Union.  

Main factors influencing the objective’s achievement 

influencing  performance 

Factors 
objective 
1)  Level  of  crisis  preparedness  and  resolvability 

against 

of banks 

2)  Reduction  of  “too  big  to  fail”  and  moral 

hazard problems 

3)   Effectiveness  of 

the  early 

intervention 

framework 

4)  Availability  of  resolution  processes,  powers 

and tools to intervene in failing banks 

Overall impact on objective 

increased 

information 

Positive (ex ante contingency planning 
in  form  of  recovery  and  resolution 
plans,  resolution  strategies,  enhanced 
coordination, 
banks’ 
resolvability  with  some  aspects  still 
work  in  progress  (MREL  compliance, 
management 
systems 
(MIS), liquidity in resolution) 
Mainly positive (reduction of funding 
cost  advantage  for  G-SIIs,  increase  in 
bail-inable  own 
resources,  more 
adequate  pricing  of  risk  by  investors, 
however  most  cases  of  distressed 
banks  dealt  outside  resolution,  senior 
unsecured  creditors  did  not  bear 
losses) 
Negative (scarcely applied) 

Mainly  positive  (enhanced  market 
of 
however 
discipline, 
application) 

lack 

286  Since  2015,  more  than  60%  of  banks  in  distress  in  the  EU  were  managed  outside  of  the  resolution 
framework. (See Annex 9 of the impact assessment: “Table of Bank cases since 2015”). 
287 See also sections 7.1.2.3 and 7.1.3 of the Evaluation for further details on the relevant issue. 

161 

 
 
                                                           
7.1.1.1. Level of crisis preparedness and resolvability of banks 

The  BRRD/SRMR  requires  institutions  and  authorities  to  develop  ex  ante  contingency 
planning  (recovery  and  resolution  plans)  and  update  these  plans  on  a  yearly  basis.  It 
requires  banks  to  prepare  recovery  plans  to  overcome  financial  distress  and  it  grants 
resolution  authorities  powers  to  collect  information  and  prepare  resolution  plans  laying 
out the resolution strategy and tools aimed at an orderly resolution of the failed bank with 
minimal  costs  for  taxpayers.  The  framework  requires  authorities  to  conduct  regular 
resolvability assessments to identify and remove any impediments to resolvability.  

As also described in section 6, significant progress was achieved by resolution authorities 
in  drawing  up  resolution  plans,  assessing  banks’  resolvability  and  setting  MREL 
requirements and by banks in drawing up recovery plans and, generally, becoming more 
resolvable 
the  framework.  While 
implementation  in  certain  areas  is  still  ongoing  (e.g.  setting  internal  MREL  for 
subsidiaries, overall MREL compliance and enhancement in other areas of resolvability), 
the  enhanced  level  of  preparedness  of  the  financial  system  contributed  to  achieving 
financial stability. 

they  were  before 

introduction  of 

than 

the 

7.1.1.2. Reduction of ‘too big to fail’ and moral hazard problems  

Prior  to  the  CMDI  reforms,  the  failure  of  a  vast  majority  of  financial  institutions 
(including  in  particular  the  ones  deemed  too  big  to  fail)  was  addressed  through 
government  bail-outs  to  prevent  contagion  and  financial  instability  or  to  mitigate 
significant negative consequences for the real economy. The option of placing financial 
institutions in insolvency was deemed likely to lead to great destruction of value, costly 
litigation and contagion, threatening financial stability. The expectation that a bank may 
be  bailed-out  represented  an  implicit  government  subsidy,  with  implications  on  the 
behaviour  of  banks  and  markets288.  With  the  granting  of  public  support,  such  implicit 
subsidies  turned  into  explicit  subsidies,  discouraging  the  banks  from  bearing  the 
consequences  of  their  decisions.  Such  resulting  moral  hazard  caused  economic 
distortions  by  providing  funding  cost  advantages,  conducive  to  insufficient  market 
discipline  and  excessive  risk-taking  to  the  detriment  of  competition.  The  latter  also 
weakened the overall resilience of the financial system and the provision of financing to 
the real economy.  

The  Financial  Stability  Board  (FSB)  assessed  in  2020–2021  the  impact  of  resolution 
reforms in member jurisdictions on reducing the too big to fail problem.289 In the absence 
of concrete cases of G-SIIs failing, the FSB report looked at how the reforms, including 
the CMDI framework in the EU, addressed the observed shortcomings, i.e. reduced the 
implicit  funding  subsidies  enjoyed  by  large  banks,  increased  the  creditors’  risk 
sensitivity,  the  de-risking  of  balance  sheets  and  corporate/legal  changes  as  a  result  of 
resolvability  improvements.  The  FSB’s  report  concluded  that,  while  the  indicators  of 

288 E.g. creditors may be more willing to fund banks that are too big to fail at lower rates than other banks 
and may be insensitive to the credit risk of the borrower. 
289 Financial Stability Board (April 2021), Report on the Evaluation of the Effects of the Too Big to Fail 

Reforms 

162 

 
                                                           
systemic  risk  and  moral  hazard  have  moved  in  the  right  direction  with  potential  net 
benefits  to  the  society,  there  are  still  gaps  to  be  addressed.  These  include:  obstacles  to 
resolvability  (e.g.  resolution  funding  mechanisms,  build-up  of  buffers,  valuation 
capabilities,  cross-border  coordination),  continued  state  support  for  some  distressed 
banks (EU examples290), room to improve on data disclosure and transparency to markets 
and  potential  risks  arising  from  a  shift  of  credit  intermediation  to  non-bank  financial 
intermediaries.  

Judging from the practical application of the CMDI framework, the moral hazard 
problem is not satisfactorily reduced, as senior unsecured creditors continued in some 
cases to avoid bearing losses, with direct consequence for public finances. 

7.1.1.3. Effectiveness of the early intervention framework 

The  BRRD  provides  supervisory  authorities  with  the  powers  to  apply  EIMs,  which  are 
intended to prevent further deterioration of the financial conditions of an institution and 
to reduce, to the extent possible, the risk and impact of a possible resolution One of the 
operational  objectives  of  the  EIM  framework  was  to  allow  the  competent  authority  to 
intervene  rapidly  in  order  to  address  the  financial  deterioration  of  banks  in  case  of 
breaches/likely  breaches  of  prudential  requirements.  These  powers  are  activated  when 
specific  triggers291  are  met,  to  allow  competent  authorities  to  take  measures  such  as 
requiring the institution’s management to draw up an action programme or to change the 
institution’s business strategy or its legal and operational structure. Competent authorities 
can, in this context, also replace the institution’s management292.  

As also pointed out by the Commission’s 2019 report on the application of BRRD, while 
the  policy  objectives  of  the  EIMs  are  to  strengthen  financial  stability,  avoid  contagion 
and moral hazard, its application so far has been extremely limited. The EBA indicated 
that, in most situations where the EIM triggers were met, competent authorities decided 
to  address  the  situation  through  the  use  of  supervisory  powers  (e.g.  measures  based  on 
Article 104 CRD, which are mirrored in Article 16 of the SSMR)293. The EBA grouped 
the  challenges  that  competent  authorities  encountered  in  the  application  of  the  current 
regulatory framework on EIMs in three categories294. 

290 See Annex 9 of the impact assessment: “Table of Bank cases since 2015”.  
291 Article 27 BRRD provides power to competent authorities to activate early intervention measures when 
“an  institution  infringes  or  due,  inter  alia,  to  a  rapidly  deteriorating  financial  condition,  including 
deteriorating  liquidity  situation,  increasing  level  of  leverage,  non-performing  loans  or  concentration  of 
exposures,  as  assessed  on  the  basis  of  a  set  of  triggers,  which  may  include  the  institution’s  own  funds 
requirement  plus  1.5  percentage  points,  is  likely  in  the  near  future  to  infringe  the  requirements  of 
Regulation (EU) No 575/2013, Directive 2013/36/EU, Title II of Directive 2014/65/EU or any of Articles 3 
to 7, 14 to 17, and 24, 25 and 26 of Regulation (EU) No 600/2014 […]” 
292  Such  a  decision  was  taken  in  2019  by  the  ECB  with  respect  to  Carige  bank  (Cassa  di  Risparmio  di 
Genova e Liguria). See ECB’s press release (2 January 2019), ECB appoints temporary administrators for 
Banca Carige. 
293  See  EBA  (27  May  2021),  Report  on  the  application  of  early  intervention  measures  in  the  European 
Union in accordance with Articles 27-29 of the BRRD, EBA/REP/2021/12 (EBA report) pp 17-19. 
294 See EBA report, pp 23-25. 

163 

 
                                                           
The first  set  of challenges in  the application of EIMs,  relate to  the interaction between, 
and potential overlap295 of, early intervention powers conferred to competent authorities 
on the basis of national laws implementing the BRRD and the supervisory powers which 
they  can  exercise  under  CRD.  The  overlap  between  these  two  sets  of  measures  creates 
legal uncertainty  and procedural challenges for competent authorities and merits further 
analysis.  Also,  with  respect  to  the  Banking  Union,  the  provisions  on  early  intervention 
powers  contained  in  the  BRRD  are  not  replicated  in  a  uniform  and  directly  applicable 
legal  basis,  i.e.  their  application  by  competent  authorities  may  hinge  on  potentially 
diverging national transposition measures.  

A  second  set  of  challenges,  relates  to  disclosure  requirements  and  the  signalling  effect 
that the EIMs may entail. According to the EBA, there is uncertainty whether institutions 
are  obliged  to  disclose  to  market  participants  the  fact  that  EIMs  have  been  applied  to 
them  under  the  EU  market  abuse  regime.  In  case  the  adoption  of  the  EIMs  has  to  be 
disclosed, there could be a risk of signalling to markets that the bank is in a deteriorating 
situation,  leading  to  adverse  investor  reactions  and  ultimately  accelerating  instead  of 
mitigating an ongoing crisis.  

A final challenge in the application of the EIMs relates to the specific triggers for their 
application. Article 27(1) BRRD includes one example of EIM quantitative trigger  ‘the 
institution’s own funds requirement plus 1.5 percentage points’. However, it is not clear 
from the BRRD text, which “own funds requirement” should be used for the purposes of 
this provision i.e. the one corresponding to the minimum capital requirement (Pillar 1) or 
also taking into account additional own fund requirements (Pillar 2). 

7.1.1.4. Availability  of  resolution  processes,  powers  and  tools  to  intervene  in 

failing banks 

The  BRRD/SRMR  provides  extensive  processes,  powers  and  tools  for  resolution 
authorities to handle failed banks in an orderly manner, while respecting the framework’s 
objectives.  The  framework  sets  comprehensive  coordination  processes  among  various 
authorities  to  assure  the  necessary  exchange  of  information  underpinning  resolution 
decisions  concerning  both  preparation  and  execution.  It  ensures  that  shareholders  and 
creditors  effectively  support  losses  and  establishes  a  number  of  resolution  tools  for  the 
authorities  to  deal  with  banks  in  resolution.  Depending  on  the  specific  case,  authorities 
may  decide  to  use  the  sale  of  business  tool,  to  create  a  bridge  bank  or  an  asset 
management vehicle, and to  carry  out  bail-in296. The framework also provides for rules 
concerning the provision of external financial support to banks in resolution through the 
creation of resolution financing arrangements, funded by levies ex ante collected from the 
banks.  

The set-up and availability of said resolution processes, powers and tools has an overall 
positive effect on financial stability, potentially reducing moral hazard and ensuring the 

295 This overlap can be verified in what concerns the powers at the disposal of competent authorities under 
the two different legal bases and also the conditions for the respective use. 
296  Bail-in  is  defined  in  BRRD/SRMR  as  “the  mechanism  for  effecting  the  exercise  by  a  resolution 
authority  of  the  write-down  and  conversion  powers  in  relation  to  liabilities  of  an  institution  under 
resolution […]” (Article 2(1)(57) BRRD and Article 3(1)(33) SRMR). 

164 

 
                                                           
preservation  of  critical  functions.  However,  existing  exogenous  and  endogenous 
incentives,  not  to  apply  the  resolution  framework297  cause  significant  drawbacks  in 
achieving other objectives, i.e. enhancing the functioning of the single market and level 
playing  field,  reducing  moral  hazard  and  the  recourse  to  taxpayer  money  (see  next 
Sections), while preserving financial stability. 

7.1.2.  Objective (2): Did the framework achieve the objective of minimising losses 
for the society, in particular mitigating the recourse to taxpayer money and 
weakening the bank-sovereign nexus? 

One  of  the  cornerstones  of  the  current  framework  is  the  objective  of  shielding  public 
money  from  the  effects  of  bank  failures,  while  protecting  depositors  and  preserving 
financial stability. In order to limit the extensive use of public funds observed during the 
global financial crisis, the framework created resolution tools and financing arrangements 
complementing the internal loss absorption of banks (e.g. RF/SRF, national DGS funds) 
aimed at shielding national budgets.  

Nevertheless,  in  the  Banking  Union,  while  there  were  only  three  cases  of  a  positive 
PIA298  under  the  SRMR,  SRF  resources  were  not  used  and  the  accumulated  resources 
remain  idle  since  2016.  National  RFs  have  been  used  in  ten  out  of  13  cases  of  failing 
banks299 with positive PIA determination, representing less than half of the total number 
of cases of distressed banks. On the contrary, public funds have provided support in 2 out 
of 9 of the cases of distressed banks with negative PIA, amounting to over EUR 17 bn, 
while  an  additional  amount  of  almost  EUR 40 bn  of  public  funds  were  used  for 
precautionary aid measures (of which around EUR 28 bn was for precautionary liquidity 
support). This evidence indicates that the framework failed to achieve this objective in a 
satisfactory manner in all cases. 

297 See for more details section 7.1.2.1 of the Evaluation. 
298 Two out of these three cases concern the resolution  of entities belonging to the Sberbank Europe  AG 
group (see Annex 9 for more details), whereby due to the very special circumstances the group was faced 
with  (experiencing  significant  deposit  outflows  due  to  the  reputational  impact  of  geopolitical  tensions) 
there was a deviation from the resolution plan (which provided for the preservation of the group structure) 
and different solutions (resolution/liquidation) where applied to different banking entities of the group. 
299  In  seven  of  those  cases,  the  intervention  took  place  before  the  minimum  BRRD  bail-in  requirement 
entered into force on 1 January 2016. In addition, four of those cases concerned Banking Union Member 
States, but they took place before the SRB becoming the responsible resolution authority. 

165 

 
 
 
                                                           
Main factors influencing the objective’s achievement 

Factors influencing performance against objective  Overall impact on objective 

1)  Availability  and  usage  of  private  financing 

arrangements for bank resolution 

Negative (private financing arrangements 
scarcely used under the SRMR) 

2)  Timeliness of FOLF determination 

3)  Conditions to access external funding 

funding 

Negative (timing for triggering FOLF can 
be  improved  to  address  the  depletion  of 
resources  and  destruction  of  value  in  the 
run up to resolution, and the related need 
for  more  external 
(possibly 
public)) 
Negative  (divergent  access  requirements 
for  the  resolution  fund  versus  funding 
outside  resolution,  difficulty  in  accessing 
resolution  funding  by  certain  banks, 
limited  scope  to  grant  DGS  funding  in 
resolution and insolvency) 

7.1.2.1. Availability  and  usage  of  private  financing  arrangements  for  bank 

resolution  

The framework provides for rules concerning the provision of external financial support 
to  banks  in  resolution  and  requires  the  creation  of  national  resolution  financing 
arrangements (outside the Banking Union) and the SRF (in the Banking Union) – funded 
by the industry – which, according to the BRRD/SRMR, should be the main sources of 
external financial support for banks in resolution beyond the own resources of the banks. 
The SRF was established under the control of the SRB as an essential part of the Single 
Resolution  Mechanism  and  is  governed  by  a  complementary  inter-governmental 
agreement. The total target size of the funds/ SRF will equal at least 1% of the covered 
deposits  of  all  banks  in  the  respective  Member  States/  Banking  Union.  Ex  ante 
contributions to national resolution funds/ SRF are accruing over eight  years, beginning 
in  2016  until  the  end  of  2023  and  2024  for  the  SRF  and  national  RFs,  respectively. 
Subject to conditions laid out in BRRD/SRMR (a minimum level of bail-in of the bank’s 
own  resources),  the  national  RF/SRF  could  be  accessed,  and  in  that  case  ex  post 
contributions may be called on to rebuild the funds (in case the ex ante contributions are 
not sufficient to cover the losses, costs or other expenses incurred).  

Subject to the availability of funds in the national RF/SRF, the legislative intention was 
for  these  resources  to  be  used  to  support  resolution  action  when  the  private  means 
available  in  the  bank  did  not  suffice  to  execute  the  resolution  strategy.  In  the  Banking 
Union,  while  there  were  only  three  cases  of  a  positive  PIA300,  SRF  resources  were  not 
used and the accumulated resources remain idle since 2016. National  RFs were used in 
non-Banking  Union  Member  States  and  in  some  Banking  Union  Member  States,  but 

300 Two out of these three cases concerned the resolution of Sberbank group (see Annex 9 for more details). 

166 

 
 
 
                                                           
before the 8% minimum TLOF bail-in requirement entered into force301, in ten out of 13 
cases  of  banks  placed  in  resolution  for  a  total  amount  of  at  least  EUR  6.9 bn302303. 
However,  when  looking  at  the  broader  picture,  the  contribution  of  the  RFs  dwarfs  in 
comparison  to  the  amount  deriving  from  other  sources  of  funding  (mostly  from  public 
budgets) to handle distressed banks, outside of resolution, which exceeded EUR 58 bn (of 
which EUR 28.1 bn was provided for liquidity purposes)304,305. 

Figure 15: Sources of complementary external funding in crisis cases (in EUR bn) 

Source: European Commission calculations, based on bank cases between 2015 – 2022. 

The causes for this situation seem to be twofold. First, certain banks would face structural 
difficulties  in  fulfilling  the  conditions  to  access  resolution  funding  where  the  bail-in 
requirement  would  entail  bailing-in  ordinary  unsecured  creditors,  including  non-
preferred,  non-covered  deposits306,  which  could  be  politically  unpalatable  and  creating 
financial  stability  risks.  Second,  different  resolution  authorities  would  seemingly  have 
different propensities to deploy the resolution funds. 

301 On 1 January 2016. 
302  Includes  an  amount  of  EUR  1.4  bn,  contributed  jointly  by  the  Polish  RF  and  DGS,  in  the  case  of 
resolution of Getin Noble Bank SA (see Annex 9 for more information). 
303 Information on the amounts of national resolution funds contributed in some of the bank cases are not 
publicly available.  
304  As also  mentioned in  section 5,  while legacy issues  may have played a role in past cases and can be 
expected to have a lesser impact going forward, this does not impair the validity of the considerations made 
in this or other Sections of the evaluation,  nor it puts into  question  the  need to reform  the framework to 
ensure efficacy in managing potential future crises. 
305 Without counting support channeled to preventive private or preventive public measures that have been 
assessed as market conform. 
306 See section 7.1.2.3 and Annexes 7 and 8 of the impact assessment for further details. As explained in 
Annex 8, section 2, non-covered, non-preferred deposits rank together with ordinary unsecured claims in 
19 Member States (no depositor preference). Moreover, as presented in Annex 7, section 3, depending on 
the equity depletion at the moment of failure and the liability structure, in particular the deposit prevalence 
of medium-sized banks, preferred and even covered deposits could be impacted when bailing-in 8% TLOF, 
in order to gain access to the RF/SRF.  

167 

 
 
 
                                                           
Recent  cases  of  distressed  banks  reveal,  therefore,  a  shift  from  the  intended  use  of  the 
means  of  funding  available  in  resolution  towards  public  funds  (bail-outs)  facilitated  by 
the  application  of  tools  outside  the  resolution  framework  and  with  funding  accessible 
under  different  and  often  more  advantageous  conditions  from  the  point  of  view  of  the 
bank’s  creditors  and  very  discretionary  PIA307.  This  means,  in  practice,  that  national 
budgets shouldered distressed banks, while private money raised through ex ante industry 
contributions remained unused, undermining one of the key objectives of the framework. 
Please  refer  to  Section  7.2.2.2  describing  the  costs  associated  with  the  build-up  of 
resolution funds by the industry. 

7.1.2.2. Timeliness of FOLF determination  

The timeliness of the FOLF determination is crucial with respect to the amount of private 
resources left in the bank to execute the resolution strategy. In the current framework, the 
FOLF determination is usually made by the competent authority308. While the competent 
authority needs to comply with the conditions laid down in Article 32 BRRD/18 SRMR, 
in the absence of a hard trigger, the framework allows a certain amount of discretion for 
the  supervisor  as  to  the  exact  timing  of  the  FOLF  determination.  Therefore,  the 
supervisor  needs  to  balance  out  the  severity  of  the  deterioration  in  the  banks’  financial 
fundamentals  against  a  potential  recovery  by  private  means  and  take  a  timely  decision. 
While  it  is  very  challenging  to  quantify  the  impact  of  a  late  FOLF  triggering  on  the 
amount of financing required in resolution, it can be ascertained that a relatively “early” 
FOLF  determination  may  ensure  that  more  financial  resources  are  left  in  the  bank  to 
absorb losses. On the contrary, a “late” FOLF determination results in a more significant 
depletion  before  resolution  of  equity  and  potentially  other  instruments  that  could  be 
triggered  in  resolution  as  well  as  a  depletion  of  liquidity.  As  the  situation  of  the  bank 
deteriorates  further  short-term  funding  providers  may  refrain  from  rolling  over  their 
commitments and depositors may potentially run on the bank.  

The  governance  structure  and  the  degree  of  cooperation  between  competent  and 
resolution  authorities  may  play  a  role  in  the  timeliness  of  the  FOLF  determination.  In 
Member  States  outside  the  Banking  Union,  where  competent  and  resolution  authorities 
are often part of the same institution, the continuum between going concern, deterioration 
(FOLF  declaration)  and  resolution  may  be  better  served  than  in  the  Banking  Union, 
where  the  governance  and  hence,  the  decision-making,  in  a  crisis  scenario,  are  split 
between  the  central  authorities  (ECB  and  SRB),  but  possibly  also  involving  national 
competent  authorities  and national  resolution  authorities. Those decisions  are, however, 
interdependent and require the close coordination of the authorities and an alignment of 
their (sometimes) different incentives for acting early, or waiting for more time to elapse, 
before taking their respective actions, when faced with a bank crisis situation. On the one 
hand it is important to ensure that FOLF is declared only when the respective conditions 

307  Paragraphs  40-42  of  the  2013  Banking  Communication  set  out  the  minimum  burden-sharing 
requirement for equity, hybrid capital holders and subordinated debt holders in those cases. See also Box 9 
in section 7.1.2.3 regarding the “Divergences in conditions to access funding for resolution fund and for 
funding outside resolution under the State aid framework”. 
308  In  addition  to  the  competent  authority,  the  resolution  authority  may  make  the  FOLF  determination, 
subject to specific conditions set out in Article 32(2) BRRD.  

168 

 
                                                           
are fulfilled to ensure that the FOLF determination is legally sound. On the other hand, 
the practice so far showed a risk of overly cautious approach to FOLF declarations in the 
Banking Union, which may negatively impact the room for manoeuvre in resolution for 
the  resolution  authority.  The  BRRD  takes  this  into  account  to  a  certain  degree,  by 
providing Member States with the option to enable also the resolution authority to make a 
FOLF  determination,  which  the  SRMR  also  foresees  for  the  SRB,  subject  to  certain 
conditions.  This  procedure, however, encounters  other limitations, mainly related to  the 
fact  that  the  elements  necessary  for  a  FOLF  determination  are  generally  known  by  the 
supervisor, which continuously monitors the bank’s situation. 

7.1.2.3. Conditions to access external funding  

The  availability  of  sufficient  sources  of  funding  in  resolution  and  the  provision  of 
proportionate  conditions  to  access  them  are  central  to  ensuring  that  the  resolution 
framework is adequate to cater for potentially any bank’s failure. The CMDI framework 
provides  for  two  sources  of  funding  resolution  measures:  the  national  RF/SRF  in  the 
Banking Union and the DGS funds, provided that conditions to access these sources are 
met.  

Outside  resolution,  past  experiences  with  preventive  measures  (precautionary  measures 
and  DGSD  preventive  measures  have  shown  the  use  of  either  public  funds  under  State 
aid  rules  (including  in  the  form  of  market-conform  public  measures,  the  conformity  of 
which  with  market  conditions  are  also  assessed  under  these  rules  but  do  not  qualify  as 
State aid309) or private means to avert the further deterioration of a bank in distress. Also, 
under  certain  insolvency  proceedings  in  some  Member  States,  which  allow  for  transfer 
tools (i.e. the sale of a part of the business/ deposits to an acquirer), State aid funding can 
be used, provided it complies with the required burden sharing conditions.  

The following sub-sections develop: (a) the ineffective funding options for some banks, 
(b)  the  divergent  conditions  for  accessing  funding  from  the  resolution  fund  and  other 
sources of funding outside resolution, and (c) the use of DGS funds, which together have 
contributed to the use of public money (bail-outs) in crisis management.  

a)  structural  difficulties  for  some  banks  in  fulfilling  the  minimum  conditions  for 
accessing  the  RF/SRF  under  the  resolution  rules,  which  may  incentivise 
authorities to find other solutions when such banks enter into distress; 

b)  divergent  access  requirements  for  the  resolution  fund  and  for  funding  outside 

resolution; 

c)  limited scope to grant DGS funding in resolution and insolvency, with the risk of 

weakening the available funding sources for handling a bank failure.  

309 Refers to measures carried out by a public body, in line with normal market conditions, therefore are not 
considered to constitute State aid. 

169 

 
 
 
                                                           
a)  Challenges for some banks to access the RF/SRF 

Impact of resolution strategies  

The  CMDI  framework  makes  the  access  to  the  RF/SRF  conditional  on  bailing-in 
shareholders  and  creditors  for  no  less  than  8%  of  total  liabilities  including  own  funds 
(TLOF) and limits the contribution of the fund to 5% TLOF310. The minimum 8% TLOF 
bail-in  requirement  and  subsequent  5%  cap  on  the  use  of  the  RF/SRF  do  not  apply  in 
terms of the use of the RF/SRF for the provision of liquidity in resolution.311 

As  part  of  resolution  planning,  resolution  authorities  are  defining  the  preferred  and 
variant resolution strategies and preparing the application of the relevant tools to ensure 
their  execution312.  For  large  and  complex  institutions,  open-bank  bail-in  is,  in  general, 
expected to be the preferred resolution tool, implying the write-down and conversion of 
own  funds  and  eligible  liabilities  to  absorb  losses  and  recapitalise  the  bank  emerging 
from  resolution.  The successful execution of this strategy comes hand in  hand with  the 
minimum  requirement  to  hold  sufficient  own  funds  and  eligible  liabilities  (MREL), 
therefore,  the  calibration  of  MREL  and  the  build-up  of  MREL  buffers  by  banks 
contribute to ensuring that they can fulfil the condition for accessing resolution funding. 
In view of this principle, the changes to the calibration of the overall MREL requirement 
and  MREL  subordination  under  the  2019  revision  of  the  rules  (BRRD  II/SRMR  II) 
sought  to  increase  the  certainty  of  meeting  the  minimum  8%  TLOF  requirement, 
especially for large institutions.  

In  parallel,  certain  smaller  and  medium-sized  institutions  with  business  models  based 
predominantly  on  funding  through  equity  and  deposits  may  be  candidates  for  transfer 
tool  strategies.  Transfer  strategies  involve  selling  parts  or  all  of  the  business  to  a 
purchaser,  transferring  critical  functions  and  related  assets  and  liabilities  to  a  bridge 
institution and transferring non-performing assets to an asset management vehicle. A mix 
of tools can also be part of the optimal strategy, depending on a case-by-case assessment 
by  resolution  authorities.  The  potential  benefits  of  transfer  tools  depend  on  the 
characteristics of the banks and their financial situation and on how the specific transfer 
transaction  is  structured.  Challenges  to  transfer  strategies  may  be  due,  among  other 
factors,  to  “overcapacity”  in  the  EU  banking  sector,  which,  on  average,  struggles  to 
remunerate  capital,  further  diminishing  returns  on  mergers  and  acquisitions.  Therefore, 
the  “franchise  value”  of  some  ailing  banks  may  be  small  and  potential  buyers  would 
often  be  willing  to  enter  into  a  deal  only  at  negative  prices.  Hence,  depending  on  the 
valuation of assets and the perimeter of a transfer, there may still be a need to access the 

310  Article  44(5)  BRRD  requires  a  minimum  bail-in  of  8%  TLOF  and  provides  for  a  maximum  RF 
contribution of 5% TLOF (unless all unsecured, non-preferred liabilities, other than eligible deposits, have 
been written down or converted in full) when a resolution authority decides to exclude or partially exclude 
an  eligible  liability  or  class  of  eligible  liabilities,  and  the  losses  that  would  have  been  borne  by  those 
liabilities have not been passed on fully to other creditors, or when the use of the RF indirectly  results in 
part of the losses being passed on to the RF (Article 101(2) BRRD).  
311  According  to  the  informal  interpretation  of  the  Commission’s  services  of  the  provisions  in 
Article 101 BRRD, which are replicated in Article 76 in the SRMR and that set out the purposes for the use 
of the RF/SRF.  
312 In light with recital, 20 of the Commission delegated regulation (EU) 2016/1075, resolution authorities 
should  also  assess  whether  liquidation  under  normal  insolvency  proceedings  can  credibly  and  feasibly 
achieve the resolution objectives.  

170 

 
                                                           
RF/SRF313  by  complying  with  the  access  conditions,  in  order  to  complete  the  transfer 
transaction. The level of the MREL requirement reflects the preferred resolution strategy, 
meaning that banks under a transfer strategy may be allowed lower MREL targets, taking 
into consideration that the main purpose of these strategies is to facilitate the exit of these 
banks (in whole or in part) from the market and that MREL will be mainly used, in such 
cases  for  loss  absorption  and  only  to,  a  limited  degree,  for  recapitalisation  purposes314. 
Conversely,  banks  under  an  open  bank  bail-in  strategy,  will  continue  to  operate  in  the 
market,  on  a  standalone  basis,  therefore  they  would  require  a  higher  MREL  buffer  in 
order to absorb losses and fully rebuild their capital base. 

Importantly,  the  need  to  access  resolution  funding  may  arise  for  any  bank  (whether 
executing  an  open  bank  bail-in  or  a  transfer  strategy).  However,  despite  differences  in 
MREL  requirements  reflecting  different  resolution  strategies,  in  line  with  the  bank’s 
systemic footprint and complexity, the conditions to access the RF/SRF are the same for 
any  bank,  without  any  distinction  on  grounds  of  proportionality  based  on  the  planned 
resolution strategy, size and business model. This means that a large bank with open bank 
bail-in  strategy  (expected  to  build-up  MREL  buffers  to  cover  its  loss  absorption  and 
recapitalisation  needs),  must  fulfil  the  same  minimum  8%  TLOF  bail-in  condition  to 
access the fund as a smaller, deposit taking bank under a transfer strategy leading to exit 
of the market and which would be required to hold a lower amount of MREL resources.  

The ability of banks  to  fulfil the access  conditions  to  the RF/SRF depends therefore on 
the stock of bail-inable instruments315 available at the time of the intervention. In order to 
assess the ability of EU banks to access the fund, quantitative analyses have been carried 
out  on (i) the level  of MREL shortfalls as of the most recent  reporting date (Q4 2020); 
and (ii) the structure of banks’ liabilities, in particular assessing whether deposits would 
be subject to bail-in in order to access the fund.  

MREL shortfalls  

The  build-up  of  MREL  buffers  by  banks  is  in  transitional  period,  with  full  compliance 
required for the majority of banks by 1 January 2024, while intermediary targets were to 
be met by 1 January 2022.  

According to the most recent EBA 2022 quantitative MREL report316, as of Q4 2021, out 
of  245  resolution  groups  in  the  sample,  70  EU  resolution  groups  (and  individual 
resolution  entities)  had  an  MREL  shortfall  estimated  at  EUR  33 bn,  down  by  42% 
compared  to  Q4  2020  on  a  comparable  basis.  The  reduction  in  shortfalls  should  be 
considered against strong issuance levels in 2021 and 2022.  

313 The DGS may also be used in resolution, for ensuring continued access for covered depositors to their 
deposits in line with the access conditions of Article 109 BRRD. 
314  In  the  case  of  a  bridge  institution,  the  smaller  perimeter  of  the  assets  transferred  and  the  consequent 
reduction in the risk weighted assets, as well as the non or limited assumption of new activities, implies a 
smaller amount of recapitalisation  needs than if the bank  were to continue to operate  in the  market on a 
going concern basis. 
315  These  would  be  instruments  that  could  be  bailed-in,  without  giving  rise  to  a  right  for  exclusions  or 
voluntary  exclusions  from  bail-in,  in  light  of  Article  44(3)  BRRD  (for  example  for  reasons  of  avoiding 
widespread contagion, disruption to critical functions, etc.) 
316 EBA (January 2023), EBA quantitative MREL report and impact assessment  

171 

 
                                                           
In  the  Banking  Union,  as  per  the  SRB’s  MREL  Dashboard  as  of  Q3  2022317  showing 
BRRD II/SRMR II data, the average final MREL target represented 23.3% of total risk 
exposure  amount  (TREA)  (EUR 1 760 bn),  and  26.4%  TREA  (EUR 1 988 bn)  when 
including  the  combined  buffer  requirement,  growing  over  the  quarter  driven  by  the 
expansions  of  banks’  balance  sheets.  In  terms  of  build-up  of  eligible  instruments,  the 
average stock of MREL eligible liabilities and own funds reached EUR 2 353 bn, up by 
EUR 134.2 bn (or 6%) year-on-year. This trend was in line with the banks’ funding plans 
to meet the biding final MREL targets by 1 January 2024. The average MREL shortfalls 
against the final target (2024) amounted to 0.2% TREA (EUR 18.1 bn) in Q3 2022, and 
0.4% TREA (EUR 30.5 bn) when including the combined buffer requirement.  

While compliance with MREL targets is a matter of transitional period and most banks 
are  expected  to  fulfil  their  requirements  once  the  transitional  period  expired,  certain 
banks may be facing more structural issues to comply with their requirement.  

See Annex 13, for a full overview of the MREL shortfalls and the build-up of the buffers 
during the transitional period. 

Structural issues in issuing MREL eligible instruments and the likelihood of bailing-
in deposits 

Analyses show that certain smaller and medium-sized banks face structural difficulties in 
fulfilling  the  minimum  8%  TLOF  condition  to  access  resolution  funding.  These 
challenges  are  due  to  the  liability  structure  of  these  banks,  which  rely  significantly  on 
equity and deposits for their funding and are not into the business of issuing debt to raise 
(subordinated)  resolution  buffers.  Some  of  the  barriers  hindering  a  switch  in  business 
model  for  such  banks  include,  but  are  not  limited  to:  (i)  increased  costs  to  issue 
(subordinated) debt in addition to or substituting existing funding due to perceived risks 
by investors, which would translate into higher spreads318, (ii) lack of, or poor rating, (iii) 
not  being  listed  and  (iv)  potential  lack  of  demand  by  the  market.  Such  challenges  in 
accessing resolution funding may be difficult to eliminate in the short to medium-term, in 
particular in the current environment of low profitability driven mainly by over-capacity, 
competition  from  the  fintech  sector  and  upcoming  new  regulatory  requirements  which 
may impact balance sheets (Basel III).  

See also Annex 13 for more information on such structural issues. 

317 SRB (February 2023), SRB MREL Dashboard Q3 2022  
318 Replacing deposit funding and/or secured funding by subordinated or even senior unsecured issuances 
could be costly.  

172 

 
 
 
                                                           
Box  7:  Excerpt  speech  by  Governor  Visco  at  Banca  d’Italia  conference  (15  January 
2021)319 on the ability of some banks to issue debt 

“One  fundamental  question  concerns  the  sources  of  funding  to  finance  a  transfer 
strategy,  be  it  in  resolution  or  in  liquidation.  Under  the  current  BRRD  framework,  a 
successful  resolution  strategy  premised  on  the  bail-in  tool  requires  adequate  levels  of 
eligible liabilities (Minimum Requirement for own funds and Eligible Liabilities, MREL), 
preferably  subordinated,  to  avoid  losses  being  imposed  on  depositors  and  other  retail 
creditors.  

However,  most  medium-sized  banks  (not  to  mention  smaller  ones)  are  not  equipped  to 
tap capital markets in order to issue MREL instruments. Around 70% of the significant 
banks  under  the  direct  supervision  of  the  ECB  are  not  listed,  60%  have  never  issued 
convertible instruments, and 25% have not even issued subordinated debt. These shares 
rise  sharply,  of  course,  for  smaller  institutions.  Requiring  these  banks  to  issue  MREL 
eligible  liabilities  to  non-retail  investors  would  therefore  force  them  to  resort  to  the 
wholesale market, obtain a credit rating and change their funding structure significantly. 
It could therefore have a strong impact on banks’ margins and even force some of them 
out of the market, since issuance costs could prove too high to bear.” 

Analysed  data  shows  that  for  some  banks,  the  stock  of  bail-inable  liabilities  excluding 
deposits  is  lower  than  the  minimum  requirement  for  bail-in  in  order  to  access  the 
RF/SRF. This  means that,  in  order for these banks to  gain  access  to  resolution  funding 
(i.e. minimum 8% TLOF bail-in condition), some deposits320 would need to be bailed-in. 
While  in  some  Member  States  this  is  feasible  and  has  been  done  in  the  past,  in  the 
majority  of  Member  States  bailing-in  deposits  may  not  be  socially  acceptable,  since 
depositors are considered differently from investors. Depositors use banks, primarily, as 
a secure place for placing their savings, for meeting future needs, while the investors take 
a  claim  in  the  bank  after  having  analysed  the  related  risks  and  rewards.  Moreover, 
bailing-in deposits would negatively impact the franchise value, which would impair the 
success of a transfer transaction to a purchaser, who may be interested in acquiring the 
entire  deposit  book.  In  the  majority  of  Member  States,  maintaining  the  integrity  of 
deposits is considered by the national authorities, instrumental to bank intermediation in 
the  economy  (i.e.  channelling  savings  into  investments  and  lending)  and  an  important 
element to financial stability and the functioning of the payment system. 321 

319 Banca d’Italia (15 January 2021), Welcome address by Governor Ignazio Visco. 
320 Such as deposits not covered and not preferred, i.e. deposits to corporates, governments, other financial 
institutions, other institutions.  
321  The  significance  of  deposits  for  the  banking  systems  is  recognised  in  the  BRRD.  Article  108  BRRD 
requires  from  Member  States  to  give  deposits  of  individuals  and  SMEs  a  higher  ranking  in  national 
insolvency than the claims of ordinary unsecured, non-preferred creditors.  

173 

 
 
 
                                                           
Box 8: Case illustrating issues regarding funding options - the Getin Noble Bank S.A. 
case 

Getin  Noble  Bank  S.A.  was  among  the  ten  largest  Polish  banks  with  total  assets  of 
approximately EUR 9.2 bn (PLN 44 bn). On 30 September 2022, based on the opinion of 
the Polish Financial Supervision Authority (Komisja Nadzoru Finansowego, ‘KNF'), the 
Polish  national  resolution  authority  (Bankowy  Fundusz  Gwarancyjny,  ‘BFG')  formally 
declared  the  bank  to  be  FOLF  and  determined  that  placing  the  bank  into  resolution 
(rather  than  to  follow  insolvency  proceedings  under  national  law)  was  in  the  public 
interest  (positive PIA).  Subsequently, the bank  was resolved with  the use of the bridge 
bank and bail-in tools. Equity and subordinated debt were fully written down to absorb 
(part of) the losses. The bridge bank serves as a temporary solution to provide sufficient 
time  to  organise  an  orderly  sales  process  for  the  assets  and  liabilities  transferred  to  the 
bridge  bank.  The  BFG,  which  is  responsible  for  both  the  resolution  of  banks  and  the 
guarantee  of  deposits  in  Poland  provided  the  newly  created  bridge  bank  with  direct 
support measures in the form of cash injections worth around EUR 1.4 bn (PLN 6.9 bn) 
that were financed through (i) the national resolution fund; and (ii) the national deposit 
guarantee fund, both under the BFG's responsibility. 

In addition, the Polish Commercial Banks' Protection System (System Ochrony Banków 
Komercyjnych,  ‘SOBK'),  comprising  the  eight  largest  commercial  banks  active  on  the 
Polish market, was created and decided, on a voluntary basis, to (i) support the operation 
with  approximately  EUR  735  million  (PLN  3.5  bn)  to  absorb  further  losses;  and  (ii) 
temporarily  purchase  a  49%  share  in  the  bridge  bank322.  In  this  particular  case,  the 
balance  sheet  structure  of  the  bank  was  mainly  funded  by  deposits323.  Instead  of 
liquidating the bank and paying out covered depositors, authorities decided to resolve the 
bank  (preparing  for  future  sale  and  exit  from  the  market).  Meeting  the  conditions  (i.e. 
minimum  8%  TLOF  bail-in)  for  accessing  resolution  funding  would  have  implied 
compromising the integrity of its deposits book and imposing losses on depositors. This 
situation is likely to have motivated the decision of other commercial banks in Poland to 
voluntarily intervene and contribute to the resolution cost (complementing DGS support) 
and, in that way, avoid risks of widespread contagion in the national financial market that 
could  have  stemmed  from  the  bailing-in  of  (some)  deposits  in  Getin  Noble  Bank  S.A. 
This  multi-layered  funding  arrangement  illustrates  the  weakness  of  the  current 
framework, in particular, the difficulties encountered by certain banks in meeting access 
conditions  for  resolution  funding  and  the  importance  of  exploiting  synergies  between 
DGSs and RFs324. 

In  what  concerns  the  general  depositor  preference,  consultations  with  stakeholders 
confirmed that the bail-in of any deposits is deemed to carry a significant contagion risk 
to the financial system and to entail political sensitivities, so much so that, despite  only 
covered deposits being in the list of mandatory exclusions from bail-in in Article 44(2) 

322 Source: European Commission’s press release (01 October 2022)  State aid: Commission approves aid 
to support the resolution of the Polish Getin Noble Bank S.A. 
323 Source: BGF (3 October 2022) – Resolution of Getin Noble Bank SA. 
324 Relates to problem 2 and its first driver addressed in this impact assessment (Chapter 2, section 2.2.1) 
and in section 7.1.2.3 of the evaluation. 

174 

 
                                                           
BRRD, resolution authorities generally expect to have to exclude (all) other deposits on a 
discretionary  basis  from  bearing  losses  in  resolution  under  Article  44(3)  BRRD.  When 
some of those deposits rank pari passu with senior bail-inable liabilities, their exclusion 
has the potential to create NCWO325 problems, particularly considering that they tend to 
represent a significant percentage of the total senior class.326 

Besides the challenges described above in meeting the minimum 8% TLOF327 condition 
to access resolution funding, the 5% TLOF cap on the usage of such funding328 may also 
be  problematic  for  certain  banks,  in  particular  when  it  results  in  a  small  amount  of 
funding allowed to be used, which may not be deemed sufficient to ensure the execution 
of the resolution strategy.  

It is arguable that a proportionate approach to managing bank failures should ensure that 
entities can access funding sources without having to structurally modify their business 
model. The existence of a variety of business models is an important element to ensure a 
diversified, dynamic and competitive banking market. 

a)  Divergent  access  requirements  for  the  resolution  fund  and  for  funding  outside 

resolution  

In  two  cases  of  banks  for  which  a  FOLF  determination  was  issued  by  the  competent 
supervisory  authority,  there  was  no  need  to  look  into  possible  difficulties  in  accessing 
resolution financing due to a negative PIA and the usage of tools outside resolution and, 
inarguably, with more easily accessible sources of funding. In the Banking Union, in the 
above-mentioned two cases where resolution was not deemed to be in the public interest, 
banks  benefited  from  public  support  under  national  insolvency  proceedings  (including 
from the public budget). In other past interventions observed, national authorities granted 
support  to  banks,  which  were  rather  close  to  a  situation  of  failure,  in  the  form  of 
preventive  measures  under  Article 11(3)  DGSD.  Both  the  use  of  aid  under  national 
insolvency  proceedings  and  Article 11(3)  DGSD  are  subject  to  different  (and  arguably 
less-stringent) conditions than those for the use of the resolution funds under the SRMR 
and BRRD leading to a disincentive to use resolution.  

In  particular,  public  support  may  be  available  outside  resolution  and  accessible  under 
more advantageous conditions from the point of view of allocating losses to the bank’s 
creditors. Some of these solutions are of preventive nature, and the lower burden sharing 
is combined (and justified) by additional conditions ensuring that the bank is not FOLF. 
First, public funds can be used to provide capital injections or liquidity support to banks 
in  a  “precautionary”  way,  under  specific  circumstances,  set  out  in  the  BRRD.  The 
relevant  provisions  (Article  32  BRRD)  provide  requirements  and  conditions  to  ensure 
that the intervention is timely and precautionary in nature, in particular, that the support 
is granted to a solvent bank whose financial condition has not deteriorated to a point of 

325  Resolution  authorities  must  ensure  that  the  application  of  resolution  tools  would  not  make  creditors 
worse-off than they would have been in insolvency (“no creditor worse off” (NCWO) principle). 
326 See also Annex 8 of the impact assessment. 
327 As explained in sub-section (a), according to the informal interpretation of the Commission’s services of 
the relevant legal provisions in the BRRD/SRMR, the use of the RF/SRF for the provision of liquidity in 
resolution is not subject to the 8% minimum bail-in requirement. 
328  The  cap  could  be  exceeded  under  condition  that  all  unsecured,  non-preferred  liabilities,  other  than 
eligible deposits, have been written down or converted in full (Article 44(7)(b)).  

175 

 
                                                           
failure  and  that  the  aid  is  minimised.  Second,  DGS  funding  of  measures,  pursuant  to 
Article  11(3)  DGSD  which  can  be  used  to  prevent  the  bank’s  failure  (preventive 
measures) may also  qualify,  as State aid  or not,  depending on the circumstances of the 
case.329  Also,  in  this  case,  conditions  exist  to  ensure  that  the  support  is  granted  as  a 
preventive  measure  to  a  non-FOLF  bank.  As  outlined  in  Chapter  2  of  the  impact 
assessment,  the  functioning  of  these  measures  in  line  with  the  logic  of  resolution  is 
dependent on these conditions being clear and correctly applied.  

In  addition  to  these  precautionary  and  preventive  measures,  funding  of  the  failure  of  a 
bank  through  public  budgets  is  possible,  in  insolvency  proceedings,  when  the  PIA  is 
negative  (liquidation  aid).  Alternative  measures  financed  by  the  DGS  in  insolvency 
proceedings may also be subjected to the State aid conditionality for liquidation aid, on a 
case-by-case basis.  

Compared to the 8% TLOF bail-in requirement to access resolution funding, which could 
entail  bailing-in  senior  unsecured  creditors,  including  non-preferred,  non-covered 
deposits330,  access  conditions  under  the  State  aid  rules  (mainly  governed  by  the 
Commission’s  2013  Banking  Communication331)  require  adequate  burden-sharing 
entailing, after losses are first absorbed by equity, contributions by hybrid capital holders 
and  subordinated  debt  holders,  which  may  be  less  demanding.  The  fact  that  external 
financing outside resolution could be easier to access and could be provided with fewer 
limitations  for  the  bank’s  creditors,  than  financing  arrangements  in  resolution,  creates 
room for arbitrage and may incentivise resolution authorities to look for solutions outside 
the resolution framework. This effect is exacerbated by the fact that, in applying the PIA 
so far, resolution authorities have not in all cases taken into consideration the possibility 
of granting aid in insolvency (which would matter from the perspective of ensuring the 
minimisation in the use of extraordinary financial  support, see Section 7.1.3.4 for more 
details). 

Box  9:  Divergences  in  conditions  to  access  funding  for  resolution  fund  and  for 
funding outside resolution under the State aid framework 

Access conditions to resolution funding 

The  BRRD  (recital  73,  Article  44(5)  and  37(10))  stipulates  that,  when  discretionary 
exclusions to bail-in are applied in connection with certain creditors (e.g. on grounds of 
protecting financial stability or because such creditors would be difficult to bail-in within 
a  reasonable  timeframe),  and  where  the  losses  cannot  be  passed  to  other  creditors,  the 
resolution  financing  arrangement  may  make  a  contribution  to  the  institution  under 
resolution  subject  to  a  number  of  strict  conditions.  These  conditions  include  the 
requirement that losses totalling not less than 8% of total liabilities including own funds 
(TLOF) have already been absorbed, and the funding provided by the resolution fund is 
limited to the lower of 5% of TLOF or the means available to the resolution fund and the 

329 See sub-section (c) for more details on the alternative and preventive measures under DGSD.  
330 See Annex 7 on the impact of bail-in on uncovered (and in some cases covered) deposits under different 
scenarios. 
331 European Commission (2013), Banking Communication.  

176 

 
                                                           
amount that can be raised through ex post contributions within three years. In accordance 
with  the  changes  introduced  in  Article  59  BRRD  by  the  2019  Banking  Package,  the 
amount by which CET1 items are reduced to absorb losses as identified in the valuation 
carried  out  under  Article  36,  including  the  valuation  for  the  purposes  of  assessing 
whether the conditions for resolution are met, count towards the 8% of TLOF threshold. 

Access conditions under State aid rules 

The  2013  Banking  Communication  (paragraphs  40-42)  sets  out  the  minimum  burden-
sharing requirement that would, provided that other considerations are also  met, enable 
the  granting  of  aid.  To  reduce  the  moral  hazard  that  State  aid  could  cause,  aid  should 
only be  granted on terms which involve  adequate burden-sharing by  existing investors. 
Adequate  burden-sharing  will  normally  entail,  after  losses  are  first  absorbed  by  equity, 
contributions by hybrid capital holders and subordinated debt holders. Hybrid capital and 
subordinated  debt  holders  must  contribute  to  reducing  the  capital  shortfall  to  the 
maximum  extent.  Such  contributions  can  take  the  form  of  either  a  conversion  into 
Common Equity Tier 1 or a write-down of the principal of the instruments. The State aid 
rules  do  not  require  contribution  from  senior  debt  holders  (in  particular  from  insured 
deposits, uninsured deposits, bonds and all other senior debt) as a mandatory component 
of  burden-  sharing  whether  by  conversion  into  capital  or  by  write-down  of  the 
instruments. 

For  a  significant  number  of  banks  in  the  EU,  bailing-in  8%  TLOF  to  access  resolution 
funding would also entail bailing-in senior unsecured creditors, including non-preferred, 
non-covered deposits. This concludes that the access conditions are stricter in resolution 
than under the State aid  rules.  The design and interaction between funding solutions  in 
and outside the framework play  a central  role in  the shaping of incentives to  apply the 
CMDI framework. 

The  divergences  mentioned  above  can  create  a  risk  of  inconsistent  solutions  across 
Member States and reduce the predictability of the framework. Moreover, the possibility 
to use public budgets (i. e. taxpayers’ funds) outside resolution, which in principle should 
be avoided or strictly limited to avoid risks of moral hazard, creates a need to reconsider 
whether the framework can be improved to achieve its objectives with more clarity and 
predictability. This would in turn promote a more consistent approach to the management 
of bank failures, including in terms of increased level playing field at EU level. 

DGS funding in resolution and insolvency 

Article 109 BRRD provides for the use of DGS funding in resolution, in addition to the 
resolution fund. The provision sets out several conditions for the intervention. The DGS 
support in resolution is established, in principle, to an amount equal to the losses borne 
by  covered  deposits  if  they  were  exposed  to  bail-in  or  could  bear  losses  under  another 
resolution strategy. In addition, the DGS’s liability is limited to the amount of losses that 
the DGS would have borne under an insolvency counterfactual332. This provision has not 

332 Based on the so-called least cost test. 

177 

 
                                                           
been used, so far, in practice. The difficulties in providing funding in resolution from the 
DGS relate to certain other conditions set out in Article 109 BRRD.  

Particularly,  conditions  under  paragraphs  (1)(a)  and  (b)  are  restrictive  and  difficult  to 
operationalise, particularly the limitation that the DGS is liable for the losses that covered 
deposits would have suffered had they been bailed-in at the same time as creditors with 
the same ranking. Considering that covered deposits benefit from super-preference in the 
ranking of claims and that the value of assets in resolution is in principle higher than in 
insolvency,  in  most  cases  covered  deposits  would  not  have  been  called  upon  to  bear 
losses in resolution to enable the DGS to step in. Additionally, this provision introduces 
limitations on the maximum amount of the DGS contribution, which may not exceed the 
losses  that  the  DGS  would  have  borne  in  an  insolvency  counterfactual  nor  50%  of  its 
target level. 

In order to operationalise the application of the provision, and to preserve its  effet utile 
the Commission services support the interpretation333 that under Article 109 BRRD, DGS 
funds may be used to support the transfer of eligible deposits in resolution provided that 
such  contribution  is  instrumental  to  ensuring  access  of  depositors  to  their  covered 
deposits.  In  particular,  DGS  funds  may  be  used  to  inject  an  amount  equal  to  the 
difference between eligible deposits and assets, provided that the “least cost” principle is 
respected (i.e. provided that the costs borne by the DGS do not exceed the net amount of 
compensating  covered  depositors  at  the  credit  institution  concerned,  in  the  context  of 
national insolvency proceedings.) Notwithstanding this interpretation, it is appropriate to 
consider revising the wording of the provision to clarify the reading of the provision in 
line with the approach mentioned here. 

As  mentioned  in  sub-section  (b)  funding  sources  from  the  DGS  are  also  available  for 
banks  that  do  not  meet  the  PIA  and  are  put  in  insolvency  according  to  the  applicable 
national law (alternative measures). The DGS can provide funding to support a transfer 
transaction to the extent that this is necessary to preserve access to covered deposits and 
that it complies with the least cost test (LCT) and State aid rules, as applicable. The LCT 
requires that the loss for the DGS is lower than the loss it would have borne in case of 
payout in insolvency, while the qualification of the DGS use as State aid would entail a 
minimum  burden  sharing  by  shareholders,  hybrid  capital  holders  and  subordinated 
debtholders, for its authorisation. Also in this case, the DGS’ super preference creates a 
substantial limitation to the possibility for the DGS to provide funding. 

The  access  conditions  to  DGS  funding  in  resolution  and  insolvency  are  not  aligned, 
which makes the use of funds subject to uncertainty. Finally, the opportunity to use DGS 
funding in resolution or insolvency entails different arbitrage depending on whether the 
potential  intervention  is  in  a  Banking  Union  or  non-Banking  union  context.  For  non  -
Banking  Union  Members  States,  both  resolution  and  DGS  funds  are  financed  by  the 
domestic  industry,  possibly  facilitating  the  combination  of  the  funds.  In  the  case  of 
Banking Union Member States, the SRF is financed by all banks in the Banking Union 
while  the  financing  of  DGS  is  national,  creating  an  “asymmetry”  in  the  burden  of  the 

333 This interpretation has not been formally adopted yet by the Commission. 

178 

 
                                                           
costs in case DGS would “substitute” resolution funds. Moreover, in the absence of EDIS 
there may be a risk of a shortfall in DGS funds.  

It  is  important  therefore  to  review  the  access  conditions  for  DGS  funding  in  resolution 
and insolvency to ensure level playing field, consistency and proportionality between the 
applications of procedures. 

7.1.3.  Objective  (3):  Did  the  framework  achieve  the  objective  of  enhancing  the 
functioning  of  the  single  market  including  by  handling  of  cross-border 
crises and fostering level playing field among banks from different Member 
States, particularly in the Banking Union? 

Many aspects of the CMDI framework improved the functioning of the single market in 
banking  and  the  level  playing  field  among  banks.  The  framework  created  a  centralised 
mechanism  and  governance  for  resolution  (SRM)  in  the  Banking  Union,  cross-border 
coordination  processes  as  well  as  tools  and  cooperation  requirements  (e.g.  creation  of 
resolution  groups  and  internal  loss  absorbing  capacity  for  subsidiaries  in  host  Member 
States) to handle the failure of cross-border banking groups.  

Cross-border coordination among national DGSs was enhanced by the DGSD, which also 
facilitated  access  to  the  internal  market  through  the  freedom  of  establishment  and  the 
freedom to provide financial services while increasing the stability of the banking system 
and the protection of depositors. 

Yet, despite these achievements, the operational handling of recent bank failures in some 
Member States, was characterised by a lack of consistency and uneven playing field. This 
was  mainly  caused  by  broad  discretion  in  the  conditions  for  the  application  of  the 
BRRD/SRMR  measures,  which  leaves  room  for  arbitrage  in  the  decision  of  the  public 
authorities to resort to resolution or insolvency tools, depending on the solutions available 
for a specific failing bank. This arbitrage is fuelled by several factors, the most important 
being  (i)  divergent  access  conditions  for  the  resolution  funds  and  for  funding  outside 
resolution  and  difficulties  for  certain  banks  in  accessing  resolution  funds  (see  Section 
7.1.2.3), (ii) differences in the track record between resolution authorities to make use of 
industry-funded resolution funds and (iii) the availability of various national tools which 
may  be  similar  to  resolution  tools,  with  often  heterogeneous  and  unclear  activation 
conditions.  

The  divergent  application  of  rules,  lack  of  harmonised  hierarchies  of  claims  and  the 
uneven playing field  for banks, depositors and taxpayers  emerging as a  consequence of 
these  issues,  among  other  elements,  also  contribute  to  market  fragmentation  in  the  EU, 
reducing  the  level  of  cross-border  market  integration  and  the  functioning  of  the  single 
market  in  banking.  While  the  reduced  incentives  for  cross-border  market  consolidation 
through  mergers  and  the  more  reduced  volume  of  cross-border  banking  transactions 
cannot  be  entirely  linked  with  the  application  of  the  CMDI  framework,  the  resolution 
regime  does  have  a  bearing  on  it  and  its  improvement  would  be  conducive  to  more 
market integration in the medium and long run.  

The  DGSD’s  contribution  to  EU  level  playing  field  could  also  be  further  improved,  in 
particular  with  regard  to  ONDs  and  their  potential  impact  on  the  internal  market. 

179 

 
Moreover,  the  differences  in  robustness  and  firepower  among  national  DGSs  combined 
with the lack of EDIS in the Banking Union may further exacerbate the uneven playing 
field,  especially  if  a  large  shock  event  were  to  materialise  in  one  of  the  participating 
Member States.  

Overall, evidence from the application of the framework points out to the achievement of 
a sub-optimal functioning of the single market and the need for significant improvements 
to  remove  differences  in  treatment  among  banks,  creditors,  depositors  and  taxpayers  in 
different Member States. 

Main factors influencing the objective’s achievement 

influencing  performance  against 

Factors 
objective 
1)  Centralised governance in the Banking Union  Positive (creation of SRM, SRB, SRF) 

Overall impact on objective 

2)  Supervisory cooperation and EU oversight on 

convergence of supervisory practices 

3)  Precautionary and preventive measures 

4)  Predictability  of  legal  framework  and  the 

approach to PIA 

5)  Interaction  between  national 

insolvency 

proceedings and resolution triggers 
6)  National ranking of claims in insolvency 

access 

(enhanced 

Positive 
cross-border 
cooperation, EU resolution colleges, EBA’s 
convergence  mandate,  positive  impact  on 
market integration) 
Negative  (lack  of  clarity  and  framing  of 
precautionary  and  preventive  measures, 
divergent 
vs 
resolution) 
Negative 
of 
of 
application,  restrictive  approach  and  across 
EU, 
of  PIA, 
conducive to market fragmentation). 
Negative  (lack  of  legal  certainty  due  to 
divergent triggers, legal limbo situations) 
Negative (unharmonised) 

predictability 

requirements 

application 

divergent 

(lack 

7.1.3.1. Centralised governance in the Banking Union 

One  of  the  most  important  achievements  of  the  framework  with  respect  to  the  single 
market  functioning  was  the  creation  of  the  Single  Resolution  Mechanism  (SRM),  the 
second pillar of the Banking Union. The centralised decision making is built around the 
Single  Resolution  Board  (SRB)  consisting  of  a  Chair,  a  Vice  Chair,  four  permanent 
members,  and  the  relevant  national  resolution  authorities334.  The  SRB  is  directly 
responsible  for  the  resolution  of  the  entities  and  groups  directly  supervised  by  the 
European Central Bank (ECB) as well as other less significant cross-border groups. The 
functioning of the SRM is enabled, among other factors, by its governance, in particular, 
the  strong  cooperation  and  coordination  between  the  SRB  and  national  resolution 
authorities via its Plenary Session335, various task force groups, forums and committees. 

334 Composition of the Governing Body of the SRB in its extended Executive Session.  
335 In the Plenary Session of the SRB, all of the NRAs are represented, together with the SRB Chair and the 
four permanent Board Members. 

180 

 
 
                                                           
This centralised decision-making system for the Banking Union contributed significantly 
to the functioning of the single market in banking and to fostering consistent policies and 
approaches, mainly in cases of cross-border resolution preparedness (and to, a lesser 
extent, in terms of resolution execution). 

7.1.3.2. Supervisory  cooperation  and  EU  oversight  on  convergence  of 

supervisory practices 

The  CMDI  rules  create  a  framework  for  coordination  and  communication  processes, 
exchange of information, as well as  tools  for competent  and resolution  authorities from 
different Member States to cooperate and communicate effectively on crisis preparedness 
and  execution  for  cross-border  banking  groups.  The  legislation  provides  joint  decision-
making  processes  for  critical  elements  such  as:  the  preparation  of  group  recovery  and 
resolution plans, removal of impediments to group resolvability and setting up resolution 
buffers (MREL).  

Furthermore, the BRRD requires the creation of EU resolution colleges as a forum for the 
group‐level  resolution  authorities,  other  relevant  resolution  authorities,  supervisory 
authorities, competent ministries and authorities responsible for DGS, to collectively plan 
for  and  coordinate  the  resolution  of  cross-border  banking  groups336.  The  BRRD  also 
provides the rules for communication and exchange of information between EU and third 
country resolution authorities and other international institutions.  

In  this  context,  the  EBA  is  mandated  by  the  framework  to  develop  a  wide  range  of 
technical  standards,  guidelines  and  reports  with  the  aim  of  ensuring  effective  and 
consistent  procedures  across  the  Union,  in  particular  with  respect  to  cross-border 
financial  institutions.  To  fulfil  the  EBA’s  role  in  ensuring  EU  convergence  in  the 
application  of  the  rules,  national  authorities  must  notify  the  EBA  of  any  relevant 
information  as  well  as  of  any  actions  taken  under  the  framework.  The  EBA  publishes 
non-confidential  elements  of  these  notifications  on  its  website  together  with  its 
assessment of the supervisory convergence, including in the continuum between ongoing 
supervision, recovery and resolution.337 

The  creation  of  these  effective  cooperation  and  coordination  arrangements  and  of  a 
centralised  oversight  of  convergence  of  supervisory  practices  helped  with  tackling 
challenges of cross-border banks vulnerabilities and failures and creating a level playing 
field in the single market for EU banking products. 

7.1.3.3. Precautionary and preventive measures 

Precautionary  measures  allow  the  provision  of  extraordinary  financial  support  from 
public  resources  to  a  solvent  bank,  to  diffuse  the  risks  of  a  serious  disturbance  in  the 
economy  of  a  Member  State  and  to  preserve  its  financial  stability.338  The  available 
measures comprise capital injections (precautionary recapitalisation) as well as liquidity 
support.  Possible  uses  of  precautionary  recapitalisation  also  include  relief  measures 

336 Third country authorities may also be invited to attend colleges as observers.  
337  EBA  (14  March  2019),  EBA  notes  good  progress  in  convergence  of  supervisory  practices  across  the 
EU. 
338 These measures are provided in Article 32(4)(d) BRRD. 

181 

 
                                                           
through the transfer of impaired assets339, and similar considerations have been extended 
to  asset  protection  schemes340.  The  provision  of  such  support  is  an  exception  to  the 
general  principle that the recourse to  extraordinary public  financial  support to  maintain 
the  viability,  solvency  or  liquidity  of  a  bank  should  lead  to  the  determination  that  the 
bank is FOLF. For this reason, specific requirements must be met in order to allow such 
measures  under  the  BRRD/SRMR341  as  well  as  under  the  State  aid  rules  for  banks342. 
Notwithstanding  the  correct  application  of  these  safeguards  in  past  practice,  it  also 
occurred  that  two  banks  benefitted  from  multiple  public  supports  in  the  form  of 
precautionary liquidity on grounds, inter alia, of being declared solvent by the competent 
supervisor,  only  months  before  being  assessed  as  FOLF.  Based  on  this  experience, 
practices  of  the  Commission  and  authorities  involved  in  such  situations  were  already 
enhanced. For precautionary recapitalisation, the rules should take stock of the adjusted 
approach developed based on past experience (see Annex 9 of the impact assessment), to 
enforce the very stringent conditions already established, which are key to ensure that aid 
in this form can be granted without impinging on the overarching objective of avoiding 
moral  hazard.  Nonetheless,  there  is  scope  to  improve  the  clarity  of  the  relevant  legal 
provisions and to ensure the predictability and consistency of the outcome going forward.  

In  certain  circumstances,  DGS  funds  can  be  used  to  prevent  the  failure  of  a  bank 
(preventive measures under Article 11(3) DGSD) and be very useful in averting further 
financial  deterioration,  which  could  lead  to  a  crisis.  Currently,  the  legal  provisions 
enabling  the  use  of  DGS  funds  for  such  preventive  measures  are  optional  and  not  all 
Member  States  have  transposed  them  into  national  law.  Only  nine  Member  States 
(Austria,  Croatia,  France,  Germany,  Ireland,  Italy,  Malta,  Poland  and  Spain)  have 
transposed this option in national law343.  

Such  measures  are  possible  only  if  not  qualified  as  State  aid.  Depending  on  several 
elements, the DGS intervention could be qualified as private or public for the purpose of 
State  aid  control  by  the  Commission.  Such  an  assessment  is  made  on  a  case-by-case 
basis,  taking  into  consideration  elements  such  as  the  governance  and  decision-making 
procedure of the DGS, and the circumstances relating to the measure. It is therefore hard 
to  predict  whether  the  intervention  would  qualify  as  State  aid  or  not.  However,  this 
qualification has an impact on the legal treatment of the DGS intervention. In particular, 
the qualification of the intervention as State aid would de facto impede the intervention 
of the DGS in a preventive capacity, as this would trigger a determination of FOLF under 

339 The necessary conditions to allow the use of precautionary recapitalisation to support an impaired asset 
relief measure are outlined in detail in the Commission Asset Management Companies blueprint, page 36, 
see European Commission staff working document (March 2018), AMC Blueprint. 
340  European  Commission  (16  December  2020),  Communication  from  the  Commission  to  the  European 
Parliament, the Council and the European Central Bank: Tackling non-performing loans in the aftermath 
of the COVID-19 pandemic (COM(2020) 822 final, p. 16). 
341  In  particular,  BRRD  and  SRMR  require  that  the  measure  is  limited  to  solvent  banks  and  it  does  not 
cover incurred and likely losses. Also, the  amount is limited to the shortfall identified in an asset quality 
review, stress test or equivalent exercise. 
342 Out of  which rules, the  most relevant  for the purpose  of this impact assessment,  is the  2013 Banking 
Communication, see European Commission (2013), Banking Communication. 
343 Source: CEPS study, p. 124. 

182 

 
                                                           
the BRRD344. Available evidence shows that some preventive measures were assessed as 
being private or in line with market conditions (i.e. EUR 5.92bn funded by private arm of 
DGS fund or market-conform  public measures)  and therefore not  qualified as State aid 
(see Annex 9).  

Moreover, the conditions for application of DGSD preventive measures should be clear, 
harmonised,  and  consistent  with  other  elements  of  the  framework  (e.g.  FOLF  criteria), 
while  safeguards  should  be  applied  to  ensure  that  such  interventions  are  sufficiently 
sound  from  a  financial  perspective  and  would  not  impinge  excessively  on  the  DGS’ 
resources. However, the current legislative text does not provide adequate clarity on such 
safeguards and conditions345. In past interventions observed, national authorities granted 
support to banks, which were rather close to a situation of failure. While the current rules 
do not prevent this, there is scope to reflect on possible improvements in the legislative 
framework to reinforce the role of these measures as preventive actions, which should, in 
principle,  intervene  in  presence  of  a  deterioration  of  the  bank’s  financial  condition  but 
still  far  from  a  condition  of  failure.  The  interactions  between  preventive,  precautionary 
tools, early intervention measures and the timing and process of the FOLF determination 
(laid down in Article 32 BRRD) are also unclear, which may lead to overly extensive use 
of  public/RF/DGS  funds.  In  particular,  the  framework,  gives  the  supervisor,  significant 
discretion  for  determining  solvency,  capital  requirements,  FOLF,  as  well  as  for  the 
timeframe handed to the bank for averting its failure (e.g. through a private solution or 
early intervention measure). All these discretions interact with the conditions for the use 
of  preventive  and  precautionary  tools.  As  mentioned  above,  this  ambiguity  led  to 
situations  where  banks  received  State  aid  in  the  form  of  precautionary  liquidity  on 
grounds, inter alia, of being declared solvent, by the competent supervisor, only months 
before  being  assessed  as  FOLF,  as  the  banks’  solvency  was  assessed  on  the  basis  of  a 
point-in time (thus not forward looking) definition.  

For both,  DGSD preventive measures and  BRRD precautionary measures, amendments 
improving  the  clarity  of  the  relevant  legal  provisions  would  help  limiting  the  risk  that 
preventive support would allow existing senior creditors to exit their claims on the bank 
shortly before FOLF is triggered and resolution/insolvency is applied, which may in turn 
result  in  a  higher  use  of  financing  sources  (RF/SRF  in  resolution  or  DGS  funds  under 
insolvency proceedings). 

Box  10: Example of unclear interaction between precautionary measures and FOLF 
determination – Case of the Venetian banks 

In  January  2017,  two  mid-sized  Italian  banks,  Banca  Popolare  di  Vicenza  and  Veneto 
Banca  (the  “Venetian  banks”),  benefited  from  precautionary  liquidity  support,  on 
grounds,  inter  alia,  of  the  bank  being  declared  solvent  by  the  supervisor,  amounting  to 
EUR  6.5 bn,  which  was supplemented  in  April  2017  by  another  EUR  3.6 bn.  The  total 
amount of the precautionary liquidity measures represented 16% of the banks’ combined 

344  That  is  because  according  to  Article  32(4)(d)  BRRD  the  use  extraordinary  public  financial  support 
(State  aid),  except  in  limited  exceptions  (such  as  in  the  case  of  precautionary  measures)  is  one  of  the 
criteria for FOLF determination and hence may lead to the resolution or insolvency of the bank. 
345 See also Annex 6. 

183 

 
                                                           
balance  sheets  at  the  time  of  the  intervention.  A  few  months  later,  in  June  2017,  both 
banks were declared FOLF by the ECB, followed by a negative PIA by the SRB. As a 
consequence,  the  banks  entered  compulsory  administrative  liquidation  under  the 
management  of  the  national  resolution  authority  which  approved  a  sale  of  business 
transaction under national rules, funded by a cash injection (EUR 4.8 bn) and guarantees 
by the State (EUR 12 bn) in order to facilitate the transfer to the acquirer.  

Overall,  the  total  amount  of  aid  (precautionary  and  under  national  insolvency 
proceedings) amounted to EUR 26.9 bn, representing 43% of the total combined balance 
sheet size of both banks at the time of the intervention.  

Thanks to the significant discretion left to supervisors for determining solvency, capital 
requirements,  FOLF,  as  well  as  for  the  timeframe  handed  to  the  bank  for  averting  its 
failure (e.g. through a private solution or early intervention measure), the Venetian banks 
received  a  significant  amount  of  public  support  (EUR  10.1  bn)  in  the  form  of 
precautionary  liquidity  (which  can  only  be  granted  to  solvent  banks)  to,  only  a  few 
months later, be declared FOLF. These unclear interactions between precautionary tools, 
lack  of  forward 
the  FOLF 
determination346,  affected  the  predictability  of  the  framework  and  did  not  act  as  strong 
filter to prevent an extensive use of public funds.  

looking  solvency  assessment  and 

the  process  of 

7.1.3.4.Predictability of legal framework and the approach to PIA 

Beyond  other  factors  described  above,  the  use  of  tools  outside  resolution  was  made 
possible by the sometimes restrictive approach to the PIA as the entry gate to resolution.  

The  BRRD  and  the  SRMR  provide  in  Article  32  and  Article  18  respectively  that 
resolution authorities should take a resolution action in relation to institutions only if they 
consider  that  a  number  of  conditions  are  met.  One  of  those  conditions  is  that  the 
resolution action is necessary in the public interest347 and this determination is made by 
carrying  out  a  PIA.  This  assessment  requires  a  comparison  between  resolution  and 
insolvency, in order to decide which procedure better meets the resolution objectives348. 
The resolution objectives are considered to be of equal importance and must be balanced 
as  appropriate  to  the  nature  and  circumstances  of  each  case.  Moreover,  the  framework 
also  requires  that,  when  pursuing  the  resolution  objectives,  the  resolution  authority 
should  seek  to  minimise  the  cost  of  resolution  and  avoid  destruction  of  value  unless 
necessary to  achieve the resolution  objectives. Additionally, the  BRRD349  provides that 
authorities  should  have  the  possibility  to  resolve  any  institution,  in  order  to  maintain 
financial stability. 

However,  the  BRRD  and  SRMR  leave  a  margin  of  discretion  for  resolution  authorities 
when  carrying  out  this  assessment,  which  led  to  divergent  applications,  as  well  as  to 

346 Relates to problem 1 and its first driver addressed by this impact assessment (chapter 2, section 2.1.1) 
and evaluation (section 7.1.3.3). 
347 Article 32(1)(c) BRRD and Article 18(1)(c) SRMR. 
348 As per Article 31 BRRD, continuity of critical functions, avoidance of significant adverse effect on the 
financial  system,  protection  of  public  funds,  protection  of  deposits  and  investors  covered  by  investor 
compensation schemes, protection of client funds and client assets. 
349 See recital 29 BRRD.  

184 

 
                                                           
interpretations  which  may  not  fully  reflect  the  logic  and  intention  of  the  legislation. 
While in the Banking Union, the test has been applied rather restrictively and resolution 
was  used  only  three  times350  so  far  under  the  SRMR,  outside  the  Banking  Union, 
resolution has been used more extensively (six out of 13 cases)351. 

Some  resolution  authorities  have  taken  the  approach  that  only  a  limited  number  of 
institutions should meet the PIA. However, several factors are relevant when carrying out 
the  PIA  and  the  assessment  should  not  be  reduced  simply  to  a  matter  of  size  of  the 
institution.  

A first factor in the assessment is the type of normal insolvency proceedings available at 
national level (the counterfactual to resolution), which may lead to different PIA results 
for banks in different Member States. A national insolvency law allowing only piecemeal 
liquidation is likely to be considered inadequate to manage the failure even of a medium-
sized  entity,  as  the  sudden  interruption  of  certain  functions  (e.g.  deposit  taking  and 
payment  services)  could  have  a  negative  effect  on  financial  stability  and  depositors’ 
confidence and undermine the payment system. A different conclusion could be reached 
if  the  national  insolvency  proceedings  allow  additional  ways  to  manage  the  bank's 
failure, such as the transfer of the bank’s deposit book. 

A second factor in the PIA is the impact on financial stability, which should be assessed 
taking  into  consideration  the  economic  environment  at  the  moment  of  failure.  In  the 
event of a widespread crisis, which would potentially weaken several institutions at the 
same time, even the failure of a smaller institution may create ripple effects and impact 
other players in  the market.  This  could  justify  a  decision to  put  that respective bank in 
resolution rather than insolvency. 

A  third  factor  which  is  crucial  to  the  PIA  is  the  assessment  of  the  impact  on  critical 
functions.  The  conclusion  that  winding  up  the  institution  under  normal  insolvency 
proceedings  would  disrupt  its  critical  functions  provides  a  strong  basis  for  a  public 
interest  finding.  The  critical  nature  of  a  function  depends  on  the  effect  of  an  abrupt 
interruption on the economy, the possibility for substitution and other factors. There are 
divergences among resolution authorities in the interpretation of the PIA with respect to 
the geographical reach of critical functions, i.e. whether a function can be deemed critical 
only when its interruption has an impact on the economy of an entire Member State or 
whether  local/regional  impact  can  be  deemed  sufficient.  Similarly,  the  scope  of  the 
assessment  of  the  impact  on  financial  stability  was  set  at  the  level  of  one  or  several 
Member  States.352  However,  the  BRRD/SRMR  refer  also  to  effects  within  a  Member 
State (i.e. within a region) and do not restrict the assessment to impacts on the financial 
stability  of  (at  least)  an  entire  Member  State.  Additionally,  the  relevant  Delegated 

350 Two of those cases relate to the failure of banking entities belonging to the Sberbank Europe AG group, 
which took place under special circumstances (see also Annex 9 for more information on the resolution of 
the Sberbank group)  
351 The remaining four cases  with a positive PIA, concerned resolution in Banking Union Member States 
but  before  the  entry  into  force  of  the  minimum  8%  bail-in  requirement  and  before  the  SRB  became 
responsible for the resolution handling of these cases. 
352 SRB (3 July 2019), Public Interest Assessment: SRB Approach, p. 8. 

185 

 
                                                           
Regulation353 also provides for the assessment of critical functions on a local, regional, 
national or European level, as appropriate for the market concerned. The SRB is revising 
its  PIA  policy,  which  may  incorporate  an  approach  more  considerate  of  local 
implications.354  

A fourth important factor for the PIA is the link with  the funding sources which would 
become potentially available, i.e. resolution fund/DGS funding in resolution versus aid in 
insolvency. At the time of the PIA, due account should be given to the available sources 
of  funding  under  various  tools  and  a  comparison  should  be  made  in  light  of  the  best 
fulfilment  of  the  resolution  objectives  and  the  overarching  principle  underlying  the 
resolution framework i.e. avoiding recourse to bail-outs. Past applications of the PIA did 
not manage to avoid a use of large amounts of public support in insolvency, leading to 
sub-optimal  results  from  the  perspective  of  preserving  financial  stability,  preventing 
moral hazard or safeguarding level-playing field. Also, the objective to limit the cost for 
taxpayers could benefit from a further distinction between the use of public funds from 
the  State  budget  and  the  use  of  the  RF/SRF  or  the  DGS,  which  are  financed  by  the 
industry.  

Consultations  with  stakeholders355  showed  that  most  stakeholders  consider  that  the 
provision, as regulated now, gives opportunity for too many different interpretations and 
therefore creates level playing field issues and uncertainty. Many respondents argue that 
the outcome of the PIA in the planning phase should be more predictable. 

7.1.3.5. Interaction  between  national  insolvency  proceedings  and  resolution 

triggers 

National insolvency proceedings have been so far chosen over resolution in most of the 
recent cases of bank failures. However, these proceedings are very heterogeneous across 
EU Member States, not always tailored to the specificities of banks. Therefore, there is 
no  consistency  EU-wide  as  to  how  a  bank  failure  will  be  managed  if  resolution  is  not 
used. For example, some Member States have special regimes applicable only to banks, 
while  others  have  ordinary  insolvency  regimes  applicable  to  all  kinds  of  firms;  some 
implement  judicial-based  frameworks,  while  others  administrative-based  frameworks. 
Some  Member  States  aligned  the  triggers  for  commencing  national  insolvency 
proceedings with the BRRD FOLF triggers. However, in many Member States, a lack of 
such alignment may result in legal uncertainty in the management of the banks that are 
not  resolved  (lead  to  a  break  in  the  continuum  between  going  and  gone  concern),  in 
particular in cross-border cases.  

This  variety  of  procedures  creates  a  level  playing  field  problem,  as  creditors  and 
depositors  may  be  treated  differently  across  the  EU,  potentially  impairing  the  single 

353  Commission  Delegated  Regulation  (EU)  2016/778  of  2  February  2016  supplementing  Directive 
2014/59/EU  of  the  European  Parliament  and  of  the  Council  with  regard  to  the  circumstances  and 
conditions  under  which  the  payment  of  extraordinary  ex  post  contributions  may  be  partially  or  entirely 
deferred, and on the criteria for the determination of the activities, services and operations with regard to 
critical functions, and for the determination of the business lines and associated services with regard to core 
business lines, OJ L 131, 20.5.2016, p. 41. 
354 SRB (May 2021),  PIA policy considerations. 
355 Annex 2 of the impact assessment and the published summary of the consultations.  

186 

 
                                                           
market  in  banking  and  fuelling  financial  fragmentation.  Importantly,  the  lack  of 
sufficient  clarity  on  the  need  for  exiting  the  market  in  a  timely  manner,  in  case  of 
winding  up  following  a  negative  PIA,  could  be  an  incentive  for  governments  to  also 
extend  some  forms  of  support  to  banks  that  lack  a  sustainable  business  model, 
particularly contributing to generating a heavy legacy of excess capacity in the system.  

The underlying assumption with respect to an insolvency procedure is that once the bank 
is put in insolvency it must exit the market. This does not have to happen immediately 
nor  following  a  single  procedure.  A  bank  may  be  sold  through  liquidation  (i.e.  in  a 
piecemeal fashion) or (partial) sale of the business. However, a market exit should take 
place within a reasonable timeframe. 

Under  the  current  rules  on  insolvency,  however,  this  outcome  is  not  necessarily 
guaranteed. In certain cases, it is possible that no action at all can be taken, because when 
the bank is declared FOLF as per the BRRD and there is no PIA to resolve it, the triggers 
to  initiate insolvency  are not  met. To address this potential “limbo” situation, the 2019 
Banking Package introduced Article 32b BRRD, requiring Member States to ensure the 
orderly winding up in accordance with the applicable national law of failing banks which 
cannot  be  resolved  due  to  negative  PIA.  However,  it  is  still  unclear  whether  the 
implementation  of  this  Article  in  the  national  legal  framework  would  address  any 
residual  risk  of  standstill  situations,  in  particular  in  those  cases  where  the  bank  was 
declared FOLF on the basis of forward looking triggers (“likely to fail”). 

These differences in insolvency that can be observed across the EU have consequences 
even  for  banks  that  are  resolved.  This  is  due  to  the  fact  that  normal  insolvency 
proceedings  are  used  in  resolution  as  the  main  element  of  comparison  for  assessing 
compliance with the “no creditor worse off” (NCWO) principle. 

The problem  driver described above may  further complicate the handling of failures of 
cross-border banking groups, as the entities of the group are handled according to a mix 
of European and national rules for triggering resolution and insolvency, respectively. 

Box  11:  Example  of  unclear  interaction  between  FOLF  triggers  and  national 
insolvency triggers - Case of ABLV  

In  February  2018,  the  ECB’s  FOLF  decision  for  both  the  Latvian  parent  and  its 
Luxembourg  subsidiary356,  was  based  on  an  assessment  that  the  bank  would  likely  be 
unable, in the near future, to pay its debts or other liabilities as they fall due. Following 
the  FOLF  determination,  the  SRB  assessed  that  a  resolution  procedure  was  not  in  the 
public interest (i.e. negative PIA)357. Consequently, the winding up of the parent and the 
subsidiary  had  to  take  place,  under  the  national  insolvency  law  of  Latvia  and 
Luxembourg, respectively.  

However,  the  Latvian  insolvency  law  does  not  provide  for  the  immediate  start  of  the 
liquidation  of  an  entity,  as  long  as,  it  still  possesses  a  licence  to  operate  and  is  able  to 

356 ECB (24 February 2018) Press release on FOLF determination for ABLV Bank 
357 SRB (24 February 2018) Press release on SRB’s decision not to take a resolution action for ABLV Bank 
and its subsidiary in Luxembourg 

187 

 
                                                           
meet its payment obligations. As a result, although an assessment of the likely inability 
of the bank to meet its payment obligations was sufficient reason for ECB to determine 
that the parent and its subsidiary were FOLF, it did not constitute sufficient grounds for 
opening  winding  up  proceedings,  under  the  national  insolvency  laws  of  Latvia  and 
Luxembourg, for the two FOLF entities. To end this limbo situation, the shareholders of 
the  Latvian  parent  bank  had  to  be  convinced  to  liquidate  the  bank,  voluntarily.  In 
contrast,  the  Luxembourg  subsidiary  was  subject  to  a  suspension  of  payments  regime 
(moratorium)  until  the  start  of  the  judicial  liquidation  process  almost  two  years  later. 
Consequently,  the  Luxembourg  subsidiary  was  faced  with  a  situation  of  legal 
uncertainty, because it was declared FOLF, but could not exit the market for a prolonged 
period of time358. 

Feedback from the consultations with the stakeholders359 revealed that the majority is in 
general, supportive of a full or maximum possible alignment between national insolvency 
proceedings and resolution triggers bearing in mind restrictions in national law (such as 
Constitutional features). Some of the stakeholders explained that such alignment is 
already in place in some jurisdictions. 

7.1.3.6. Non-harmonised national ranking of claims in insolvency 

Insolvency  proceedings  as  a  counterfactual  to  resolution  play  an  important  role  when 
assessing  the  application  of  resolution  tools.  Concretely,  resolution  authorities  must 
ensure  that  the  application  of  resolution  tools  would  not  make  creditors  worse-off  than 
they  would  have  been  in  insolvency  (NCWO  principle).  Furthermore,  liabilities  absorb 
losses and contribute to the recapitalisation of an institution in resolution in an order that 
is largely determined by the hierarchy of claims in insolvency.  

The  BRRD harmonised  certain rules on the priority  ranking in national  laws  governing 
normal insolvency proceedings of the following liabilities: (i) covered deposits and DGS 
(Article 108(1)(b)), (ii) the part of eligible deposits from natural persons and micro, small 
and  medium-sized  enterprises  (SMEs)  exceeding  the  DGSD  coverage  level  (Article 
108(1)(a))360, (iii) senior non-preferred debt instruments (Article 108(2) and (3)) and (iv) 
own funds items (Article 48). However, important divergences in the hierarchy of claims 
remain  when  it  comes  to  the  ranking  of  ordinary  unsecured  claims,  other  deposits  and 
exclusions from bail-in.  

Such  divergences  have  the  potential  to  create  uneven  playing  field  in  cross-border 
resolutions and uneven treatment of creditors in resolution and in insolvency, as well as 
additional complexity when conducting the NCWO assessment for cross-border groups, 
particularly among jurisdictions participating in the Banking Union.  

358  Relates  to  problem  1  that  groups  together  all  identified  issues  of  legal  certainty  in  the  existing 
framework, addressed by this impact assessment in chapter 2, section 2.1 and chapter 5, section 5.5, as well 
as in annex 8 (section 6) and the evaluation (section 7.1.3.5). 
359 See Annex 2 of the impact assessment.  
360 As well as deposits that would be eligible deposits from natural persons and SMEs were they not made 
through branches located outside the Union of institutions established within the Union. 

188 

 
                                                           
Feedback from the consultations with the stakeholders confirmed that a large majority of 
the  respondents  perceived  that  the  differences  between  bank  creditor  hierarchies  across 
Members  States  could  complicate  the  application  of  resolution  action  as  they  viewed 
these  divergences  as  a  source  of  increased  fragmentation  in  the  EU  and  differentiated 
treatment amongst creditors. 

Box 12: Overview of main differences in national ranking of deposit claims 

In recent years, an increasing number of Member States (BG, CY, EL, HR, HU, IT, PT, 
SI)361  have  granted  a  legal  preference  in  insolvency  to  the  remaining  deposits  as  a 
complement to the protection already afforded to covered deposits and eligible deposits 
of natural  persons and SMEs under Article 108(1) BRRD.362 While those deposits  now 
rank  in  insolvency  above  ordinary  unsecured  claims  (including  senior  bondholders 
eligible for MREL), they continue to rank below the deposits referred to in Article 108(1) 
BRRD. 

7.1.4.  Objective  (4):  Did  the  framework  achieve  the  objective  of  protecting 
depositors  and  ensuring  depositor  confidence  across  the  EU?  In  the 
Banking Union, what is the impact of the absence of EDIS? 

Overall,  the  framework  achieved  the  objective  of  protecting  depositors  and  ensuring 
depositor  confidence  across  the  EU.  In  particular,  the  coverage  level  contributes  to  the 
effectiveness  of  the  DGSD  framework  and  to  depositors’  confidence,  as  it  allows 
protecting almost all deposited amounts and a very large part of the depositors’ wealth. 
However,  as  the  framework  is  not  consistently  applied  across  the  EU,  depositor 
protection and confidence is achieved in a sub-optimal way.  

Box 13: Information on covered deposits, available financial means363 and target level 

The  amount  of  covered  deposits  is  increasing.  By  the  end  of  2021,  the  target  level  of 
0.8% of all covered deposits in the European Union amounted to EUR 64 bn, though the 
DGS’s  available  financial  means  were  0.71%  of  covered  deposits  (or  EUR 57 bn),  a 
difference which is  consistent  with  the objective set  in  the Deposit  Guarantee Schemes 
Directive of reaching the target level by July 2024. 

361 SRB Liability Data Report and related guidance. 
362  More  specifically,  these  Member  States  have  granted  a  preferred  ranking  to  eligible  deposits  of  large 
corporates, in the part exceeding the coverage level of the DGS, and to deposits excluded from repayment 
by  the  DGS  pursuant  to  Article  5(1)  DGSD,  such  as  deposits  held  by  public  authorities,  financial  sector 
entities and pension funds. 
363  In  the  year  2021,  the  EBA  published  data  for  available  financial  means,  make  a  delineation  between 
“qualified available financial means” (QAFM) and “other available financial means” (other AFM). The 
QAFM  constitute  funds  raised  directly,  or  indirectly,  from  the  banks,  which  count  towards  reaching  the 
minimum  target  level  of  0.8%  of  covered  deposits.  Other  AFM  constitute  funds  which  have  not  been 
contributed by the banks but derive e.g., from taking a commercial loan. These funds do not count towards 
the target level of 0.8% of covered deposits. Taken together, QAFM and other AFM add-up to the DGS’s 
available  financial  means.  For  the  years  2015-2020  the  EBA  data  for  available  financial  means  did  not 
make  such  a  delineation  (see  EBA  Deposit  Guarantee  Schemes  data  for  more  information).  As  regards 
2021,  the  European  Commission  calculations,  for  the  purposes  of  this  Annex,  are  based  on  the  EBA 
QAFM, which are relevant for the measurement of the target level of 0.8%.  

189 

 
 
 
 
                                                           
Figure 16: Overview of covered deposits and available financial means in the EU 

Source: EBA data and European Commission calculations 

Main factors influencing the objective’s achievement 

influencing  performance 

Factors 
objective 
1)  Level  of  depositor  protection  across  Member 

against 

States 

Overall impact on objective 

Positive  (most  of  depositors  are  fully 
covered) 

2)  Harmonised  rules 
Member States 

for  depositors  across 

still 
Mainly  positive 
discrepancies  in  depositors  protection 
among Member States) 

(there  are 

3)  DGS contribution in resolution 

Negative (never used) 

4)  Robustness of DGS funds 

Mainly  negative 
large shocks, lack of EDIS) 

(vulnerability 

to 

7.1.4.1. Level of depositor protection across Member States 

The level of depositor protection remains high since the entry into force of the DGSD, as 
most  of  depositors  are  fully  covered  with  a  coverage  level  of  EUR 100 000.  The 
Commission’s impact assessment of 2010 reported that the unweighted average ratio of 
fully covered depositors to eligible depositors was 95.4% in 2007364. According to EBA 
data  of  2017365,  98.1%  of  depositors  and  61.2%  of  eligible  deposits  are  fully  protected 
with  a  coverage  level  of  EUR 100 000  (i.e.  the  amount  of  their  deposits  is  lower  than 

364 The weighted average ratio in terms of sums deposited i.e. the ratio of the amount of covered deposits to 
eligible deposits was 71.8% in 2007. 
365 EBA Opinion on ‘the eligibility of deposits, coverage level and cooperation between deposit guarantee 
schemes’ (p. 37). 

190 

 
 
 
 
 
 
 
                                                           
EUR 100 000). Moreover, JRC’s quantitative analysis366 showed that the coverage levels 
of  the  temporary  high  balances  allow  protecting  a  very  large  percentage  of  depositors’ 
wealth.  In  almost  all  Member  States,  the  coverage  level  for  temporary  high  balances 
allows protecting more than 95% of depositors’ wealth. 

7.1.4.2. Harmonised rules for depositors across Member States 

As  set  out  in  Annex  6,  despite  improved  depositor  confidence,  the  experience  with  the 
framework so far has also shown some weaknesses. A lack of clear and consistent rules 
in  the  DGSD  as  well  as  certain  flexibility  for  national  interpretation/  discretion/ 
transposition  of  the  rules  seems  to  lead  to  discrepancies  and  coverage  issues  when  it 
comes to depositor protection across the EU.  

In  terms  of  scope  of  protection,  the  coverage  level  for  THBs  varies  between  Member 
States  from  EUR 200 000  to  an  unlimited  amount.  While  practical  experience  on  this 
matter has only  been recorded in  two Member States, it  is  estimated that  up to  10% of 
covered deposits367 are impacted by this non-harmonised approach.  

Consequently,  depositors  enjoy  different  levels  and  types  of  guarantees  depending  on 
their  location,  leading  to  inconsistent  access  to  financial  safety  nets  for  EU  depositors. 
Other  ONDs  lead  to  discrepancies  in  depositor  protection.  For  instance,  small  public 
authorities  and  agencies  distinct  from  the  government  could  be  protected  in  some 
Member States, but not across the EU. Similarly, clients whose funds are held through the 
intermediary of non-bank financial institutions as payment or e-money service providers 
may be covered only in some Member States. 

In addition, the level playing field varies among Member States due to differences in the 
implementation  of  the  alternative  funding  arrangements.  Some  Member  States  put  in 
place concrete alternative funding arrangements, while other Member States did not. This 
lack of additional resources to rely on in case the DGS were depleted could impact the 
ability to payout depositors and endanger consumer confidence and financial stability. 

Furthermore, some Member States transposed Articles 11(3) and/or 11(6) DGSD, while 
others did  not.  As mentioned earlier in  Section 7.1.3.3, nine Member States transposed 
Article  11(3)  DGSD  allowing  financing  measures  to  prevent  the  failure  of  credit 
institutions.  Moreover,  11  Member  States  transposed  Article  11(6)  DGSD  allowing 
financing  alternative  measure  to  payout  aiming  at  preserving  the  access  to  covered 
deposits. These measures allow to use DGS funds to prevent the failure of the banks or to 
finance alternative measure to payout respectively. The implementation of these options 
may  create  unlevel  playing  field.  Some  DGSs  could  be  more  cost-effective  as 
transferring  the  bank  to  a  buyer  in  case  of  alternative  measure  would  preserve  the 
franchise value better than by selling assets in a piecemeal approach. Following the same 
logic, preventive measures could minimise the costs for the DGS even more than when 
the FOLF/insolvency trigger is reached as a result of higher losses. These differences in 

366 See JRC report on THB’s (Annex 12) and Annex 6 of this impact assessment on DGSD review related 
matters. 
367 Source: CEPS study. 

191 

 
                                                           
tools  available  could  also  lead  to  efficiency  discrepancies  among  Member  States  (see 
Section 7.2 on efficiency). 

Another  issue  of  consistency  is  related  to  the  DGSD  conditions  associated  with  the 
application  of  preventive  and  alternative  measures,  which  are  unclear  and  differently 
interpreted  among  Member  States368.  Regarding  the  alternative  measures,  Article  11(6) 
DGSD  provides  that  “the  costs  borne  by  the  DGS  do  not  exceed  the  net  amount  of 
compensating covered depositors at the credit institution concerned”. This least cost test 
aims  at  comparing  for  the  DGS,  the  cost  of  a  payout  with  the  cost  of  the  alternative 
measure.  The  less  costly  measure  must  be  applied.  However,  Member  States  use 
different  methods  in  calculating  this  least  cost  test.  For  instance,  some  Member  States 
include indirect costs like potential cost for the banking sector, opportunity cost for the 
DGS, impact on depositors’ confidence in calculating the cost of a payout. By contrast, 
other Member States use a stricter method,  only  including direct  costs (costs related to 
the  liquidation  and  payout  process).  As  regards  preventive  measures,  Article  11(3)(c) 
DGSD provides that “the costs of the measures do not exceed the costs of fulfilling the 
statutory or contractual mandate of the DGS”. Some Member States use the same least 
cost test for both preventive and alternative measures, while other Member States did not 
develop  a  least  cost  test  methodology  in  case  of  preventive  measure,  considering  that 
comparing the cost of the preventive measure with the cost of a payout is not relevant as 
no insolvency proceeding is expected. 

7.1.4.3. DGS contribution in resolution 

Under the existing CMDI framework, the main sources of funding in resolution, are the 
bank’s  own  liabilities,  which  have  to  contribute  through  a  minimum  amount  of  bail-in 
(8%  of  TLOF)  before  external  funding  in  the  form  of  the  SRF  under  the  SRM  for  the 
Banking  Union  and  national  resolution  funds  for  non-Banking  Union  Member  States 
may contribute to the resolution cost. DGS funding is a complementary source of funds 
in  resolution:  in  order  to  guarantee  access  to  deposits  in  case  of  bank  resolution,  the 
CMDI  framework  requires  that  national  DGS  contribute  funds  to  finance  certain 
resolution actions and for alternative measures to depositor payouts in insolvency369. The 
exact calibration of the amount depends on the used resolution tool.  

Although  the  use  of  DGSs  is  foreseen  in  the  existing  framework,  the  access  conditions 
seem to prevent this because of the current methodology used to calculate the least cost 
test  and/or  their  super-preference  in  the  creditor  hierarchy370.  Moreover,  the  funds 
available in national DGSs are limited and, so far, the shortfall in available means often 
required additional financing by the public budget. As a result, this instrument has so far 
never been used.  

368 For more details see also Annex 6 of the impact assessment. 
369 This possibility is currently available as a national option under the DGSD enabling the DGS to finance 
alternative measures in insolvency. 
370 For more details see also Annex 6 of the impact assessment. 

192 

 
 
 
                                                           
7.1.4.4.Robustness of DGS funds 

Member States are steadily building up their DGS means to reach 0.8% of total covered 
deposits  by  2024  as  provided  for  by  the  DGSD.  Through  their  nature,  DGS  funds  are 
intrinsically  linked  to  the  contribution  capacity  of  banks  in  their  jurisdiction.  This, 
notwithstanding  a  significant  crisis,  may  put  under  stress  a  national  DGS,  making  it 
difficult  to  settle  individual  depositor  claims  within  the  statutory  time  or  to  intervene 
through another measure than payout. In such situations, a DGS may find it difficult and 
pro-cyclical  to  call  upon  ex  post  contributions  from  its  members  to  make  up  for  the 
shortfall. The next course of action available to the DGS would be to seek funding from 
alternative  arrangements  pursuant  to  DGSD,  which  could  include  private  or  public 
sources. Ultimately, the sovereign gives an explicit or implicit backing to the DGS and it 
acts as ultimate guarantor to national DGSs.  

DGS  funds  continuously  increased  over  the  past  years.  In  terms  of  available  financial 
means,  the  volume  rose  from  EUR 26.7 bn  in  2015  to  around  EUR 57 bn  at  the  end  of 
2021371. Yet, they remain vulnerable to asymmetric shocks, as deposit guarantee schemes 
are  organised  at  national  level  and  no  EDIS  is  in  place.  In  recent  years,  some  national 
DGSs  faced  important  funding  needs,  representing  a  significant  share  of  their  available 
financial  needs.  The  latter  demonstrates  that  the  risk  of  bank  failures  is  relevant  for  all 
institutions,  from  large  to  small  and  that  payout  is  cash  consuming  for  the  DGS,  even 
though the final loss could be limited at the end of the insolvency proceedings.  

Box 14: Impacts of covered deposit payouts in insolvency on the DGS robustness 

In 2018, the failure of ABLV Bank depleted the Latvian DGS’ available financial means 
by  312%,  while  the  payout  event  in  2020  for  Commerzial  Bank  Mattersburg  im 
Burgenland AG’s failure costed an equivalent of 72% of the available financial means of 
the respective Austrian DGS. In Italy, one DGS intervention in 2020 amounted to 67% 
of  the  available  financial  means  of  the  involved  DGS.  In  Germany,  the  cost  in  the 
NordLB  case  amounted to  21% of the available  financial means of the  DGS  related to 
the saving banks. Some of these interventions led to an increase in ex post contributions 
raised from the banking sectors, to avoid reducing the financial capacity of the DGS for 
a  lengthy  period  of  time  and  to  reach  the  target  level  by  2024.  Similarly,  and  more 
recently,  the  payout  in  the  Greensill  Bank  case  caused  in  2021  a  loss  of  31%  of  the 
available financial means of the respective German DGS and the payout in the Sberbank 
failure  amounted  to  an  equivalent  of  211%  of  the  respective  Austrian  DGS’s  available 
financial  means.  These  examples  clearly  show  that  failing  smaller  and  medium-sized 
banks  have  material  impacts  on  the  DGS  robustness,  even  during  a  period  without 
systemic financial trouble.  

More  generally,  the  ECB’s  occasional  paper  advocating  for  DGS’  intervention  in 
transfers of assets372 shows that 261 banks, banking groups or hosted subsidiaries in the 

371 EBA Deposit Guarantee Schemes data and European Commission calculations. 
372 ECB (October 2022), Protecting depositors and saving money - why DGS in the EU should be able to 
support transfers of assets and liabilities when a bank fails. 

193 

 
 
                                                           
Banking Union could individually deplete their fully-filled DGSs with a single covered 
deposits payout event in insolvency. While 129 of these banks are significant institutions 
likely  to  involve  resolution  rather  than  a  depositor  payout  in  insolvency,  the  132 
remaining  are  less  significant  institutions  or  their  hosted  subsidiaries,  which  also  have 
covered deposits exceeding the target level of their DGSs. 

The  above  also  recalls  one  of  the  lessons  of  the  euro  area  sovereign  debt  crisis  from 
2011/12 to weaken the link between banks and their national sovereign. A strong bank-
sovereign  nexus  may  create  risks  to  financial  stability  through  contagion  and  negative 
consequences  for  the  single  market.  A  decade  later,  the  continued  reliance  by  national 
DGSs  on  the  State  as  a  buffer  for  depositor  protection  is  a  source  of  vulnerability  that 
needs to be addressed.  

Where the payout  ability of one national  DGS could  be impaired under a severe  crisis, 
mutualising  resources  would  optimise  the  allocation  of  financial  means  where  the 
funding  needs  arise,  significantly  increasing  the  efficiency  of  the  scheme.  Based  on 
available evidence373, in case of a crisis similar to the 2008 one, the probability that some 
depositors  would  not  be  fully  reimbursed  in  at  least  one  Member  State  is  87%.374  The 
analysis also showed that mutualising resources (at least partially) reduces the probability 
of not being able to reimburse some depositors in case of crisis by 80%-90%. The more 
resources are mutualised, the more effective the system is.  

The lack of EDIS may also trigger movements in deposit location. For instance, under a 
severe crisis in one bank or Member State, depositors could be enticed to transfer their 
funds  in  another  bank  or  even  another  country.  Such  practices  may  exacerbate  the 
financial  difficulties  of  one  bank  or  one  national  banking  sector.  One  of  the  key 
principles  of  EDIS  is  to  provide  a  similar  guarantee  to  depositors  regardless  of  the 
institution and their location, which means that depositors would not need to withdraw/ 
transfer their deposits, even under a severe crisis, contributing to stabilising the financial 
situation. 

The robustness of the DGS funds also relies on the investment policy. The DGS financial 
means  must be invested in  a low-risk and sufficiently diversified manner (Article 10(7) 
DGSD).  For  many  DGSs,  the  investment  policy  leads  to  a  very  large  exposure  to  their 
sovereign.  According  to  the  EBA  opinion  on  the  uses  of  DGS  funds375,  nine  Member 
States reported that DGS funds are invested exclusively, or to a large extent, in national 
debt.  Moreover,  the  DGSD  transposition  checks  revealed  that,  in  three  Member  States, 
the DGS deposited its available financial means (at least part of them) in an account in 
the  national  budget  or  Treasury.  These  practices  may  strengthen  the  links  between  the 
DGS and their sovereign. The DGSs that have invested most of their financial means in 
national  debt,  could  suffer  a  decrease  of  their  available  financial  means  in  case  the 
sovereign bonds market is under pressure. In those Member States where DGS available 

373 See also Annex 10 of the impact assessment – section “Establishment of a common scheme for liquidity 
support”. 
374 However, in some cases, the amount of covered deposits that cannot be reimbursed are very low. 
375 EBA opinion on DGS funding and uses of DGS funds (p. 103). 

194 

 
                                                           
financial  means  are  integrated  into  their  national  budget,  a  payout,  following  a  bank 
failure, would require the national treasury to issue sovereign bonds on financial markets 
in order to fund the DGS, maintaining the sovereign-bank loop. 

Lastly,  the  robustness  of  the  DGS  funds  also  relies  on  the  available  sources  of  funding 
which are raised  yearly  and  ex post contributions and alternative funding arrangements. 
The  latter  take  the  form  of  loans  from  the  private  sector  in  case  the  available  financial 
means  of  the  DGS  are  insufficient.  The  DGSD  conformity  checks  showed  that  some 
Member States did not put in place concrete alternative funding arrangements. The EBA 
opinion on DGS funding and DGS funds also highlights that in nine Member States, there 
is  no concrete alternative funding  arrangement in place376.  In the absence of EDIS, this 
could also compromise the ability of the DGS to reimburse depositors when its financial 
means are depleted, at the risk of financial stability and depositors’ confidence. 

7.2. Efficiency 

How  efficient  has  the  EU  intervention  been?  To  what  extent  have  the  rules 
regarding  the  recovery  and  orderly  resolution  of  banks  under  the  BRRD/SRMR 
and  the  ones  regarding  depositor  protection  under  the  DGSD  been  cost-effective? 
Are  there  significant  differences  in  costs  or  benefits  between  Member  States  and 
what is causing them? 

Summary assessment: 

The evaluation found that the CMDI framework is not sufficiently cost-effective.  

On one hand, the main benefits of the framework include enhanced crisis preparedness, 
contingency planning and the disciplining influence that the existence of the framework 
exerts  on  banks  and  markets  (i.e.  through  the  creation  of  powers,  loss  absorption 
transparency  and 
requirements,  resolvability  requirements,  reporting  and  more 
disclosure, EU-wide DGSs). However, some of these benefits remain rather theoretical, 
as the contingency planning measures, on several occasions, were not implemented and 
alternatives to resolution were followed.  

On the other hand, the implementation and operationalisation of the CMDI framework 
came  with  significant  costs  for  the  banking  industry,  Member  States,  resolution 
authorities.  Yet  despite  the  costs,  the  framework  and  its  tools  and  powers  have  been 
scarcely used in practice, especially in the Banking Union under the SRMR. In addition, 
the  use  of  public  funding  in  recent  cases  of  bank  failures  indicates  a  redistribution  of 
costs from banks’ senior unsecured creditors to the taxpayers, despite scrutiny on such 
usage of public funds through the EU State aid rules. As taxpayers continue to bear the 
cost of bank failures, contributions raised from the industry for the same purpose remain 
idle.  Furthermore,  available  evidence  suggests  that  these  costs  are  uneven  between 
Member States, as national requirements and practices diverge widely. 

376 EBA opinion on DGS funding on uses of DGS funds (p. 44). 

195 

 
 
                                                           
7.2.1.  Benefits of the framework 

An  accurate  quantification  of  benefits  generated  by  the  implementation  of  the  CMDI 
framework is very challenging as it cannot be disentangled from other prudential policies 
(e.g. Basel III), macroeconomic measures and central bank monetary policies which were 
pursued  in  parallel  with  the  implementation  of  the  framework,  following  the  global 
financial crisis. Besides this complexity, many bank failures were handled using powers, 
tools and funding outside of the resolution framework.  

However,  evidence  by  resolution  authorities  and  the  EBA,  stakeholder  feedback  to  our 
consultations  and  the  FSB’s  Too  big  to  fail  report  show  some  positive  impacts  of  the 
framework in reducing risks to financial stability, “too big to fail” and moral hazard on 
one hand, and increasing market discipline, level of preparedness, resolvability and crisis 
contingency  planning  on  the  other  hand.  In  addition,  some  of  these  impacts  can  be 
expected  to  be  further  supported  by  the  fact  that  banks  have  been  building  their  loss 
absorbing capacity over the last few years. Moreover, depositors have been protected and 
the society’s access to critical banking services preserved.  

The  main  benefits  of  the  framework  are  linked  to  the  disciplining  effects  that  the 
existence  of  the  framework  had  on  banks  and  markets  (i.e.  through  the  creation  of 
powers,  loss  absorption  requirements,  resolvability  requirements,  reporting  and  more 
transparency  and  disclosure,  EU-wide  DGSs).  Yet,  these  benefits  remain  difficult  to 
disentangle and challenging to attribute directly to the application of the framework. 

7.2.2.  Costs of the framework 

The  implementation  of  the  CMDI  rules  did  not  come  without  costs  for  the  industry, 
authorities, Member States and citizens.  

7.2.2.1. Creation and set-up of new resolution authorities 

First,  the  BRRD  and  SRMR  mandated  the  creation  and  operationalisation  of  resolution 
authorities  in  each  Member  State  as  well  as  the  creation  of  the  SRB  as  the  central 
resolution  authority  in  the  Banking  Union.  While  there  may  have  been  some  cost 
synergies in creating the resolution authorities in Member States, especially in relation to 
already existing supervisory and financial stability teams in central banks, the SRB had to 
be created from scratch. The SRB’s annual budget for administrative expenses is funded 
through  ex  ante  industry  contribution  in  accordance  with  the  SRMR  and  Commission 
Delegated Regulation (EU) 2017/2361377. According to the SRB’s budget for 2022378, the 
amount for the administrative contributions by the industry is budgeted to EUR 120.4 m 
(up  from  EUR  119 m  in  2021).  The  cumulative  administrative  costs  of  the  SRB,  from 
2014  to  2020,  can  be  approximated  from  the  administrative  contributions  raised  by  the 
SRB over the same period, which amount to EUR 479 m379. The 2022 establishment plan 

377  Commission  Delegated  Regulation  (EU)  2017/2361  on  the  final  system  of  contributions  to  the 
administrative expenditures of the Single Resolution Board. 
378 SRB (September 2021), Budget 2022. 
379 SRB, Administrative Contributions. 

196 

 
                                                           
included in the budget showed a budgeted headcount of 450 employees, which is same as 
in 2020 and up from 400 in 2021380. 

7.2.2.2. Contributions to resolution financing arrangements 

Second, in order to finance resolution actions, the framework created national resolution 
funds  in  each  Member  State  (Article  100  BRRD)  and  the  SRF  in  the  Banking  Union 
(Article  70  SRMR).  The  resolution  funds  must  reach  at  least  1%  of  the  amount  of 
covered deposits of all credit institutions authorised in the participating Member States by 
31  December  2023.  Banks  pay  yearly  contributions  towards  such  target.  Resolution 
authorities  are  responsible  for  the  calculation  of  ex  ante  contributions  by  applying  the 
methodology set out in the Commission Delegated Regulation (EU) No 2015/63 and the 
Council  Implementing  Regulation  (EU)  No  2015/81,  which  guarantees  a  level  playing 
field among Member States. In the Banking Union, there is a system of transfers from the 
national resolution funds to the SRF combined with mutualisation at the level of the latter 
Fund, whereby the national resolution authorities are responsible for the collection of ex 
ante industry contributions and for transferring these into the SRF. During the eight year 
initial period (2016 – 2023), contributions raised at national level and transferred to the 
SRF are allocated to national compartments corresponding to each participating Member 
State. All national compartments will be merged and cease to exist at the end of the eight 
year initial period381. 

Table 2: 2021 situation of national compartments of the resolution funds (EUR bn) 

Source: SRB data, 2021 compartments, data as of 14 July 2021. Figures are in EUR bn and rounded.  

380  Data  on  the  related  costs  for  the  NRAs  and  the  national  DGSs  are  not  available.  For  national  DGSs 
under  public  governance  and  NRAs  the  budgeted  headcounts  are  usually  integrated  in  the  budgets  of 
national central banks or other financial market authorities. 
381  Council  of  the  European  Union  (May  2014),  Intergovernmental  Agreement  on  the  transfer  and 
mutualisation of contributions to the Single Resolution Fund (IGA). 

197 

AT1,50BE1,96CY0,13DE13,73EE0,05EL0,58ES5,35FI1,08FR15,43IE0,84IT5,23LT0,05LU0,90LV0,04MT0,05NL4,28PT0,79SI0,07SK0,15BG0,10HR0,11Total52,43Current size of national compartment 
 
                                                           
Between 2016 and 2021, banks in the Banking Union contributed a total  of EUR 52 bn 
for the financing of this safety net. Since this target is defined by reference to the level of 
covered deposits, it is dynamic, and as the latter have been growing more than anticipated 
in the last couple of years, the yearly contributions by the industry are increasing (i.e. as 
per  the  SRB’s  2022  budget,  it  expects  to  collect  EUR  11.2 bn  in  the  SRF  in  2021, 
compared with EUR 10.4 bn collected in 2021). Where the available financial means of 
the resolution  funds/ SRF are not  sufficient  to  cover the losses, costs or  other expenses 
incurred  by  their  use  in  resolution  actions,  extraordinary  ex  post  contributions  may  be 
raised in addition.382 

In a similar way, banks  have also contributed to  the funding of national  DGS. Between 
2015  and  2021,  the  contributions  from  the  banks  in  the  EU  amounted  to  EUR 30.2 bn. 
Consequently,  the  available  financial  means  increased  from  EUR 26.7 bn  to  around 
EUR 57 bn.  It  should  be  noted  that  the  costs  of  depositor  protection  for  the  banking 
sectors  are  higher  than  expected:  the  target  level  (i.e.  0.8%  to  be  reached  by  2024)  is 
defined as a percentage of the covered deposits, which have increased significantly over 
the past years (from EUR 5 957 bn to EUR 8 039 bn between 2015 and 2021). Based on 
the amount of covered deposits  at  end 2021 (EUR 8 039 bn but this amount  is likely to 
increase), the expected contributions amount to  EUR 7.3 bn in  order to reach the target 
level by 2024. 

Table 3: Situation of available financial means in the DGSs of EU Member States 
(2021) 

Source: EBA data and European Commission own calculations, figures are in EUR bn and rounded. 

382 Article 105 BRRD. 

198 

AT1.08BE4.65BG0.75CY0.17CZ1.50DE12.15DK1.20EE0.27EL1.65ES5.27FI1.34FR5.84HU0.24HR0.75IE0.71IT3.22LT0.15LU0,29LV0.17MT0.15NL3.19PL4.07PT1.67RO1.38SE4.66SI0.12SK0.30Total56.9Current level of available financial means in EU Member States 
 
                                                           
7.2.2.3. Costs  of  enhancing  resolvability  (MREL  issuance,  reporting,  internal 

projects geared towards resolvability) 

The framework sets out the methodology for the setting up of the MREL on a on a bank 
by  bank  basis.  The  BRRD/SRMR  (Art  45b,  12c  respectively)  specify  also  the 
subordinated  MREL  requirements,  which  ensure  the  build-up  of  a  layer  of  instruments 
which rank junior in the hierarchy of claims and can, therefore, absorb losses with greater 
certainty in resolution.  

Issuing MREL eligible instruments383 bears a cost for the industry. Prior to the obligation 
to  hold  MREL  capacity,  banks  were  funding  their  activity  by  issuing  mainly  senior 
secured/unsecured debt on the markets or through deposits. With the implementation of 
the MREL requirement, they must ensure compliance with the MREL eligibility criteria, 
including,  where  relevant,  subordination.  Therefore,  one  way  to  approximate  MREL-
related costs could be through the spread differential between ordinary secured/unsecured 
debt  and  MREL  eligible  liabilities.  The  spread  differential  between  subordinated  and 
senior  instruments  issued  by  banks  (the  former  carrying  higher  issuing  costs)  reflects, 
among  other  things,  the  risk  assessment  by  investors.  Such  an  assessment  is  inherently 
affected by the prevailing market conditions such as the current low level of interest rate. 
Looking forward, in view of the continuous roll-over needs to maintain compliance with 
the requirements it is difficult to forecast the overall burden in terms of funding cost and 
assess their long-term sustainability or possible impact on the funding structure. 

While the cost of MREL debt increased significantly in the first quarter of 2020 on the 
backdrop of the COVID-19 crisis, it stabilised in Q3 2020 and approached pre-pandemic 
levels  since  January  2021.  As  shown  in  the  SRB  MREL  Dashboard  for  Q3  2022,  the 
iTraxx indexes on subordinated and senior financial debt showed for some time a stable 
trend over the period and a tight spread. As depicted in the next figure, as of Q2 2021 the 
subordinated  debt  and  senior  debt  index  were  1.1  and  1.2  times  pre-COVID-19  levels, 
respectively,  although  the  recent  trend  was  negatively  impacted  by  the  volatile  and 
uncertain environment linked to geopolitical tensions and inflationary pressures. 

383 For a comprehensive view of information related to MREL issuances please refer to Annex 13, section 5 
of the impact assessment. 

199 

 
 
 
                                                           
Figure 17: ITraxx Europe Financials (SRB dashboard, data until Q3 2022)  

Source: SRB MREL dashboard Q3 2022  

Beyond the costs of issuing MREL instruments, banks are also bearing costs associated 
with the reporting of extensive information to resolution authorities for the preparation or 
update  of  annual  resolution  plans,  MREL  calibration  and  for  implementing  internal 
projects  to  remove  impediments  to  resolvability.  Banks  are  subject  to  legal  resolution-
related reporting requirements whereby they must provide data in adequate format at pre-
defined cut-off dates. In addition to these established reporting requirements, resolution 
authorities have the power to request ad-hoc data from banks, as considered relevant and 
needed  for  carrying  out  their  activity.  The  Commission’s  fitness  check  on  supervisory 
reporting,  which  spanned  several  legal  instruments,  found  that,  in  2017,  the  costs 
associated  with  reporting  of  information  and  potential  overlaps  among  reporting 
requirements  was  on average about  30% of total  compliance costs or 1% of the annual 
operating costs for a sample of regulated entities384. 

Other  types  of  costs  borne  by  banks  are  associated  with  internal  projects  aimed  at 
enhancing  their  resolvability.  Examples  of  such  projects  include  but  are  not  limited  to: 
upgrading  management  information  systems  (MIS)  in  order  to  enable  the  gathering  of 
information in a timely fashion to sustain a speedy valuation and other data reporting to 
resolution authorities in case of, or in the run up to, resolution; implementing additional 
reporting  to  monitor  liquidity  needs  (inflow,  outflows  by  counterparty,  currency,  cross 
border,  etc.);  removing  impediments  to  resolvability,  for  example  by  ensuring 
separability of certain critical functions or business centres or entities, divesting certain 
business lines, setting-up a holding company on top of the operating bank, transforming 
subsidiaries into branches, or other structural changes that bear important costs. 

Such  costs  may  be  difficult  to  quantify  and  potentially  disentangle  from  other  internal 
projects  implemented  by  banks,  such  as  in  the  context  of  implementing  digitalisation 
strategies, or operational efficiency and in the absence of a comprehensive survey across 
all EU banks.  

384  European  Commission  (November  2019)  Commission  staff  working  document  –  Fitness  check  of  EU 
Supervisory reporting requirements.  

200 

 
 
                                                           
7.2.2.4. Costs for taxpayers 

As  illustrated  in  section  7.1.2.1,  available  evidence  show  that  the  use  of  significant 
amounts of public money from State budget has been necessary to manage past cases of 
distressed banks. In this context, we could also speak of a potential redistribution of costs 
away  from  the  banks’  senior  unsecured  creditors  who  hold  financial  claims  against  the 
banks, to taxpayers who did not have such financial claims. At the same time, some of 
the safety nets financed by the industry (SRF/RF, DGS) remained sometimes idle. This 
means  that  the  implementation  of  the  framework  has  not  yet  triggered  a  full  mentality 
shift  from  bail-out  to  bail-in,  putting  a  burden  on  public  finances,  and  that  certain 
aspects, such as enhancing access to funding solutions within the resolution framework, 
should be reviewed, so as to further reduce recourse to the public budget and ultimately 
the cost to the taxpayers.  

7.2.2.5. Mutualising national resources of DGS 

DGS  are  managed  at  national  level.  This  means,  that  national  deposits  are  covered  by 
national  resources.  The  JRC  quantitative  analysis  on  various  depositors  protection 
designs385  highlighted  that  mutualising  resources  creates  synergies  that  could  be 
exploited  to  reduce  the  target  level.  Indeed,  when  mutualising  resources,  it  would  be 
possible to maintain (or even increase) the current level of depositors’ protection with a 
lower target level (i.e. lower contributions from the banking sectors). The more resources 
are mutualised the lower the target  level  could  be. Consequently, the cost-effectiveness 
of the system is suboptimal and could considerably be improved386.  

7.2.2.6. Other  measures  than  payout  could  lead  to  a  better  cost-effectiveness 

for the DGS 

The  DGSD  allows  financing  other  measures  than  payout  (preventive  and  alternative 
measures) that could be more cost-effective. Indeed, transferring the bank to a buyer in 
case  of  alternative  measure  would  preserve  the  franchise  value  better  than  by  selling 
assets in a piecemeal approach, thereby minimising the cost for the DGS. Following the 
same logic, preventive  measures  could  minimise the costs for the DGS  even more than 
when the FOLF/insolvency trigger is reached as a result of higher losses. 

Even  though  it  is  very  challenging  to  calculate  the  gain  of  efficiency  resulting  from 
alternative  and  preventive  measures,  the  EBA  analysed  data  regarding  four  preventive 
measures that tend to confirm the cost-effectiveness of measures other than payout. For 
three  preventive  measures,  the  national  DGS  compared  the  cost  of  liquidating  the  bank 
with the cost of the preventive measure.  

385 JRC presentation on ‘measuring the effectiveness and the pooling effect of EDIS (CWP of 2 February 
2021, slide 15). 
386 See also Annex 10 of the impact assessment– section “Establishment of a common scheme for liquidity 
support” 

201 

 
 
 
                                                           
Box 15: Extract EBA analysis of impact of three preventive measures on DGS 

For bank 1, the cost of liquidating the bank was estimated at 32% of the bank’s covered 
deposits, while the cost of the preventive measure amounted to 31%.  

For bank 2, the cost of the liquidation was estimated at 22% of covered deposits, while 
the cost of the preventive measure amounted to 3% of covered deposits.  

For  bank  3,  the  cost  of  the  liquidation  was  estimated  between  4  and  9%  of  covered 
deposits, while the cost of the preventive measure amounted to 3% of covered deposits.  

Even  though  these  numbers  have  to  be  interpreted  cautiously  as  they  are  based  on 
national data and methodologies not harmonised at the European level, they indicate that 
allowing the DGS to finance other measures than payout could be efficient. 

7.2.2.7. Differences in benefits and costs among Member States 

The benefits arising from increased crisis preparedness and contingency planning, more 
resolvable  banks  and  reduced  moral  hazard  are  equally  shared  among  Member  States. 
However, the incidence of costs varies greatly, mainly because the incentives not to apply 
resolution in favour of national insolvency proceedings are Member State-specific. They 
are enabled by the particular set-up of the national insolvency regimes, tools and funding 
sources available to deal with failures outside the EU resolution framework.  

As  shown  in  Annex  9  of  the  impact  assessment,  since  the  application  of  the  CMDI 
framework in 2015, measures other than resolution (precautionary measures, preventive 
measures and national insolvency proceedings) have been applied to more than 60% of 
cases  of  distressed  banks.  The  public  aid  resulting  from  these  operations  amounted  to 
EUR 58.2 bn (of which EUR 28.1 was for liquidity purposes), not counting the amounts 
spent by national DGSs or public budgets on preventive measures qualified as private or 
market-conform public measures (which do not constitute State aid). 

7.3. Relevance 

How relevant is the EU intervention? To what extent are the rules still relevant and 
how  well  do  the  original  objectives  of  the  legal  instruments  correspond  to  the 
current  needs  within  the  EU?  To  what  extent  do  the  risks  to  financial  stability 
stemming  from  bank  crises  continue  to  require  action  at  EU  level?  Have  new 
challenges arisen  which  were not existent at  the time of introduction of the CMDI 
framework and which need to be tackled by the framework? How is the absence of a 
common  guarantee  scheme  for  depositors,  in  the  Banking  Union,  such  as  EDIS 
affect the relevance of the framework?  

202 

 
Summary assessment: 

Despite  certain  important  problems  identified  in  this  evaluation  that  need  to  be 
addressed  in  the  legislative  review,  the  relevance  of  the  CMDI  framework  remains 
intact.  The  evaluation  found  that  the  initial  policy  objectives  of  protecting  financial 
stability,  reducing  the  burden  on  public  finances,  increasing  level  playing  field  in  the 
single  market  and  protecting  depositors  remain  valid.  In  particular,  the  rationale  for 
completing  the  Banking  Union  and  implementing  its  third  missing  pillar,  a  common 
guarantee  for  depositors  is  still  valid.  The  addition  of  a  mutualised  safety  net  such  as 
EDIS would further boost the framework’s relevance. 

The CMDI  framework represents  one of the EU’s key  responses to  the  global financial 
crisis from 2008 and continues to remain very relevant also in today’s context.  

Since  its  implementation,  banks  and  resolution  authorities  are  better  prepared  and 
equipped  to  deal  with  crises.  Contingency  plans  are  drawn  (recovery  and  resolution 
plans)  and  resolvability  assessment  cycles  carried  out  each  year.  Banks  have  become 
more  resolvable  and  are  in  the  process  of  raising  resolution  buffers  to  secure  sufficient 
internal loss-absorbing capacity and reduce the likelihood of recourse to taxpayer money. 
Compared to the period following the global financial crisis, the number of failing banks 
has decreased substantially since the implementation of the rules in 2015: Between 2007 
and (December) 2014, 112 European banking institutions were subject to restructuring or 
orderly  resolution  with  State  aid  support387,  while  since  the  entry  into  force  of  the 
resolution framework, in 2015, the number of distressed banks in need of an intervention 
(including  precautionary  measures  or  preventive  private  or  market  conform  public 
measures) fell to 33. While this positive outcome cannot be solely attributed to the CMDI 
framework  (as  also  other  measures  have  been  enacted  approximately  at  the  same  time, 
such  as  the  CRR/CRD,  EMIR)  it  nevertheless  contributed  to  maintaining  financial 
stability and changing banks’ behaviours in a way that is more closely aligned to social 
objectives.  

The  DGSD  improved  depositors’  protection  and  the  level  playing  field.  Depositors  are 
better-informed  about  their  level  of  protection  and  the  payout  process  in  their  Member 
State,  which  enhances  their  confidence  in  the  banking  system.  The  introduction  of  the 
risk-based contributions improved the level playing field, as the banks contribute to the 
DGS funds based on their risk profile. Even though the methodology for calculating the 
risk-based contributions is not fully harmonised among Member States, it is framed by an 
EBA guideline, which aims to ensure some level of convergence.  

Yet, the implementation of the CMDI framework is not yet complete. The 2019 Banking 
package  is  being  implemented  and  operationalised,  related  level-2  measures  are  being 
finalised  and  the  transitional  period  for  banks  to  comply  with  their  MREL  buffers  runs 

387  European  Commission  (February  2015)  Competition  policy  brief  -  State  aid  to  European  banks: 
returning to viability. 

203 

 
 
                                                           
until 2024. The RF/SRF and DGS funds are also expected to reach their target level by 
2024, as well as a common backstop to the SRF to be provided by the ESM. 

Despite certain important problems identified in this evaluation that need to be addressed 
in the legislative review, the relevance of the framework remains intact. The initial policy 
objectives  of  protecting  financial  stability,  reducing  the  burden  on  public  finances, 
increasing level playing field in the single market and protecting depositors remain valid 
(see  also  Chapter  6  of  this  Evaluation,  Section  “State  of  play  of  the  common  deposit 
guarantee scheme in the Banking Union”).  

The COVID-19 shock struck European economies at a time when the Banking Union is 
still incomplete. As its impact may be increasingly felt, the COVID-19 crisis may put to 
the  test  the  viability  of  the  post-financial  crisis  framework  and  exacerbate  the  pre-
existing  challenges  and  vulnerabilities  of  the  banking  sector.  Judging  by  the  data 
available to date, the increase in the resilience of the sector, combined with the flexibility 
provided by supervisors and regulators to banks has helped them be part of the solution 
to the crisis and continue financing households and businesses, albeit at a declining rate 
following the start of the pandemic. 

7.4. Coherence 

How coherent is the EU intervention? To what extent are rules on the recovery and 
resolution  of  banks  and  depositor  protection  in  the  BRRD/SRMR/DGSD  coherent 
as  a  framework,  but  also  with  provisions  in  other  pieces  of  relevant  legislation  or 
communications? 

204 

 
Summary assessment: 

the  overall 

framework 
This  evaluation  assessed 
(BRRD/SRMR/DGSD),  as  well  as  its  coherence  with  provisions  in  other  pieces  of 
relevant legislation or Communication, in particular, State aid rules, national insolvency 
rules,  the  Capital  Requirements  Directive  (CRD),  AML  Directive,  and  Payment 
services and e-money Directives.  

internal  coherence  of 

the 

Regarding internal coherence, the evaluation found that there is room for improvement, 
in particular as regards certain important BRRD provisions, such as the EIMs that are 
not replicated in the SRMR. Internal inconsistency issues are also found to be present, 
as regards provisions in the BRRD and DGSD concerning the access to DGS funding 
for distressed banks, as well as, in the misalignment  between control and liability, i.e. 
the  centralised  SRM  governance  architecture  versus  the  national  funding  of  measures 
respectively. 

Regarding  coherence  with  provisions  in  other  pieces  of  relevant  legislation  or 
Communication, the evaluation found that there is also scope for improvement, notably 
vis-à-vis:  (i)  the  State  aid  rules  in  what  concerns  the  conditions  to  access  funding  to 
support  tools  outside  resolution;  (ii)  the  interaction  between  national  insolvency 
features and resolution, in particular with respect to triggers and hierarchy of claims and 
strengthening  predictability  and  legal  clarity  in  cross-border  cases;  (iii)  the  coherence 
with the CRD/SSMR, in particularly with regard to early intervention measures; (iv) the 
AMLD,  in  particularly  with  regard  to  clarifying  the  roles  and  responsibilities  of  the 
DGS and other stakeholders (insolvency practitioner, Financial Intelligence Unit, failed 
institution)  during  a  payout  and  strengthening  their  cooperation  and  exchange  of 
information; and (v) the Payment services and e-money Directives, and their interaction 
with the DGSD, in particularly with regard to strengthening the protection by the DGSs 
of  client  funds  held  by  non-bank  financial  institutions  such  as  payment  and  e-money 
institutions or investment firms, which varies from one Member State. 

7.4.1.  Internal coherence: BRRD/SRMR/DGSD 

The  provisions  constituting  the  three  pieces  of  legislation  evaluated  are  strongly  inter-
related, which makes their coherence key in the overall functioning of the framework.  

First,  when  assessing  the  internal  coherence  between  the  BRRD  and  SRMR,  it  is 
important  to  note  the  intention  behind  their  closely  linked  construction.  The  BRRD 
created a harmonised recovery and resolution framework for the Union, applicable in all 
Member  States  through  transposition  of  the  respective  rules  in  the  national  laws  and 
regulations. The SRMR, in addition to creating the SRB and the SRF, laid down uniform 
rules  and  procedures  for  the  resolution  of  the  entities  established  in  euro  area  Member 
States and in Member States, which chose to join the Banking Union. The SRMR, which 
adapts  the  rules  and  principles  of  BRRD  to  the  specificities  of  the  SRM,  is  directly 
applicable in those participating Member States. While many BRRD provisions have an 
equivalence in the SRMR, particularly where needed for the purposes of granting specific 
powers to the SRB, not all BRRD provisions were replicated in the SRMR. Those BRRD 
205 

 
 
provisions, as transposed by Member States, continue to be applicable in so far as they do 
not conflict with the SRMR. 

However, certain provisions are only found in the BRRD and applicable through national 
transposition.  The  EIM  is  an  example  of  such  a  set  of  such  provisions.  As  described 
under  the  effectiveness  criterion  (under  the  third  objective),  the  choice  for  the  legal 
implementation  of  these  provisions  and  the  close  interaction  with  CRD  provisions  on 
supervisory powers are not conducive to a coherent application.  

Second,  the  coherence  between  the  BRRD/SRMR  and  the  DGSD  has  also  been 
evaluated.  As  described  under  the  effectiveness  criteria,  the  coherence  issues  relate  to: 
insufficiently  clear  conditions  to  access  DGS  funding  in  resolution  as  per  Article  109 
BRRD,  inconsistent  access  conditions  to  DGS  funding  as  preventive  measures  and 
national  insolvency  proceedings,  where  feasible,  under  Articles  11(3)  and  11(6)  DGSD 
respectively.  

Another potential incoherence between the resolution and depositor protection legislation 
is due a misalignment between control and liability, i.e. the centralised SRM governance 
architecture versus the national funding of measures respectively. The application of the 
CMDI  rules  in  the  Banking  Union  led  in  the  past  to  situations  where  the  SRB  decided 
that  the  resolution  of  the  bank  was  not  in  the  public  interest  (by  delivering  a  negative 
PIA), triggering its entry into insolvency and with support from funding at national level 
(DGS payout or alternative measures). Such a nationalisation of measures in the Banking 
Union would be mitigated by the  existence of a central  mutualised fund such as EDIS. 
The  lack  of  EDIS  contributes  therefore  to  weakening  the  coherence  within  the 
framework, as potentially insufficient DGS funds at national level are unlikely to address 
the need for solid and reliable contributions to resolution funding under BRRD/SRMR. 

7.4.2.  Coherence with the 2013 Banking Communication (State aid rules) 

As shown also  in  section 7.1.2.3, the  coherence  between the CMDI  framework  and the 
State aid rules could be further improved, most prominently in what concerns conditions 
to  access  funding  to  support  tools  outside  resolution.  The  focus  should  be  on  avoiding 
unwanted divergences with access to funding in resolution, to avoid risks of moral hazard 
and promote a more consistent approach to the management of bank failures, including in 
terms of increased level playing field at EU level. A separate process to assess the need 
for a review of the State aid rules will be ongoing in parallel to the review of the CMDI 
framework.388 

7.4.3.  Coherence with national insolvency regimes 

As  described  in  section  7.1.3.5,  the  coherence  between  the  CMDI  framework  and 
national insolvency regimes could also benefit from further improvements. Some specific 
areas  include  the  interaction  between  national  insolvency  features  and  resolution,  in 
particular with respect to triggers. The legal “limbo” situation that may occur in practice 
could be mitigated.  

388 See section 5.2 in chapter 5 of the impact assessment. 

206 

 
                                                           
Moreover, the problems identified around the lack of legal certainty in cross-border cases 
due to NCWO and different hierarchies of claims (for deposits, exclusions from bail-in) 
also need to be addressed in the legislative review. 

7.4.4.  Coherence  with  prudential  rules  (Capital  requirements  Directive  (CRD)/ 

Single Supervisory Mechanism Regulation (SSMR))  

As  mentioned  in  section  7.1.1.3,  the  coherence  between  the  CMDI  framework  and  the 
CRD  in  respect  of  the  early  intervention  measures  merits  further  improvement.  The 
overlap  between  the  two  set  of  early  intervention  powers  in  the  BRRD  and  the 
CRD/SSMR  creates 
legal  uncertainty  and  procedural  challenges  for  competent 
authorities.  This  issue  was  further  flagged  by  the  F4F  Platform  in  its  opinion  on  the 
CMDI  Review,  which  called  for  improvements  in  this  area389.Also,  with  respect  to  the 
Banking Union, the provisions on early intervention powers contained in the BRRD are 
not  replicated  in  a  uniform  and  directly  applicable  legal  basis,  i.e.  their  application  by 
competent  authorities  may  hinge  on  potentially  diverging  national  transposition 
measures.  

7.4.5.  Coherence  between  the  DGSD  and  Anti-money  laundering  Directive 

(AMLD) 

As  regards  AML/TF  issues,  the  roles  and  responsibilities  of  the  DGS  and  other 
stakeholders (insolvency practitioner, Financial Intelligence Unit, failed institution, etc.) 
during  a  payout  are  not  sufficiently  clear390.  Many  Member  States  underlined  that  the 
DGSs may face situations where AML suspicions arise and are concerned about repaying 
suspicious depositors. They also consider that the DGSs should not be required to carry 
out AML assessments because they often lack resources, expertise and information.  

Consequently,  the  cooperation  and  exchanges  of  information  between  DGSs,  DGS 
designated  authorities  and  anti-money  laundering/counter  terrorist  financing  authorities 
should  be  specified.  In  addition,  the  tools  that  could  be  used  if  AML  concerns  arise 
should  also  be  clarified.  The  suspension  of  payout  for  suspicious  depositors  could  be 
envisaged  in  order  to  give  time  for  further  analysis.  Yet,  the  full  respect  of  the 
fundamental  freedoms  has  to  be  taken  into  account,  and  any  withholding  of  a  payout 
must  be  based  on  more  than  a  mere  suspicion  in  order  to  prevent  possible  legal 
challenges by the depositors. 

7.4.6.  Coherence between the DGSD, payment services and E-money Directives 

Payment  institutions,  e-money  institutions  and  investment  firms  are  required  to  protect 
the  funds  of  their  clients  and  have  the  possibility  to  do  that  by  placing  them  in  a  bank 
account.  

389 See Annex 2. 
390  In  this  regard,  the  EBA  opinions  of  August  2019  on  eligibility  of  deposits,  coverage  level  and 
cooperation  between  DGSs  and  of  23  October  2019  on  DGS  payouts,  highlighted  the  need  for  several 
clarifications of the Union legal framework. On 11 December 2020, the EBA published another opinion on 
the interplay between the directives on money laundering and terrorist financing (AMLD) and on deposit 
guarantee schemes (DGSD). 

207 

 
                                                           
The  Payment  Services  and  the  E-money  Directives  contain  provisions  applicable  to 
protect  the  client  funds  held  by  payment  and  e-money  institutions.  Article  10  of  the 
Payment  Services  Directive  regulates  the  safeguarding  requirements  for  payment 
institutions.  Under  this  provision,  the  latter  shall  safeguard  the  funds  received  from  the 
payment service users for the execution of payment transaction either by depositing them 
in a separate account in a credit institution, by investing in secure liquid low-risk assets or 
covering  by  an  insurance  policy.  Similar  safeguarding  requirements  apply  to  e-money 
institutions. Investment firms are required to place promptly the received client funds into 
an  account  opened  with  a  credit  institution,  unless  they  choose  a  different  way  to 
safeguard the funds. However, the protection by the DGSs of these client funds held by 
non-bank  financial  institutions  such  as  payment  and  e-money  institutions  or  investment 
firms varies from one Member State to another.  

The  DGS  protects  persons  that  are  absolutely  entitled  to  the  sums  held  in  an  account. 
Article  7(3)  DGSD  provides  that  where  the  depositor  is  not  absolutely  entitled  to  the 
sums  held  in  an  account,  the  person  who  is  absolutely  entitled  shall  be  covered  by  the 
DGS provided that such persons have been identified or are identifiable. This provision 
clearly  applies  to  the  beneficiary  accounts  held  for  example  by  notaries.  However, 
Member  States  do  not  consistently  apply  this  provision  as  concerns  the  client  funds  of 
non-bank financial institutions on beneficiary accounts.   

This  lack  of  consistent  application  appears  due  to  other  provisions  in  the  regulatory 
framework.  Under  Article  5(1)(d)  and  (e)  DGSD,  deposits  by  financial  institutions  and 
investment firms are excluded from repayment by a DGS. However, under Article 5(1)(a) 
DGSD,  deposits  by  credit  institutions  are  excluded  from  protection  when  they  are  ‘on 
their own behalf and for their own account’ and ‘subject to Article 7(3)’. Under the latter 
provision, the client funds of credit institutions are eligible for protection. According to 
recital 29 DGSD, ‘electronic money and funds received in exchange for electronic money 
should not be treated as a deposit and fall outside the scope of the [DGSD]’. 

Besides, in view of developments in innovative financial services and required changes in 
the regulatory framework, their safeguarding is of increasing importance to foster clients’ 
trust towards nonbank financial institutions. The lack of protection by a deposit guarantee 
scheme (DGS) of such client funds could be critical for depositors and Fintech providers 
if  bank  failures  occur.  The  relevant  issue  was  also  flagged  by  the  F4F  Platform  in  its 
opinion on the CMDI Review, which called for  improvements in  this area391. Based on 
preliminary  assessment,  the  size  of  client  funds  of  payment  and  e-money  institutions 
seems to constitute only a small portion of covered deposits392.  

391 See Annex 2. 
392 Based on information from a limited number of Member States collected in the  Commission services’ 
survey  of  5  December  2019,  the  client  funds  of  payment  and  e-money  institutions  do  not  exceed  3%  of 
covered deposits. 

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7.5. EU added-value 

What is the EU-added value of the intervention?  

  Compared to the previous national approaches, to what extent have the provisions 
of  CMDI  framework  (BRRD/SRMR/DGSD)  helped  improve  the  functioning  of 
the single market in banking, contributed to financial stability and increasing the 
level playing field among banks, and consumer confidence taking into account the 
inherent cross-border nature of banking in the EU;  

  How  does  the  gap  of  the  third  missing  pillar  of  the  Banking  Union  (common 

depositor protection) affect the EU-added value of the framework? 

Summary assessment: 

Overall,  the  CMDI  framework  has  clear  added  value  by  providing  a  harmonised  and 
comprehensive  crisis  management  framework.  In  the  absence  of  the  framework, 
national  solutions  would  prevail,  impacting  the  single  market  in  banking  and 
exacerbating  risks  to  financial  stability,  contagion,  uneven  playing  field  as  well  as 
worsening the sovereign-bank feedback loop.  

The DGSD harmonised the main elements of depositor protection by DGS, which was 
crucial for maintaining financial stability and promoting depositor confidence across the 
EU.  However,  the  assessment  suggests  that  a  number  of  discrepancies  in  depositor 
protection across Member States (owing to the presence of a range of national options 
and  discretions  in  the  DGSD),  are  still  observed  and  may  need  to  be  tackled,  as  they 
could  undermine  the  confidence  in  the  financial  safety  nets.  Nevertheless,  the  overall 
outcome in tackling these challenges would still be sub-optimal for the Banking Union 
in the absence of a mutualised safety net such as EDIS. 

The  EU-value  added  of  the  CMDI  framework  is  undeniable.  In  a  counterfactual  where 
crisis management would be handled purely at national level, all the problems described 
in this evaluation would be exacerbated and additional issues impacting the single market 
in banking would emerge. This would have consequences not only from the perspective 
of  risks  to  financial  stability,  contagion  and  unlevel  playing  field,  but  also  potentially 
impair  business 
in  going  concern  by  cross-border  banks,  deepening  market 
fragmentation.  The  issue  of  unlevel  playing  field  is  also  present  in  relation  to  smaller 
banks,  which  may  be  handled  under  national  insolvency  proceedings,  subject  to  a 
negative  PIA.  Evidence  has  shown  (see  section  7.1.2.3  of  the  evaluation)  that  the 
available national procedures may leave room for arbitrage and incentivise authorities to 
resort  to  solutions  outside  resolution  with  less  stringent  conditions  to  access  funding. 
This  creates an unlevel  playing field  between “purely  national  banks” and cross-border 
operating banks that are acting on the same domestic market, but also between Member 
States in a situation where banks are treated differently or taxpayer money is used in one 
Member State, while it is not in another. Moreover, national solutions, if left to be used, 
without proper safeguards, could worsen the sovereign-bank link and undermine the idea 
behind the Banking Union.  

209 

 
 
 
Furthermore, the DGSD covered a gap that existed in legislation (i) by harmonising the 
coverage,  scope  and  eligibility  of  depositors,  and  of  payout  delays  and  (ii)  by  ensuring 
that credit institutions operating in more than one Member State are subject to the same 
requirements concerning DGS. In this context EU action is crucial to maintain financial 
stability,  ensure  a  level  playing  field,  avoid  unwarranted  compliance  costs  for  cross-
border  activities  and  thereby  promote  further  integration  within  the  internal  market. 
Without  harmonising  the  financing  of  DGS,  depositor  confidence  could  not  have  been 
maintained.  Nevertheless,  discrepancies  in  depositor  protection  across  Member  States  – 
for example in terms of the scope of protection and payout processes – are observed and 
may  undermine  the  confidence  in  the  financial  safety  nets.  These  discrepancies  emerge 
from a range of national options and discretions that the DGSD provided for and which 
were implemented to a different degree.  

However, even if addressing all shortcomings of the existing legislative initiatives found 
by  this  evaluation,  the  overall  outcome  would  still  be  sub-optimal  in  the  absence  of 
EDIS.  Having a mutualised safety net,  alongside the SRF in  the  Banking Union would 
contribute  to  alleviating  in  a  credible  manner  some  of  the  problems  identified,  in 
particular in the funding solutions, robustness of DGS protection, level playing field and 
weakening the bank-sovereign loop. 

8. 

CONCLUSIONS AND LESSONS LEARNT 

8.1. Conclusions 

The evaluation found that the CMDI framework brought benefits to society, in particular 
through  enhanced  crisis  preparedness  and  planning,  reduced  systemic  risk  and  moral 
hazard, increased market discipline, more resilient banks capable of absorbing losses in 
case of distress and depositor protection. Yet, significant gaps remain which need to be 
addressed.  

In  terms  of  effectiveness,  the  framework  has  partially  achieved  two  out  of  its  four 
overarching objectives, while the others have not been achieved in a satisfactory manner, 
except in a limited number of cases. More specifically, the framework partially achieved 
its  objectives  of  containing  risks  to  financial  stability  and  protecting  depositors,  but  it 
failed to achieve other key overarching objectives, notably facilitating the functioning of 
the single market, including by ensuring level playing field, and minimising recourse to 
taxpayer money. In a significant number of cases, the fulfilment of objectives cannot be 
directly  attributed  to  the  framework,  but  to  the  application  of  tools  at  national  level, 
outside  of  resolution  and  with  recourse  to  public  budgets  (i.e.  taxpayer’s  funds).  The 
management of bank failures differed across Member States, depending on the existing 
national regime, which raises questions about the coherence of the framework, resulting 
in sub-optimal outcomes for level playing field and the single market in banking.  

In terms of efficiency, the evaluation found that the CMDI framework is not sufficiently 
cost-effective. On one hand, the main benefits of the framework include enhanced crisis 
preparedness,  contingency  planning  and  the  disciplining  influence  that  the  existence  of 
the framework exerts on banks and markets. On the other hand, the implementation and 
operationalisation  of  the  CMDI  framework  came  with  significant  costs  for  the  banking 
industry,  Member  States,  resolution  authorities.  Yet  despite  the  costs,  the  resolution 

210 

 
framework and its tools and powers have been scarcely used in practice, especially in the 
Banking Union under the SRMR. The SRF funding has remained idle so far and beyond 
the  losses  absorbed  by  the  banks,  DGS  funds,  often  backed  by  public  funds  have  been 
used.  In  addition,  the  use  of  public  funding  in  recent  cases  of  bank  failures  showed  a 
redistribution  of  costs  from  banks’  senior  unsecured  creditors  to  the  taxpayers,  despite 
scrutiny  on  such  usage  of  public  funds  through  the  EU  State  aid  rules.  Furthermore, 
available  evidence  suggests  that  these  costs  are  uneven  between  Member  States,  as 
national requirements and practices diverge widely. 

From  a  coherence  perspective,  further  improvements  are  necessary  to  ensure  a  better 
internal interaction and consistency between the various pieces of legislation forming the 
CMDI  framework,  but  also  between  the  CMDI  framework  and  State  aid  rules  (most 
prominently  in  respect  of  conditions  to  access  funding  to  support  tools  outside 
resolution),  the  prudential  rules  (Capital  Requirements  Directive  (CRD)  and  the  Single 
Supervisory  Mechanism  (SSMR))  in  what  concerns  the  early  intervention  measures 
(EIMs), the Anti-Money Laundering Directive (AMLD), the Payment Services Directive 
and the E-money Directive in what concerns interactions with the DGSD.  

The  framework  remains  very  relevant  and  adds  EU  value  because  crisis  management 
cannot be left to the unharmonised national proceedings without consequence on public 
finances,  the  bank-sovereign  nexus,  level  playing  field,  proportionality,  convergence, 
equal treatment of stakeholders and operational efficiency of banking operations. This is 
particularly  relevant  for  cross-border  cases  but  not  only.  The  addition  of  a  mutualised 
safety  net  such  as  EDIS  would  further  boost  the  framework’s  relevance  and  EU-value 
added. 

8.2. Lessons learnt 

The following points summarise the lessons learned in this targeted evaluation in terms of 
the main areas for improvement in the CMDI framework. 

The CMDI framework was designed to avert and manage the failure of credit institutions 
of any size while protecting depositors and taxpayers. This evaluation concludes that the 
application  of  the  framework  brought  important  benefits  in  terms  of  maintaining 
financial  stability,  mainly  through  more  robust  crisis  preparedness  and  contingency 
planning,  enhanced  banks’  resolvability,  including  through  the  build-up  of  resolution 
buffers  and  pre-funded  deposit  guarantee  and  resolution  funds,  improved  market 
discipline and curbed moral hazard. The implementation of the framework significantly 
improved depositor protection and contributed to boosting, overall, consumer confidence 
in the EU banking sector.  

Yet,  the  practical  application  failed  to  achieve  some  important  objectives  or  achieved 
them  only  partially.  Experience  with  the  application  of  the  EU  bank  CMDI  framework 
from  2015  until  now  reveals  that  there  is  scope  to  improve  its  functioning  in  the 
following identified areas for improvement.  

Insufficient legal certainty and predictability in the management of bank failures  

  The  resolution  framework  introduced  strategies,  powers  and  tools  to  restructure 
failing  banks  while  protecting  depositors,  financial  stability  and  tax  payers. 

211 

 
However,  so  far  this  framework  was  only  scarcely  applied,  in  particular  in  the 
Banking  Union  under  the  SRMR.  Evidence  shows  that  other  tools  have  been 
more  frequently  used  such  as  insolvency  proceedings  involving  DGS  funds,  or 
precautionary  recapitalisation  or  measures  to  prevent  the  failure  of  the  bank 
altogether. 

  The  problem  is  not  so  much  the  variety  of  tools  to  manage  failing  banks  or  to 
intervene  before  failure  but  rather  that  the  conditions  to  activate  such  measures 
vary  substantially,  are  sometimes  not  fully  clear  or  leave  room  for  arbitrage.  In 
addition,  when  external  funding  is  used  to  support  such  measures,  the 
requirements  to  access  such  funding  are  very  different  and,  more  specifically, 
funding outside resolution is generally more easily accessible than in resolution, 
in particular for certain banks. 

  First,  as  regards,  preventive  measures  (which  are  national  option  under  the 
DGSD),  the  current  legislative  text  does  not  provide  adequate  clarity  on 
safeguards  and  conditions  which  are  necessary  for  ensuring 
that  such 
interventions  are  sufficiently  sound  from  a  financial  perspective,  will  interact 
correctly with the FOLF determination and would not impinge excessively on the 
DGS’  resources.  Similarly,  in  relation  to  the  precautionary  measures  under  the 
BRRD, despite the safeguards foreseen and applied under the BRRD, it occurred 
that  two  banks  benefitted  from  public  support  in  the  form  of  precautionary 
liquidity on grounds, inter alia, of being declared solvent by the supervisor, only 
months  before  being  assessed  as  FOLF.  The  review  could  take  stock  of  the 
already adjusted approach developed by the Commission and authorities involved 
in  such  situations,  based  on  past  experience  and  improve  the  clarity  of  the 
relevant legal provisions as well as enhance the predictability and consistency in 
the use of such measures going forward. 

  Second, regarding the EIM, the assessment has shown that they have rarely been 
applied  though  forming  an  integral  part  of  the  continuum  of  measures  in  the 
framework. Improvements in this area could reduce the overlap of the EIM with 
the supervisory powers provided in the BRRD (and also mirrored in the SRMR) 
in  order  to  reduce  legal  uncertainty  and  procedural  challenges  for  competent 
authorities  in  their  application.  In  addition,  some  aspects  relating,  to  the 
governance structure and the degree of cooperation and exchange of information 
between  competent  and  resolution  authorities  could  help  in  improving  the 
timeliness  of  the  FOLF  determination,  which,  is  key  in  ensuring  a  smooth 
continuum between going and gone concern. 

  Third, the divergent application and interpretation of the different factors relevant 
for the PIA and the observed very restrictive application of the test in the Banking 
Union so  far, may not  fully reflect  the intention of the legislation.  In particular, 
the evaluation found that aspects of the PIA relating to (i) the impact on financial 
stability;  (ii)  the  assessment  of  critical  functions;  and  (iii)  limiting  the  use  of 
external sources of funding require further clarification. 

  Fourth, the current framework could introduce more clarity in Article 32b BRRD 
in  order  to  address  any  residual  risk  with  standstill  situations  whereby  a  failing 

212 

 
bank  for  which  there  is  no  public  interest  in  using  resolution,  can  also  not  be 
placed  in  insolvency  because  the  trigger  to  initiate  the  national  insolvency 
proceedings has not been met. 

  Finally,  feedback  and  evidence  has  shown  that  certain  divergences,  in  the 
hierarchy  of  claims  remaining  in  national  laws  governing  bank  insolvency 
proceedings, in particularly, when it comes to the ranking of ordinary unsecured 
claims,  other  deposits  and  exclusions  from  bail-in,  creates  the  potential  for 
uneven  treatment  of  creditors,  including  depositors,  in  resolution  and  in 
insolvency. Such divergences have the potential to create uneven playing field in 
the single market. It also complicates the NCWO assessment especially for cross-
border groups including among jurisdictions participating in the Banking Union. 

Ineffective  funding  options  and  divergent  access  conditions  in  resolution  and 
insolvency  

  The CMDI framework introduced a requirement for banks to hold sufficient loss 
absorbing and recapitalisation capacity (MREL), in order to ensure that banks are 
able  to  bear  their  own  losses  (and  recapitalisation  needs  depending  on  the 
foreseen  strategy)  and,  where  that  is  not  sufficient,  that  they  can  fulfil  the 
conditions  for  accessing  complementary  financing  in  the  form  of  resolution 
funding if needed.  

  However,  feedback  and  evidence  shows  that  some  banks  are  facing  structural 
issues in  building up their MREL buffers and considering their specific liability 
structure,  certain  deposits  would  need  to  be  bailed-in  in  order  to  access  the 
resolution  fund,  which  may  raise  financial  stability  concerns  and  operational 
feasibility  in  view  of  the  economic  and  social  impact  in  a  number  of  Member 
States.  

 

In addition, the current framework could provide more legal certainty and clarity 
in areas related to the conditions for the use of DGS funding in resolution (which 
has  never  been  used  in  practise)  as  well  as  regarding  the  divergent  access 
conditions to DGS funding in resolution and insolvency, which affect negatively 
the predictability of the framework. 

  There may be a need to further re-assess the DGS’ super preference as it creates 
limitations  to  the  possibility  for  the  DGS  to  provide  funding  both  in  resolution 
and in insolvency.  

 

In the Banking Union, the resources accumulated in the SRF have remained idle, 
while  the  recourse  to  DGS  (funded  by  the  domestic  banking  sector  only)  was 
more  frequent  and  in  some  cases  complemented  by  public  funds.  Access  to 
common safety nets would appear asymmetric for some banks in the absence of 
EDIS. 

Uneven and inconsistent depositor protection  

  Depositor  protection  is  central  to  the  CMDI  framework.  The  coverage  level 
contributes  to  the  effectiveness  of  the  DGSD  framework  and  to  depositors’ 

213 

 
confidence, as it protects almost all deposited amounts and a very large part of the 
depositors’  wealth.  However,  owing  to  existing  ONDs  in  the  DGSD,  the 
framework is not consistently applied across the EU, leading therefore, to uneven 
results in depositor protection in the Member States.  

 

Indeed,  in  terms  of  scope  of  protection,  the  framework  could  be  improved  by 
addressing  divergences,  existing  in  the  coverage  level  of  temporary  high 
balances.  Improvements  in  the  availability  of  alternative  funding  arrangements, 
which  could  be  relied  on  in  case  the  DGS  were  depleted,  could  further  help  in 
boosting depositor confidence.  

  Beyond  this  lack  of  harmonisation  in  national  rules  and  their  application, 
depositor protection and confidence in  the Banking Union could  be undermined 
in case of asymmetric shocks, to which national schemes remain vulnerable.  

  The introduction of an appropriate mutualised safety net (e.g. EDIS) – could help 
in alleviating the vulnerabilities of national DGSs and delivering equal treatment 
of all depositors.  

214 

 
 
 
ANNEX 6: OVERVIEW OF DEPOSIT INSURANCE ISSUES COVERED 
IN THE IMPACT ASSESSMENT  

The  DGSD  constitutes  a  minimum  harmonisation  framework,  with  several  features  of 
maximum harmonisation. Since its adoption in 1994, it is subject to its third revision393.  

The current text sets a uniform level of protection for deposits394 throughout the Union 
based  on  common  requirements  for  the  funding  mechanisms  of  DGSs  and  the 
introduction  of  risk  based  contributions.  The  harmonised  coverage  of  EUR 100 000 
applies  “per  depositor  per  bank”395.  The  latter  is  complemented  with  a  minimum  DGS 
funding target level of 0.8% covered deposits (to be reached by 2024), improved access 
to  DGSs  and  information  disclosure  for  depositors,  as  well  as  rules  for  cross  border 
cooperation  between  DGSs.  This  set  of  rules  contributed  to  eliminating  market 
distortions. However, the DGSD also contains more than 22 ONDs to accommodate for 
various national specificities396. 

The  DGSD  also  provided  two  specific  mandates  to  the  EBA  to  issue  guidelines  for 
specifying  methods  for  calculating  contributions  and  payment  commitments  to  ensure 
level  playing  field.  Throughout  the  years,  the  EBA  also  issued  on  its  own  initiative  a 
number of other guidelines that have proven beneficial for a consistent application of the 
DGSD  and  have  become  an  essential  part  of  the  framework397.  This  annex  details  the 
elements  highlighted  in  the  impact  assessment  concerning  the  review  of  the  DGSD.  It 
leverages  on  the  four  EBA  opinions,  additional  analysis  (e.g.  CEPS  study,  DG  JRC’s 
reports) and the transposition check. 

1. 

PROBLEM DEFINITION 

The  EBA,  in  cooperation  with  the  DGSs  and  designated  authorities  in  the  EU  and  the 
EEA, assessed the progress towards the implementation of the DGSD in accordance with 
the mandate under Article 19(6) of the DGSD. It also took stock of the experience with 
the application of the DGSD and analysed policy options to address the identified issues. 
The  EBA  saw  no  need  for  changes  of  the  key  features  such  as  the  coverage  or  target 
levels. However, it proposed a number of improvements of various other aspects of the 
depositor protection, as listed in Section 1.2. The EBA’s suggestions aimed to improve 
the  level  playing  field  for  depositors  and  to  enhance  depositor  payouts  as  well  as  the 
functioning and funding of the DGS. In addition, the EBA analysis underlines that some 
of  the  ONDs  in  the  DGSD  lead  to  divergent  treatment  of  depositors  across  Member 

393  European  Commission  (2009  and  2014),  Directive  2009/14/EC  of  11  March  2009,  Directive 
2014/49/EU of 16 April 2014. 
394 See also footnote 57. 
395 The limit of EUR 100 000 applies to the aggregate deposits of a depositor in the same credit institution 
irrespective of the number of deposits, the currency and the location in the Union.  
396 See Chapter 1, Section Error! Reference source not found.. 
397  EBA  (2016),  Guidelines  on  stress  tests  of  DGSs  under  Directive  2014/49/EU,  Guidelines  on 
cooperation agreements between DGSs. The EBA (2021) published a Consultation paper on guidelines on 
the delineation and reporting of available financial means. 

215 

 
 
                                                           
States and makes the case for further convergence. The approach of the EBA consisted in 
either proposing concrete recommendations or setting out the available policy options for 
further clarification.  

In addition, the revised DGSD could also include references to non-legislative initiatives, 
such  as  the  EBA  guidelines.  This  would,  in  principle,  introduce  no  substantial  new 
requirements  beyond  what  is  already  in  place  and  followed  by  Member  States’ 
authorities, while limiting the risk of non-compliance or legal challenges. 

2.  WHAT ARE THE AVAILABLE POLICY OPTIONS? 

Table 4: Policy options for the DGSD review 

Option label 

Option description 

Option 1: Do nothing  

This is the baseline. It would imply not following the EBA’s suggestion 
and, hence, envisage no change to a specific provision of the DGSD. 

Option 2: Follow EBA 
advice 

Option 2 would imply either following a specific recommendation of the 
EBA or, where the EBA invited the Commission to clarify a provision, 
proposing a way forward.  

Table 5 sets out the issues proposed for the review as well as the selected policy options. 
The latter are either technical improvements or amendments that may affect the currently 
applicable deposit protection across the EU Member States. All policy choices take into 
account  the  EBA’s  suggestions  and  the  subsequent  feedback  received  from  Member 
States’ experts in the context of the EGBPI as well as, where available, other analytical 
evidence (JRC’s analysis, CEPS study, public consultation, F4F Platform opinion).  

Table 5: Issues proposed for the review 

1. 

 Clarify the definition of deposits which includes: 

- 
- 
- 

the concept of ‘normal banking transaction’ 
the treatment of structured deposits 
the treatment of dormant accounts 

2. 

 Clarify the rules on unavailable deposits which includes: 

- 

- 

the treatment of deposits that are unavailable because of reasons not directly related to 
the financial circumstances of the credit institution;  
the concept of ‘current prospect’ of the credit institution to repay deposits and the link 
to supervisory moratoria; 

3. 

 Clarify  the  treatment  of  DGS  payouts  with  money  laundering  or  terrorist  financing  (ML/TF) 
concerns in consistency with the rules set out in the AMLD which also includes: 

- 

the repayment of depositors not previously identified ‘through no fault of their own’ 

4. 

5. 

 Clarify  the  protection  of  client  funds  of  financial  institutions  such  as  payment  and  e-money 
institutions  or  investment  firms  in  consistency  with  the  rules  set  out  in  the  Payment  Services 
Directive 
 Revise the approach to temporary high balances which includes: 

- 

- 

- 

aligning the level of coverage and the duration for depositor claims for temporary high 
balances across EU Member States; 
clarifying  the  scope  of  protection  of  temporary  high  balances  regarding  real  estate 
transactions; 
increase depositors’ awareness about the protection of temporary high balances 

216 

Policy 
options 

1 

2 

x 

x 

x 

x 

x 

x 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6. 
7. 

 Revise the protection of deposits of public authorities 
 Revise operational aspects of DGS payouts related to timelines for repayment which includes 

- 
- 

repayment of beneficiary accounts  
end of the payout period 

8. 
9. 

 Improve depositor information 
 Improve the cross-border cooperation between DGSs which includes: 

- 

- 
- 

enabling the home DGS to repay depositors at branches directly if it is ‘at least as easy’ 
as in the currently applicable procedure;  
clarifying the treatment of passported services without having established branches;  
revising  the  rules  on  the  transfer  of  contributions  in  the  event  that  a  credit  institution 
changes its affiliation to DGS.  
10.   Revise the approach to set-off of liabilities fallen due 
11.   Clarify the definition of available financial means which include: 
the reporting of the borrowed resources; 
the  administrative  fees,  funds  recovered  in  insolvency,  income  from  investments  and 
unclaimed repayments;  
irrevocable payment commitments. 

- 
- 

1. 

the conditions around the cancellation of payment commitments 

- 
 - 

12.   Clarify the rules on DGS funding sources and the related investment strategy which includes: 
the sequence in the use of DGS funding sources and the related investment strategy; 
the use of alternative funding arrangements. 

- 
- 

13.   Clarify the use of DGS funds for alternative uses other than payouts, including the least cost test. 
14.   Assess the adequacy of the definition of low risk assets 
15.   Explore the merits of the use of failed institutions’ assets for a DGS payout  
16.   Clarify the reference date for covered deposits data for the calculation of the target level in 2024 
17.   Clarify the treatment of third country branches which includes:  

- 

- 

requiring the third country branches of non-EU credit institutions to join an EU DGS, 
with possible derogations 
clarifying  the  deposits  of  the  third  country  branches  of  EU/EEA  credit  institutions 
located outside the EU/EEA are not protected by the DGSD 

x 
x 

x 
x 

x 
x 

x 

x 

x 
x 

x 

x 

x 
x 

3.  WHAT ARE THE IMPACTS OF THE OPTIONS AND HOW DO THEY COMPARE? 

This  section  provides  only  a  high-level  summary  of  the  comparison  of  options,  as  the 
EBA assessed the options in detail (including quantitatively when relevant). 

3.1. Option 1: Do nothing and maintain the current provisions 

This is the status quo. In view of the feedback from the EGBPI on the EBA’s suggestions 
on issue 1 and 14, no change is considered necessary to the applicable DGSD provisions 
to  be  interpreted  in  line  with  recent  case  law398.  Option  1  would  also  seem  suitable 
concerning the use of failed institutions’ assets for a payout as a new tool in the DGSD 
(issue  15)  because  of  limited  evidence  to  assess  its  costs  and  benefits.  While  this  tool 
seems available in two Member States, there is a low likelihood that a failed institution 
would  have  important  amount  of  liquid  assets  to  pay  depositors  in  the  DGS’  stead. 
Where a DGS would lack sufficient financial means, the presence of the common scheme 
would achieve the same policy objective. 

3.2. Option 2: Follow the EBA advice 

398 The EU CJEU has clarified the meaning of the concept ‘normal banking transactions’ in the judgment 
of 22 March 2018 (Joined cases C- 688/15 and C- 109/16 Anisimovienė and Others v. Snoras). 

217 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Option 2 would improve the depositor protection, while clarifying the existing provisions 
to  remedy  the  application  issues.  Lack  of  clarity  also  exists  in  the  interplay  between 
DGSD  rules  and  other  sectoral  legislation  (see  sections  Error!  Reference  source  not 
found. and 7.4.6). 

3.2.1.   Treatment of structured deposits and dormant accounts  

Issue 

The  EBA  identified  the  lack  of  clarity  and  inconsistent  application  regarding  the 
treatment  of  the  structured  deposits  under  Article  4(1)(43)  of  MiFID  II399  and  of  the 
dormant  accounts.  Both  issues  appear  relatively  immaterial  but,  if  encountered,  may 
create  operational  difficulties.  Notably,  the  market  size  for  structured  deposits  seems 
small400.  

Analysis 

In  relation  to  dormant  accounts,  the  best  approach  would  be  to  clarify  that  DGSs  are 
required to  aggregate the deposits on multiple accounts of a depositor if at least one of 
them  is  active.  In  addition,  the  revised  framework  would  modify  the  current  rule  that 
prevents a DGS from repaying dormant account below a certain administrative threshold. 
In principle, the DGSs should be in the position to repay also a dormant account because, 
in  practice,  this  may  be  less  costly.  The  depositor  should  be  entitled  to  request  the 
repayment of his/her dormant account, even if it is below an administrative cost. 

3.2.2.  Unavailable deposits  

Issue 

The  key  task  of  a  DGS  is  to  protect  depositors  against  the  consequences  of  the 
insolvency  of  a  credit  institution.  In  this  regard,  authorities  are  required  to  determine 
unavailable deposits where the credit institution is unable for reasons directly related to 
its  financial  circumstances  to  repay  the  deposit401.  The  EBA  pointed  out  a  number  of 
instances where depositors were unable to withdraw their deposits for reasons other than 
liquidity  issues  (e.g.  Anti-Money  Laundering/Combating  the  Financing  of  Terrorism 
(AML/CFT) concerns, technical issues). While such cases are likely to remain rare, also 
in  view  of  the  current  efforts  to  strengthen  the  AML/CFT  framework,  the  DGSD  does 
not cater for a solution for depositors unable to access their deposits for a long period in 
such rare circumstances.  

Analysis  

399  Under  Article  4(1)(43)  MIFID  II,  structured  deposits  are  deposits  defined  in  Article  2(1)(3)  DGSD, 
which is “fully repayable at maturity on terms under which interest or a premium will be paid or is at risk, 
according  to  a  formula  on  index  or  combination  of  indices,  financial  instruments,  commodities,  foreign 
exchange rates.” 
400 EBA (January 2019), EBA report on cost and past performance of structured deposits. 
401 Article 2(1)(8)(a) DGSD provides: “the relevant administrative authority have determined that in their 
view the credit institution concerned appears to be unable for the time being, for reasons which are directly 
related  to  its  financial  circumstances,  to  repay  the  deposit  and  the  institution  has  no  current  prospect  of 
being able to do so”.  

218 

 
 
                                                           
The subsequent feedback from the EGBPI supported retaining the current responsibility 
of the DGSs solely for cases where the credit institution has insufficient liquidity to repay 
the  deposits.  While  the  DGSD  already  provides  for  stringent  rules  to  make  a 
determination of unavailable deposits  within a short timeline, it is somewhat  part of an 
authority’s  administrative  discretion  to  assess  the  lacking  access  to  deposits  as  a 
‘financial  circumstance’  preventing  the  credit  institution  to  repay.  The  discussions  also 
implied  that  Member  States  handle  similar  cases  differently,  sometimes  triggering  the 
DGS and sometimes not irrespective of the depositors (and their inaccessible deposits). 

 In any  case, there is  merit to  clarify  that where  the suspension of payment  or delivery 
obligations  (national  supervisory  moratoria)  is  not  directly  related  to  the  financial 
circumstances of the credit institution (e.g. AML reasons, sanctions), deposits might not 
be unavailable for the purposes of Directive 2014/49/EU. To maintain depositor trust and 
confidence  in  the  banking  sector  and  maintain  financial  stability,  it  is  appropriate  to 
require  Member  States  to  ensure  that  depositors  have  access  to  an  appropriate  daily 
amount  from  their  deposits,  should  they  be  made  inaccessible  due  to  a  suspension  of 
payments for reasons other than leading to depositor payout. 

3.2.3.  DGS payouts with ML/TF concerns  

Issue 

The  EBA  identified  the  lack  of  explicit  provisions  regarding  the  interplay  between  the 
DGSD  and  AML/CFT  rules.  These  gaps  have  contributed  to  the  adoption  of  divergent 
approaches  across  Member  States  to  the  treatment  of  depositors  in  situations  where 
ML/TF  concerns  exist.  Consequently,  the  obligations  under  the  AML/CFT  and  DGSD 
framework  were  not  applied  effectively,  failing  to  reconcile  their  respective  objectives, 
i.e.  to  prevent  criminals  from  exploiting  the  EU’s  financial  system  to  launder  the 
proceeds of their illicit activities and to protect financial stability.  

Analysis  

The feedback from the EGBPI supported the suggested enhancements of the cooperation 
between  the  respective  authorities  (also  addressed  in  the  review  of  the  AML/CFT 
framework)  and  of  the  DGS  preparedness  prior  and  during  payouts.  In  this  view,  the 
appropriate approach would be to clarify the legal basis for suspending reimbursements 
to depositors suspicious of ML/TF, in full respect of fundamental freedoms. Overall, the 
clarifications  aim  to  minimise  the  risk  of  the  situations  where  ML/TF  concerns  arise 
close to or during DGS payouts. In line with the feedback received, the mandate of DGSs 
to repay depositors would remain unchanged. DGSs have no obligations pertaining to the 
ML/TF  assessment  and  should  bear  no  liability  even  in  the  rare  events  where  ML/TF 
concerns are detected after the actual reimbursement. 

3.2.4.  Protection of client funds  

Issue 

The client funds are credited to an account of non-bank institutions at a credit institution 
on behalf of their  clients.  Similarly to  so-called  beneficiary accounts (typically held  by 
notaries),  they  are  characterised  by  a  high  number  of  ultimately  entitled  beneficial 
owners and a high turnover of funds. The EBA highlighted inconsistent approaches to the 

219 

 
DGS protection of such client funds across Member States and suggested clarifications in 
consistency with applicable sectoral legislation applicable to investment firms, payment 
and e-money institutions.  

On 27 October 2021, EBA published the opinion402 on the treatment of client funds and 
other aspects, including on the deposited volumes and potential concentration risk.  

Analysis 

The subsequent feedback from the EGBPI confirmed the importance of such protection 
in the event of the credit institution’s failure. Subject to safeguarding requirements in the 
sectoral legislation, this protection would benefit from more convergence with respect to 
the moment when such client funds benefit from the DGS protection403 . It would remove 
the  discrepancies  observed  in  the  protection  granted  to  clients  of  investment  firms, 
payment and e-money institutions clients. It would also be consistent with the suggestion 
of the F4F Platform for addressing this issue404.  

Under  a  bespoke  regime  applicable  for  such  accounts,  DGSs  would  disburse  to  the 
account  holder  for  the  benefit  of  the  client  (rather  than  directly  to  individual  clients) 
where necessary and appropriate to preserve the firms’ business continuity and to reduce 
administrative burden on the part of DGSs. In addition, the sums of each client in client 
accounts would not be aggregated with the sums on its regular deposit accounts. The fact 
that  depositors  are  usually  neither  aware  nor  in  control  over  the  choice  of  the  bank 
(selected by the account holder) would, therefore, justify a derogation from the principle 
‘per depositor per bank’ whereby deposits  are aggregated when calculating a repayable 
amount. This policy choice, applied only in some Member States, is more favourable to 
the  depositors  and  conscious  of  the  administrative  burden,  which  would  otherwise  be 
likely to increase under alternative policy choices405. 

3.2.5.  Temporary high balances  

Issue 

Temporary high balances are exceptional and short-lived deposits resulting from certain 
life events including money deposited in connection with a real estate transaction, other 
social events or insurance benefits. They result in larger balances and benefit from higher 
protection.  

The  EBA  highlighted  divergent  approaches  to  the  temporary  high  balances  across 
Member  States,  notably  in  the  amount  and  duration  of  the  protection.406  It  noted  that, 

402 EBA/Op/2021/11 
403 Under current legislation, the precise moment when client funds become a deposit varies depending on 
the product. While investment firms are required to safeguard such funds promptly, payment and e-money 
institution are required to do so no later than by the end of the business day following the day  when the 
funds were received.  
404 See Annex 2.  
405  Other  alternatives  were  discussed  in  the  EGBPI  in  order  to  ensure  optimal  DGS  protection,  e.g. 
requiring  the  account  holder  to  inform  clients  about  the  implications  of  the  choice  of  the  bank  from  the 
perspective  of  DGS  protection  or  placing  burden  of  proof  on  a  client  about  the  inability  to  choose  a 
different bank. 
406 See CEPS study for their detailed overview; see also evaluation (Annex 5) section 7.1.4.2.  

220 

 
                                                           
based on current experience, the reported claims for this type of repayment were rare (i.e. 
on  average,  one  claim  per  bank  failure).  Further,  it  took  the  view  that  different  cost  of 
living  across  Member  States  did  not  hinder  a  harmonised  coverage  level  for  covered 
deposits. Thus, a different cost of living should not be a hurdle to harmonise the amount 
of  temporary  high  balances  and  for  the  same  duration  at  6  months.  The  EBA  also 
suggested  clarifying  other  related  aspects  of  the  temporary  high  balances,  notably 
regarding the funds placed in an account in connection with a transaction to purchase or 
sell  a  private  residential  property,  and  the  eligibility  of  legal  persons.  The  EBA  also 
recommended improving depositor information.  

Analysis on temporary high balances  

The  impact  assessment  conducted  by  the  EBA  focused  predominantly  on  the  high 
balances  in  connection  with  real  estate  transactions.  Conversely,  the  other  types  of 
balances related to events that serve social purposes and are linked to the life events such 
as  marriage,  divorce,  retirement,  dismissal,  redundancy,  invalidity  or  death  as  well  as 
payment  of  insurance  benefits  or  compensation  for  criminal  injuries  or  wrongful 
conviction,  are  considered  much  less  material  and,  absent  empirical  evidence,  also 
subject to data limitations. 

As  regards  the  temporary  high  balances  related  to  real  estate  transactions,  the  CEPS 
study  on  the  ONDs  in  the  DGSD  demonstrated  the  discrepancies  in  the  coverage  of 
temporary high balances both in terms of coverage level and in term of duration. It also 
found that their coverage amount could be harmonised at EUR 500 000. 

Table 6: Temporary high balances: coverage level and duration of coverage  

Up to EUR 200 000 

EUR 200 000 – EUR 500 000 
EUR 500 000 

3 months 
BG, CZ, 
HR, HU, 
LV, PL 

FR, NL 

EUR 1 000 000 – EUR 10 000 000 
unlimited 
Source: Commission transposition check/CEPS study 

ES 

6 months 
CY, EE 

9 months 

12 months 
RO 

EL, LT 
BE, DE. 
MT 
IE 
FI, SI 

IT 

SE 
AT 

DK, LU 
PT, SK 

The  feedback  received  from  the  EGBPI  showed  that  a  higher  number  of  experts 
supported the EBA’s recommendations to harmonise the duration of the protection at 6 
months,  including  those  who  currently  apply  shorter  timelines.  As  the  EBA  has  not 
proposed a precise amount to be harmonised, the discussions in the EGBPI explored the 
identified  options  based  on  the  CEPS’  analysis.  However,  a  number  of  experts  had 
concerns about either lowering or increasing the current protection in their Member State 
and the impact on cost neutrality. Hence, some of them preferred retaining the national 
discretion.  In  this  view,  the  additional  analysis  by  the  JRC  of  a  possible  threshold  for 
adequate protection largely confirmed the findings of the CEPS study. This analysis also 
strived to identify an optimal common coverage amount and duration.  

Based  on  both  CEPS’  and  JRC’s  quantitative  analyses,  a  very  high  share  of  temporary 
high  balances  appears  lower  than  EUR 500 000  in  all  Member  States.  Therefore,  the 

221 

 
 
 
 
 
 
 
 
level of protection higher than EUR 500 000 would not significantly increase the amount 
of  protected  deposits  and  there  is  limited  risk  that  depositors  could  lose  protection.  In 
addition,  the  best  option  would  be  to  harmonise  the  duration  of  the  protection  at  6 
months407  because  the  additional  amount  of  temporary  high  balances  protected  would 
only be limited under a longer period. A higher number of Member States supported this 
policy option, with few exceptions. Therefore, given the political considerations and the 
available  empirical  (low  number  of  claims)  and  modelling  evidence,  the  best  option 
would be to provide for a minimum threshold of EUR 500 000 for the period of 6 months 
to  increase  convergence across Member States for the benefit of depositors. It  does not 
prevent  Member  States  from  covering  a  higher  amount  of  temporary  high  balances, 
though with funds above the target level. 

Box 16: Key results of the CEPS’ and JRC’s quantitative analyses408  

Figure 18 shows the sizes of protected THBs depending on different amounts of 
coverage level and duration (see also Annex 12). 

Figure 18: Average EU impact per coverage level and time of coverage (excluding 
EUR 100 000) 

s
t
i
s
o
p
e
D
d
e
r
e
v
o
C
f
o
e
r
a
h
S

3%

2%

1%

0%

200 000

300 000

400 000

500 000

600 000

700 000

800 000

900 000

Upper limit coverage level (EUR)

1 month

3 months

6 months

9 months

12 months

Source: JRC Report, Annex 12 

Conclusions:  

-  A very high share of temporary high balances is protected with the coverage level 

of EUR 500 000 in the 6-month duration.  

-  Beyond EUR 500 000, the degree of protection does not significantly increase.  

The feedback in the EGBPI was also supportive of clarifications regarding the scope of 
the temporary high balances. The revised rules should encompass both funds placed for a 
purchase or sale of a private residential property, combined with a specific provision on a 
depositor’s  burden  of  proof.  While  the  temporary  high  balances  should  be  in  principle 

407 This change would imply a higher duration in nine Member States (which apply a 3-month period) and 
a lower duration in eight Member States (which apply a 9- or 12-month period). One Member State applies 
a different timeline depending on the type of temporary high balance. See further CEPS study, p. 48. 
408 See JRC report ‘Review on temporary high deposits balances related to certain transactions’ p. 6 – 11, 
and especially section 4.3 p. 9. 

222 

 
 
 
  
 
 
                                                           
 
 
 
limited  to  natural  persons,  legal  persons  would  also  be  eligible  for  temporary  high 
balances related to insurance benefits.  

Given that such reported claims are rare, improved depositor awareness around this type 
of  protection  would  mitigate  any  residual  adverse  effects  on  depositors  as  a  result  of 
changes to  the amount or duration of temporary  high balances. These changes, broadly 
supported  by  the  EGBPI  discussion,  would  improve  depositors’  understanding  how  to 
benefit from optimal deposit protection and encourage them to make the right financial 
decisions,  rather  than  leaving  high  balances  above  the  coverage  level  on  their  deposit 
accounts409. 

3.2.6.  Protection of public authorities  

Issue 

Currently, public authorities are excluded from DGS coverage (Article 5(1)(j) DGSD). A 
number of Member States protect deposits of local authorities with an annual budget of 
up to EUR 500 000 under a national option in Article 5(2) DGSD410.  

The  EBA  recommended  protecting  deposits  of  all  public  authorities  up  to  harmonised 
coverage  level  irrespective  of  their  budget.  In  this  respect,  the  main  benefit  of  this 
approach would be the reduced administrative burden for banks and DGSs. The latter are 
required to assess the eligibility profile of such depositors and the conditions concerning 
the  size  of  their  budget.  In  addition,  the  EBA  also  highlighted  that,  in  some  Member 
States,  public  authorities  also  include  hospitals,  schools  or  swimming  pools,  arguably 
unsophisticated  investors,  which  benefit  from  lesser  protection  compared  to  large 
corporates,  many  of  which  are  sophisticated  investors.  Most  recently,  the  lack  of 
protection of public authorities emerged  as an issue in  the payout  case of the Greensill 
bank411.  

Analysis 

A high number of Member States supported the EBA recommendation in the EGBPI but 
some  also  required  further  analysis.  While  the  deposits  of  small  local  authorities,  i.e.  a 
subset  of  public  authorities,  appears  relatively  small  (up  to  0.1%  of  covered  deposits), 
there  are  data  limitations  as  concerns  the  total  volumes  of  deposits  of  the  public 
authorities.  

Nevertheless, the EBA’s qualitative analysis on the pros and cons of the policy options 
substantiates revising the current approach, notably to address the lack of rationale for a 
different  treatment  of  the  public  authorities  and  large  corporates  and  to  reduce 

409  This  is  consistent  with  other  policies  to  increase  consumer  trust  in  retail  investments,  e.g.  the 
Commission retail investment strategy. 
410 According to CEPS study, this option is transposed in seven Member States and the amounts protected 
under this provision are limited, ranging between 0.00% and 0.11% of the total covered deposits.  
411 According to the FT, some public authorities (around 50 municipalities that held up to EUR 500 m with 
the lender) had deposits with Greensill bank. The compensation provided by the deposit guarantee scheme 
excludes the groups of creditors specified in section 6 of the EinSiG (i.a. public authorities): German towns 
braced for EUR 500 m in losses from Greensill Bank collapse | Financial Times (ft.com) 

223 

 
                                                           
administrative  burden  for  all  actors  involved.  Therefore,  the  revised  rules  would  cover 
public authorities up to EUR 100 000, just as corporates and other depositors. 

3.2.7.  Operational aspects of the DGS payout 

Issue  

The  EBA  recommended  revising  two  aspects  related  to  timeline  for  repayments.  It 
suggested  replacing  the  existing  3-month  period  for  repayment  of  beneficiary  accounts 
by 20 working days. The revised period would start running since a receipt of required 
documentation because DGSs need sufficient time to verify the entitlements of ultimate 
beneficiaries. The current period running since the determination of unavailable deposits 
did  not  reflect  the  administrative  needs  by  the  DGSs,  particularly  when  depositors 
provide  insufficient  information  to  the  DGS.  Further,  national  approaches  also  vary 
regarding  the  end  of  payout,  subject  to  national  option.  The  EBA  considered  that  such 
period should be sufficiently long to protect depositors although the effect of this change 
is likely marginal as most reimbursements take place soon after payout412.  

Analysis 

The subsequent feedback from EGBPI supported the clarifications. Many views were in 
favour  of  combining  the  revised  timeline  for  repayment  of  beneficiary  accounts  with  a 
specific  provision  to  enable  DGSs  to  require  the  information  about  the  beneficiaries’ 
entitlement  directly  from  the  account  holder.  This  would  aim  to  reduce  their 
administrative  burden.  The  same  reasoning  applies  to  client  funds  and  temporary  high 
balances. In relation to the end of payout, a higher number of experts supported a period 
of  5  years  as  more  beneficial  for  depositors,  while  stressing  that  DGSs  should  remain 
able to subrogate into depositors’ claims in insolvency proceedings. 

3.2.8.  Depositor information 

Issue 

The  EBA  called  for  improvements  of  the  depositor  information  sheet,  including  by 
guidelines  or  regulatory  technical  standards.  It  also  suggested  revising  the  depositors’ 
entitlement  to  withdraw  eligible  deposits  without  penalties  because  of  changes  to  the 
credit  institution  (e.g.  mergers,  conversions  into  branches  or  subsidiaries)  that  impact 
deposit protection. Under a revised setup, while all depositors should be informed about 
the  changes  to  a  DGS  affiliation,  at  least  those  depositors  whose  coverage  would  be 
adversely  impacted,  should  be  informed  of  their  right  to  withdraw  their  funds  without 
any penalty up to an amount equal to the lost coverage of deposits. 

Analysis 

The  subsequent  feedback  from  the  EGBPI  supported  the  suggestions  on  the  depositor 
information sheet and the right to withdraw under Article 16(6) DGSD. The EGBPI also 

412  Under  Article  9(3)  DGSD,  Member  States  may  limit  the  time  allowed  for  depositors  to  claim 
repayment in the event that their deposits were not repaid or acknowledged by the DGS within the usual 
deadlines. CEPS study sets out an overview of the currently applicable timelines and showed some periods 
may be short.  

224 

 
                                                           
explored  the  adequacy  of  regular  communication  of  depositor  information  on  annual 
basis.  While  one  expert  preferred  a  disclosure  based  on  actual  needs  (e.g.  upon 
concluding the contract  and in the event of failure) to reduce costs413, the vast majority 
supported the EBA’s analysis that the annual information disclosure should not be altered 
because of its positive impact for depositor awareness. 

3.2.9.  Cross-border cooperation between DGSs 

Issue 

The  EBA  called  for  enhancements  of  the  following  three  aspects.  The  regime  whereby 
the host DGS reimburses the depositors in branches on behalf of the home DGS should 
be rendered more flexible. Under a revised setup, the home DGS could repay depositors 
at branches directly if it is ‘at least as easy’ as in the current default procedure whereby 
the host DGS receives funding from the home DGS, including the compensation for the 
costs incurred. Further clarifications would also be suitable for passported services. In the 
absence of explicit provisions, the latter are currently treated as any other deposit in the 
home  Member  State.  This  raises  challenges  for  the  home  DGSs  when  liaising  with 
depositors  located  in  host  Member  States.  Lastly,  the  transfers  of  the  last  annual 
contributions in the event that a credit institution changes its affiliation to DGS require a 
revision.  

Analysis 

The subsequent feedback in the EGBPI broadly supported these clarifications, including 
developing the revised rules and methodology through regulatory technical standards or 
guidelines.  It  agreed  with  the  objective  to  address  the  resulting  operational  hurdles  for 
DGSs,  including  when  communicating  with  depositors  located  in  the  host  Member 
States.  The  current  rules  on  transfer  contributions  proved  ineffective  in  the  situations 
where DGSs transferred no contributions due to different contribution cycles or payment 
deadlines, or because the  transferring DGSs no longer raise  contributions  because their 
target level was reached414. Consequently, they fail to deliver on their intended objective, 
i.e.  to  reflect  the  potential  increase  in  risk  for  the  DGS  receiving  a  new  participating 
member . 

413 The F4F Platform also recommended, in its opinion on the CMDI review, a disclosure based on actual 
needs for reducing the administrative burden. See Annex 2 for further details.  
414 According to the EBA’s mapping of DGS’s practices, contributions are raised in monthly, quarterly or 
on a semi-annual or annual basis. Similarly, DGSs send out the invoices on different days or always on the 
same day in a year, with a maturity period of usually 60 days or longer. Some jurisdictions also specify the 
payment date and some do not. As a result of these differences, no contributions were transferred, leaving 
the receiving DGS and its participating credit institutions at a disadvantage to cover for the risk of a new 
entrant.  

225 

 
 
 
                                                           
3.2.10. Set off of liabilities fallen due 

Issue 

Under  Article  7(4)  DGSD,  depositors  obtain  a  reimbursement  irrespective  of  their 
liabilities (e.g. due loan instalments) towards the credit institution that are handled in an 
insolvency estate. However, a national option under Article 7(5) DGSD derogates from 
this  principle.  The  latter  allows  a  DGS  to  take  into  account  depositors’  due  liabilities 
when  calculating  a  repayable  amount,  if  it  is  possible  under  statutory  and  contractual 
provisions.  

The  EBA  found  that  the  actual  set-off  was  immaterial  from  a  DGS’  perspective, 
involving  very  small  amounts,  and  conducive  to  increased  administrative  burden  when 
determining the due liabilities and its permissibility e.g. in the contractual documents. It 
also suggested improvements to address insufficient information available to depositors 
about the set-off. The transposition check also revealed divergent approaches, deducting 
the  liabilities  from  either  the  aggregate  deposits  or  the  repayable  amount  (after  the 
application of the coverage limit). 

Analysis 

The feedback from the EGBPI supported the EBA’s suggestions. If this provision were 
maintained,  it  would  require  clarifications  that  due  liabilities  are  consistently  deducted 
from the aggregate deposits as well as the improvements in the depositor information. 

The EGBPI also explored the option to remove the set off from the framework in view of 
its low materiality and the administrative burden415. While the views on this issue were 
split416,  the  best  option  would  be  to  remove  this  provision.  In  line  with  the  EBA’s 
findings,  this  approach  would  also  simplify  the  framework  and  be  consistent  with  the 
objectives  pursued  in  the  CMDI  review.  The  provision  applies  only  in  the  context  of 
payouts. Its use is already limited and is likely to be even more marginal because of the 
intended  regulatory  changes,  prioritising  bank  exits  based  on  transfers  of  commercial 
relationships (i.e. deposits and related loans) over payouts. Removing this national option 
would foster consistent treatment of depositors. 

3.2.11. Definition of available financial means 

Issue 

The EBA highlighted a lack of clarity and divergent national approaches concerning the 
treatment  of  borrowed  resources,  administrative  fees,  funds  recovered  in  insolvency, 
income from investment and unclaimed payments in the calculation of available financial 
means.  The  clarifications  would  ensure  a  more  accurate  view  on  the  DGS’  financial 
position.  The  EBA  further  supported  clarifying  the  cancellation  and  irrevocability  of 
payment commitments. 

415 CEPS study also recommended removing of the provision, in view of low  materiality, administrative 
burden and lack of practical use (so far in only two Member States).  
416  Out  of  17  Member  States,  who  transposed  the  option,  7  experts  supported  removing  it  from  the 
framework and 9 experts preferred to retain it. 

226 

 
                                                           
Analysis 

In line with  feedback from  the EGBPI, the best  approach would be to  report borrowed 
resources  but  exclude  them  from  the  calculation  of  the  available  financial  means.  This 
change would ensure that they do not count toward the minimum target level, which was 
the  objective  pursued  by  the  EBA.  Accordingly,  the  borrowed  resources  would  be 
published in the EBA’s annual reporting to ensure transparency on DGS funding. For the 
majority of experts, while administrative fees should be excluded, other funding sources, 
such as recovered funds from insolvency, investment income, should be included in the 
calculation  of  available  financial  means.  Based  on  the  feedback  received,  the 
clarifications  around  the  irrevocability  of  payment  commitments  aim  to  increase 
convergence across Member States .  

3.2.12. Sequence  in  the  use  of  DGS  funding  sources  and  the  related  investment 

strategy 

Issue 

DGSs  reimburse  depositors  from  available  financial  means  in  the  pre-funded  schemes. 
They  are  financed  by  annual  and  extraordinary  contributions  from  credit  institutions. 
Alternative funding arrangements must be in place to obtain short-term funding to meet 
claims against those DGSs.  

The EBA highlighted a lack of clarity and divergent national approaches as concerns the 
sequence of the above  DGS funding sources.  According to  its analysis,  there would be 
merit for flexibility around the use of the different funding sources subject to a cost and 
benefit  analysis  and  a  repayment  plan.  The  EBA  further  noted  the  absence  of  concrete 
alternative  funding  arrangements  established  in  some  DGSs.  Lastly,  it  also  suggested 
specific improvements of provisions on investment strategy. 

Analysis 

The feedback from the EGBPI on the sequence of the use of DGS funding sources was 
mixed. While some supported full flexibility, others had more nuanced views. The latter 
preferred  either  a  strict  sequencing  or  a  certain  degree  of  flexibility,  justified  by 
exceptional circumstances or involving no public resources. In view of this feedback, the 
best way forward is to specify that DGSs may use alternative funding arrangements from 
private  sources  before  available  financial  means  and  funds  collected 
through 
extraordinary  contributions.  Such  flexibility  would  allow  DGSs  to  avoid  having  to 
immediately  raise  extraordinary  contributions  where  raising  such  contributions  would 
endanger  financial  stability  (e.g.  in  a  systemic  crisis).  Full  flexibility  is  needed  also  to 
allow  DGSs  to  use  their  funds  in  the  most  efficient  way  and  avoid  a  fire  sale  of  their 
assets (available financial means) at the point of crisis. At the same time, funding from 
public sources  should be constructed as a ‘backstop’ function in line with the principle 
of moral hazard that the cost of financing the depositor protection should be first borne 
by credit institutions themselves. 

227 

 
 
 
3.2.13. Use of DGS funds for purposes other than payout 

Issue 

The EBA pointed out the lack of clarity regarding the cost limitations of preventive and 
alternative measures under Article 11(3) and (6) DGSD and the need for several technical 
clarifications.  It  also  took  the  view  that  the  financing  of  preventive  measures  alone 
should  not  cause  a  FOLF  determination.  It  turned  out  that  in  some  instances  those 
interventions could be assessed as imputable to the State under the applicable State aid 
rules and hence, have the potential to trigger a FOLF determination under the BRRD, and 
othes not. The uncertain treatment of DGS interventions  financing Article 11(3) DGSD 
measures in light of Article 32(4)(d) BRRD raises unlevel playing field concerns.  

Analysis 

Overall,  the  current  provisions  provide  for  a  high-level  determination  of  the  least  cost 
test,  subject  to  inconsistent  application417.  There  is  no  clear  methodology  under  the 
current  legal  framework  to  calculate  this  least  cost  test.  The  feedback  from  the  EGBPI 
supported  clarifying  the  main  principles  of  the  least  cost  test  in  a  Level  1  text  and 
specifying  the  technical  details  in  a  delegated  act.  The  views  were  split  as  regards  the 
appropriate methodology.   

The Commission services set out below the respective findings as regards the application 
of preventive and alternative measures and available policy options, taking into account 
the EGBPI feedback. 

(i) 

Preventive measures under Article 11(3) DGSD 

Currently,  preventive  measures  are  applied  for  non-failing  banks  by  DGSs  including 
those IPSs that qualify as DGSs whose interventions comply with the applicable State aid 
rules  to  be  qualified  as  private  support  (i.e.  non-aid).  By  contrast,  if  such  interventions 
amounted to a State aid, they would trigger resolution418. 

Article 11(3) DGSD provides also a set of safeguards for preventive measures. These aim 
to ensure that the intervention (i) is limited in amount, (ii) precedes resolution, and (iii) is 
accompanied  by  adequate  commitments  and  monitoring  processes.  The  available 
experience  reveals  inconsistent  approaches  across  Member  States  regarding  the 
conditions around the preventive measures, including their cost limitations. While some 
DGSs use the same least cost test for both preventive and alternative measures, others do 
not use any least cost assessment at all.  

Since  the  entry  of  DGSD  into  force  in  2014,  preventive  measures  were  applied  in  five 
instances. In all cases, the preventive measures led to a recapitalisation of the bank in line 
with  its prudential  requirements or to an acquisition from  a buyer or industrial partner. 
Two  of  these  institutions  were  placed  under  temporary  administration.  The  period 

417 See Annex 5, section Error! Reference source not found.. 
418  See  Chapter  2,  Section  Error!  Reference  source  not  found.;  Chapter  5,  sections  Error!  Reference 
source  not  found.  subsection  (b)  ‘Divergent  access  requirement  for  the  resolution  fund  and  for  funding 
outside resolution’ and 7.1.4.2, Annex 9, see overview of Error! Reference source not found..  

228 

 
                                                           
between the moment the DGS was informed of the distress situation of the bank and the 
conclusion of the case involving the preventive measure ranged from nine to 16 months. 
In  these  instances,  the  preventive  measures  were  also  combined  with  interventions  by 
other  stakeholders  (DGS  ‘voluntary  fund’,  shareholders,  acquiring  bank/buyer).  They 
took various forms, e.g. capital injections, guarantees, loans, often aiming to reduce with 
capital relief measures the amount needed in core capital and so facilitate the merger with 
another  bank.  As  regards  the  financial  impact  on  the  DGS,  the  final  cost  of  these 
operations  was  not  always  certain  in  advance  (for  instance  for  guarantees  or  capital 
injection) and had been estimated in the least cost test. 

Box 17: Examples of least cost test calculations under Article 11(3) DGSD419  

Based  on  anonymised  information  received  from  the  EBA,  a  detailed  least  cost  test 
methodology was  applied in  three cases.420 The different  consecutive steps  applied for 
the calculation of the least cost test are explained below: 

i) 

Step 1 aims to calculate the costs of the payout for the DGS. 

-  The direct  cost  of the payout  for the  DGS is  mainly related to  the value  of the 
assets of the bank in a piecemeal liquidation. The value of the assets of the bank 
in liquidation is calculated based on the amount of estimated losses. This amount 
represents the funds that could be recovered during the insolvency proceeding. 
-  However, some of these assets will be used to pay (i) the preferred liabilities (i.e. 
the  liabilities  with  a  higher  rank  than  the  covered  deposits,  like  employees  or 
tax),  and  (ii)  the  secured  liabilities.  The  amount  of  preferred  and  covered 
liabilities are then deducted from the value of the assets in liquidation.  

-  The operational  costs related to the payout are also deducted from the value of 

the assets (legal costs, valuation expertise and so on). 

Accordingly, the direct cost of the payout for the DGS is calculated by deducting from 
the value of assets in  liquidation  (A), the assets used for paying preferred and secured 
liabilities (B), the operational  and administrative costs (C), and the amount  of covered 
deposits (D). A positive result means that the DGS will recover, during the insolvency 
proceedings, 100% of its funds. In other words, the direct costs for the DGS, after the 
insolvency proceedings, is 0.  

Subsequently,  indirect  costs  are  estimated421.  In  the  cases  at  hand,  the  indirect  costs 
included the opportunity cost for the DGS (i.e. the lack of profitability resulting from the 
use of DGS funds), the costs for the member institutions of this DGS that may have to 
pay ex post contributions, additional funding costs for the banks and financial contagion 
effects to risky banks.  

ii) 

Step 2 aims to calculate the cost of the measure. 

419  These  examples  are  for  information  only  and  should  not  be  seen  as  an  opinion  of  the  European 
Commission. The objective is to illustrate what a least cost test could be, based on an existing methodology 
applied on real cases. 
420 These cases were notified to the EBA under the Decision of 23 July 2018 on notifications to the EBA 
relating to the DGSD. 
421 The Commission services do not have at disposal a detailed methodology used to calculate the indirect 
costs. 

229 

 
 
 
 
 
 
 
 
                                                           
The cost of the preventive measure depends on the tools used by the DGS and is a case-
by-case assessment. For instance: 

-  Under case A, the DGS injected capital in the bank and then sold the shares for 1 
euro  to  a  buyer.  The  final  cost  for  the  DGS  was  equal  to  the  amount  of  the 
capital injection. 

-  Under  case  B,  the  DGS  also  injected  capital  in  the  bank  but  considered  that  it 
would be able to sell the shares with a discount in several  years. The final cost 
for  the  DGS  was  then  equal  to  the  amount  of  the  capital  injection,  minus  the 
following sale of the shares. 

-  Under case C, the DGS provided a guarantee. It is assumed in this case that the 

guarantee will be called. 

iii) 

Step  3  is  a  comparison  between  the  cost  of  the  payout  and  the  cost  of  the 
measure. 

The DGS opted for the less costly option. It appears that, in these cases, the DGS would 
not  be allowed to  finance the measure without the indirect  costs and would  have been 
required to reimburse the depositors. 

Table 7: Examples of least cost test calculations 

261 

645 

Case A 

The numbers in this table 
were rescaled for 
confidentiality purposes. For 
each case, the 
proportionality between the 
numbers is preserved 
Step 1 : calculating the cost of a payout 
1.1 Direct costs for the DGS 
A. Value of the assets of the 
piecemeal 
a 
in 
bank 
liquidation 
B.  Preferred  and  covered 
liabilities 
C. Operational costs 
D.  Amount  of  covered 
deposits 
E. Direct costs for the DGS  
(i.e.  A-B-C-D).  If  positive, 
the amount retained is O. 
1.2 Indirect costs 
F. Opportunity costs 
G. Costs for banks related to 
the  additional  contributions 
to the DGS 
H.  Additional 
cost 
funding for other banks 
I.  Financial  contagion  effect 
on other high risk banks 
J. Indirect costs (F+G+H+I)  96 

66 
300 

15 
18 

30 

33 

of 

Case B 

Case C 

884 

312 

64 
400 

434 

156 

48 
200 

A-B-C-D=108 
Direct costs for the 
DGS = 0 

A-B-C-D=30 
Direct  cost  for  the 
DGS = 0 

28 
0 

24 

36 

14 
4 

0 

0 

(i.e. 

88 (i.e. 28+24+36)  18 (i.e. 14+4) 

A-B-C-D=18 
Direct  costs  for  the 
DGS = 0 

1.3 Total cost of the payout  

15+18+33+30) 

230 

 
 
 
 
K. Cost of the payout (E+J)  96 (i.e. 0+96) 
Step 2 : Cost of the preventive measure for the DGS 
injected 
Preventive measure 
DGS 
capital, 
and 
immediately sold the 
shares  for  EUR 1  to 
a buyer. 

the  preventive 

Cost  of 
measure for the DGS 
Step 3 : Least cost test 
Comparison  of  the  cost  of 
the  payout  and  the  cost  of 
the preventive measure 

Source: Commission services. 

93  

Cost  of  the  payout: 
96 
Cost of the measure: 
93 

88 (i.e. 0+88) 

18 (i.e. 0+18) 

injected 
DGS 
capital 
and 
assumed to sell the 
a 
shares,  with 
discount,  within  4 
years. 
Between 8 and 16  

Cost  of  the  payout 
: 88 
Cost 
measure: 8-16 

the 

of 

DGS  provided  a 
guarantee  to  inject 
capital. 

 6 

Cost  of  the  payout 
: 18 
Cost 
of 
measure: 6 

the 

In view of the above experience and as mentioned in Chapter 2, there is scope to improve 
the provision, with a view to ensure more clarity and legal certainty on the use of these 
measures  with  a  view  to  preserve  DGS  financial  means,  as  well  as  a  more  consistent 
application.  It  would  also  be  important  to  ensure  that  the  intervention  is  granted  at  a 
sufficiently early time, to avoid granting support to a bank that is too close to failure.   

Following  the  feedback  from  the  EGBPI,  the  following  policy  options  could  appear 
suitable:  

-  applying  the  same  least  cost  methodology  as  for  any  other  use  of  DGS  (see 

further point (ii)); 

-  applying a least cost methodology tailored to a specific nature of the preventive 

measures;  

-  using  additional  or  strengthened  criteria  to  ensure  the  timeliness  of  the 
intervention and its economic rationale, combined with the least cost test used for 
any other use of DGS as an additional safeguard.  

The  first  option  would  have  the  benefit  of  ensuring  consistency  across  different  DGS 
uses. At the same time, a least cost based on an insolvency counterfactual might fail to 
capture all aspects of such a preventive intervention. At the time of a preventive measure, 
the  bank  is  meant  to  be  ‘not  yet  failing’  (or  in  going  concern)  and  it  would  not  be 
possible to  know whether, in  the event  of failure, the bank would go into resolution  or 
insolvency  as  reference  for  the  counterfactual  in  the  LCT.  Moreover,  such  a  solution 
would not improve the necessary safeguards. In particular, the least cost test alone might 
not help in ensuring that the DGS intervention is sufficiently timely or based on adequate 
economic rationale (other than being less expensive than an insolvency payout or other 
counterfactual). 

The  second  option  would  entail  a  least  cost  test  that  reflects  the  specific  nature  of 
preventive measures and the type of DGS, e.g. the existence of a statutory or contractual 
mandate to intervene. As explained in Annex 10, Box 19, preventive measures are crucial 
for IPSs and applying a least cost test before granting support to an IPS member should 

231 

 
  
  
 
 
take  into  account  the  main  IPS  functions.  This  option  would  also  require  additional 
technical analysis, developed through regulatory technical standards.  

The  third  option,  combining  the  first  or  second  options,  could  reinforce  the  criteria  to 
ensure  the  timeliness  and  economic  rationale  of  the  intervention.  For  example,  the 
revised provision could ensure that the bank is solvent at the time of the intervention and 
that there is no prospect of its failure within a certain period in the future. Also, further 
conditions could require that the intervention is capable of ensuring the bank’s long term 
viability. In addition to such safeguards, it would be sensible that the intervention meets 
the least cost test, if compared with an appropriate counterfactual. Such an option would 
merit further technical analysis through regulatory technical standards. 

Finally, the interaction between this provision and Article 32 BRRD should be clarified. 
At  present,  depending  on  the  qualification  of  the  intervention  for  State  aid  purposes, 
there  is  a  possibility  that  some  DGSs  cannot  intervene  in  a  preventive  fashion  because 
the  measure  would  trigger  resolution.  An  option  to  avoid  this  problem  would  be  to 
explore  a  similar  approach  that  already  applies  for  precautionary  measures,  which 
constitute  an  exception  to  the  rule  that  extraordinary  financial  support  should  trigger  a 
FOLF determination for the bank. The exception is based on the fact that precautionary 
measures are granted to solvent banks and under strict conditions (as to the amount for 
example).  Accordingly,  under  this  approach,  even  in  the  event  the  DGS  measures  are 
qualified as State aid (which is the basis to consider it as extraordinary public financial 
support),  it  would  be  possible  to  use  them  without  triggering  resolution  subject  to 
required conditions and safeguards. 

(ii) 

Alternative measures under Article 11(6) DGSD 

Alternative  measures  are  normally  used  for  banks  where  there  is  no  public  interest  in 
resolution  and  which  are  to  be  liquidated  under  national  insolvency  proceedings  (if 
available under national law). In the context of the insolvency proceedings, the DGSs can 
finance an alternative measure to payout, such as the transfer of the assets and liabilities 
andor a deposit book, from a failing bank to an acquirer to preserve depositors’ access to 
covered  deposits  and,  at  the  same  time,  limit  the  destruction  of  value  in  a  piecemeal 
liquidation.  

involved  a 

intervention  also 

The  Commission  services  were  informed  of  one  instance  in  which  a  DGS  financed 
alternative  measures.  This 
least  cost  assessment, 
corresponding  to  the  total  amount  required  to  reimburse  covered  depositors  minus  the 
estimated amount of proceeds the DGS would have received from the insolvency estate. 
The  bank  in  question  was  experiencing  significant  liquidity  outflows  and  facing 
difficulties  to  meet  its  capital  requirements.  It  was declared failing or likely to fail  and 
went  in  insolvency, while searching  for a potential  buyer who would be interested in  a 
transfer of the assets and liabilities from the failed bank. The principles of this least cost 
assessment are set out below. 

232 

 
Box 18: Example of least cost test calculation under Article 11(6) DGSD422  

i) Calculation of the cost of the payout 

A. Value of the assets of the bank 

B. Preferred liabilities 

C. Direct and indirect costs related to the liquidation  

D. Covered deposits 

Cost of the payout  

= A-B-C-D 

600 

32 

150 

540 

-122 

ii) Calculation of the cost of the alternative measure 

In  order  to  facilitate  the  transaction  of  the  assets  and  liabilities  of  the  failed  bank  to  a 
buyer, the DGS compensated the negative value of balance sheet of the  failed bank (i.e. 
the  difference  between  the  value  of  its  assets  and  the  value  of  its  liabilities).  This 
compensation  represented  a  loss  for  the  DGS,  estimated  to  90.  As  the  cost  of  the 
transaction (i.e. 90) was lower than the cost of the payout (i.e. 122), the DGS was allowed 
to apply the alternative measure. 

In  line  with  the  feedback  from  the  EGBPI,  regulatory  technical  standards  on  the  least 
cost methodology would be developed based on the principles to be set out in the Level 1 
text423.  The  principles  would  align  the  calculation  of  the  costs  for  a  payout  with  the 
methodology used in the resolution framework based on a so-called valuation 3424.  

The  discussions  also  explored  the  inclusion  of  direct  costs,  such  as  the  cost  of 
reimbursing  covered  deposits425,  the  valuation  expertise,  legal  advisers,  possible 
litigation  and  costs  for  the  receivers,  and  indirect  costs  related  to  a  payout.  The  views 
were  split  on  the  use  of  indirect  costs,  that  may  reflect  the  financial  contagion  effects, 
additional  costs  for  the  banking  sector  related  to  the  need  to  raise  extraordinary 
contributions  to  replenish  the  DGS  and  potential  additional  funding  costs  related  to 
disturbance on financial markets or opportunity costs for the DGS.  

In this respect, for some experts, the argument against including the indirect costs relates 
to the complexity to quantify them426 or that they do not represent the direct costs for the 

422  These  examples  are  for  information  only  and  should  not  be  seen  as  an  opinion  of  the  Commission 
services.  The  objective  is  to  illustrate  what  a  least  cost  test  could  be,  based  on  an  existing  methodology 
applied on real cases. The numbers have been rescaled for confidentiality purposes, but the proportionality 
between the numbers is preserved. 
423 10 Member States agreed on this principle and two disagreed in the replies to the survey circulated by 
the Commission during the EGBPI of 28 September 2020.  
424 All respondents agreed on this principle in the survey circulated by the Commission during the EGBPI 
of 28 September 2020. 
425  The  cost  of  reimbursing  covered  deposits  are  the  amount  of  covered  deposits  minus  the  expected 
amount recovered during by the DGS during the insolvency proceedings. 
426  For  instance,  for  the  impact  of  a  payout  on  the  funding  costs  of  the  other  banks  or  on  the  financial 
stability. 

233 

 
 
 
 
 
                                                           
DGS but for the contributing banks427. Some experts were open to including them as long 
as they allow a more accurate estimation of the overall impact of payout and are based on 
clear rules enabling their quantification and/or subject to safeguards, e.g. by introducing 
a  cap  limiting  their  amount.  Some  also  considered  that,  under  the  current  legal 
framework, the least cost test is unlikely to be met without indirect costs. Indeed, due to 
the current high ranking of covered deposits in the creditor hierarchy, the likelihood of a 
loss for a DGS in a payout is very limited and close to zero428. 

The  analysis  in  Annex  7,  section  Error!  Reference  source  not  found.,  demonstrated 
that, under the proposed options including notably the changes to the creditor hierarchy 
(i.e. single-tier class for all deposits), the direct costs would allow 80%429 of the banks, 
which cannot reach the 8% TLOF without affecting the deposits, to finance the gap to the 
8% TLOF threshold. For the remaining banks (i.e. 20% of the banks that cannot access 
the RF/SRF without affecting the deposits), the amount of funds meeting  the least  cost 
test  would  not  be  sufficient  to  reach  the  8%  TLOF  threshold.  If  the  objective  were  to 
allow  the  DGSs  to  bridge  the  gap  for  more  banks,  indirect  costs  would  need  to  be 
included  in  the  calculation  of  the  least  cost  test.  On  average,  for  the  subset  of  banks, 
unlikely  to  meet  the  least  cost  test  according  to  the  simulation,  the  funds  missing  to 
finance the gap to the 8% TLOF threshold would represent 0.25% of covered deposits430. 

In this context, the impact assessment tested several scenarios of a financial crisis under 
different  versions  of  creditor  hierarchy.  The  results  confirm  a  low  likelihood  that  DGS 
funds  could  be  used  in  crisis  management  for  purposes  other  than  payout  under  the 
current least cost test, articulated as in the current framework and including only direct 
costs. These results also confirm the four examples of least cost tests outlined above in 
which  the  DGS  would  not  have  been  allowed  to  finance  a  measure  other  than  payout 
without including indirect costs. 

Therefore,  the  best  option  would  be  to  develop  a  methodology,  which  includes  both 
direct and, at least to some extent, quantifiable indirect costs subject to further technical 
analysis  performed  in  the  context  of  the  regulatory  technical  standards.  This  least  cost 
test  should  apply  also  in  resolution  because  of  the  same  counterfactual,  i.e.  the  losses 
incurred  in  insolvency  in  case  of  payout,  to  ensure  the  aligned  incentives  between 
resolution and insolvency. 

3.2.14. Reference  date  for  covered  deposits  data  for  the  calculation  of  the  target 

level in 2024 

Issue 

The EBA recommended to clarify that the reference date for the calculation of the target 
level in 2024 should be no earlier than 31 December 2023 and no later than 3 July 2024.  

427  Some  indirect  costs  are  costs  for  the  banks  (additional  costs  of  funding,  ex  post  contributions  to 
replenish the DGS funds). 
428 In addition, in case a loss is expected, its amount is probably very limited, leaving little room to finance 
an alternative measure. 
429 This conclusion would be different without any change in the creditor hierarchy. 
430 This amount considers a recovery rate set at 85%. It is to be noted that results are strongly dependent on 
the assumed percentage of recovery rate. 

234 

 
                                                           
Analysis 

While  experts  largely  supported  the  EBA’s  clarification,  the  discussions  in  the  EGBPI 
subsequently  explored  another  alternative  option.  According  to  the  latter,  the  available 
financial  means  would  at  least  reach  a  target  level  of  0.8%  of  covered  deposits  by  31 
December  2024.  This  could  take  into  account  the  differences  in  the  collection  of 
contributions and allow Member States to report the DGS data for 2024 by March 2025. 
As the views were split, the best option would be to follow the EBA’s advice.  

3.2.15. Treatment of third country branches 

Issue 

The EBA pointed out the inconsistent treatment of third country branches located in the 
EU  and  the  various  practices  regarding  the  national  equivalence  assessments  across 
Member States. In EBA’s view, third country branches should be required to join a DGS 
in  the  EU  without  an  equivalence  assessment  to  reduce  administrative  burden  and  to 
align  the  different  approaches.  Given  that  most  third  country  branches  are  presently 
members  of  DGSs  in  the  EU,  the  impact  of  this  recommendation  would  be  limited. 
Further, it also proposed clarifications regarding the deposits in third country branches of 
EU credit institutions, located abroad. 

Analysis 

The subsequent feedback from the EGBPI supported such clarifications.  

There was a broad support for requiring third country branches to join DGSs in the EU 
without  prior  equivalence  assessment.  However,  some  Member  States  suggested  a 
possible derogation from the participation  of a third country branch in  a national  DGS. 
This  derogation,  to  be  granted  by  national  authorities,  would  be  contingent  on  an 
equivalent  DGS  protection  of  the  third  country  at  least  in  terms  of  coverage  and  a 
deadline  for  repayment.  However,  any  such  derogations  would  also  run  against  the 
Banking  Union  objectives,  in  particular  these  aiming  to  decrease  unnecessary  national 
discretions and the risk of regulatory arbitrage. The treatment of third country branches 
and  their  possible  authorisation  requirements  is  currently  assessed  in  the  ongoing 
revision  of  the  CRD/CRR  framework.  These  developments  could  address  the  concerns 
raised  in  the  context  of  the  CWP  discussion  on  EDIS431  regarding  the  risk  of  third 
country  branches  for  the  common  scheme  although  the  latter  would  remain  under 
national supervision and/or where they cumulate larger amounts of deposits in the EU.  

Likewise,  the  clarification  of  the  territorial  scope  of  the  DGS  protection  also  received 
broad support in the EGBPI to avoid exposing DGSs to risks in the third countries, which 
is  also  important  in  the  context  of  the  common  scheme.  Taking  this  forward,  this 
discussion also highlighted a possible coverage of the deposits outside the EU as an area 
for further work, mainly from the perspective of better competitiveness of EU banks and 
the fact that branches are not separate legal entities. 

431 European Council (2 June 2021), Portuguese Presidency Progress Report on strengthening the Banking 
Union. 

235 

 
                                                           
4. 

OVERALL ASSESSMENT OF BENEFITS AND COSTS UNDER OPTION 2 (FOLLOWING 
EBA’S ADVICE) 

4.1. Benefits 

Option 2 (following EBA’s advice) would foster a consistent application across Member 
States and clarify the interplay with  other sectoral  legislation. This  would also  enhance 
legal  certainty  and  depositor  confidence  as  depositors  increasingly  navigate  through 
different legal regimes as the consequence of the cross-border and Fintech services. New, 
or  more  detailed,  rules  would  mainly  reassert  the  principles  laid  down  in  the  DGSD 
where  the  evidence  suggests  ineffective  outcomes,  insufficient  transparency  and  scope 
for improvements compared to the current rules. Some of these modifications would aim 
to improve the administrative burden of DGSs, while leaving the administrative  burden 
of  the  banking  sector  broadly  unaltered.  More  harmonised  rules  would  be  necessary  to 
address  divergences  among  Member  States  that  have  significant  adverse  impacts  on 
depositors.  The  DGSD  framework  should  also  be  consistent  across  all  EU  Member 
States, irrespective of whether these are members of the Banking Union, to ensure their 
equal treatment. In several instances, detailed rules to be adopted through empowerments 
for  the  delegated  and  implementing  acts  would  be  more  suitable  to  prevent  from 
overburdening  the  generally  applicable  legal  framework  and  ensure  a  consistent  use  of 
DGS  funding  (e.g.  through  a  least  cost  assessment).  Overall,  following  EBA’s  advice 
would better contribute to the objectives to protect depositors and financial stability. 

4.2. Costs 

Option  2  (following  EBA’s  advice)  would  extend  the  coverage  for  certain  types  of 
depositors  and  deposits,  such  as  the  inclusion  of  public  authorities  within  the  scope  of 
covered  depositors  (Issue  6),  which  could  create  additional  costs  for  the  contributing 
banks  and  the  DGS.  Currently,  the  concrete  costs  for  such  an  amendment  cannot  be 
quantified as only eligible deposits are reported to the EBA. However, the subset of such 
public authorities, currently protected in several Member States, as well as the reflection 
in the contribution for all affiliated institutions, suggest the overall financial impact to be 
relatively  small.  Conversely,  other  policy  options  likely  to  impact  the  coverage,  e.g. 
temporary  high  balances,  client  funds  or  other  (Issues  4,  5,  14),  would  have  a  limited 
financial  impact  for  the  DGS  and  contributing  banks  because  such  deposits  are  either 
rare, relatively small in terms of volume and/or already covered by the DGS. Likewise, 
as explained in Annex 7, the changes to the least cost test for the use of DGS other than 
for payout and to the creditor hierarchy, could also have a financial impact for the DGS, 
although  difficult  to  quantify  in  net  terms  ex  ante.  However,  more  robust  deposit 
protection  and  effective  CMDI  framework  constitute  sufficient  trade-offs  of  these 
potential costs.  

The  revised  rules  may  lead  to  certain  implementation  costs.  However,  as  the  revised 
criteria  aim  to  enhance  clarity  and  hence  reduce  the  incurred  costs  under  the  current 
framework, the implementation costs are expected to decrease quickly over time.  

236 

 
 
 
ANNEX 7: ANALYTICAL METHODS  

1. 

OBJECTIVE AND SCOPE 

The  objective  of  this  Annex  is  to  provide  detailed  quantitative  information  (static  statistical 
analysis and model-based simulations) to support the assessment of the policy options set out 
in  Chapters  5,  6  and  7  as  well  as  certain  aspects  pertaining  to  funding  in  Chapter  2  and  the 
evaluation  (Annex  5).  In  terms  of  scope,  this  Annex  covers  a  wide  range  of  technical  topics 
linked  to  the  components  of  the  CMDI  framework  and  the  design  of  EDIS,  as  well  as 
methodological sections. More specifically, it covers: 

-  An overview of the methodology (section 2) 
-  Analysis of banks’ capabilities to meet the condition to access the RF/SRF (section 3) 
-  The  potential  for  DGS  intervention  under  the  least  cost  test  (LCT)  and  related 

considerations (section 4) 

-  Caveats and disclaimers (section 5) 
-  Other methodological considerations (section 6). 

The analyses  on the banks’ capabilities to  meet  the conditions  to  access  the RF/SRF  and the 
potential for DGS intervention are featuring a static statistical part and a model-based dynamic 
approach. For the static and model-based analyses, the Annex refers to the EBA report replying 
to the Commission’s Call for Advice regarding funding in resolution and insolvency as part of 
the  CMDI  review  (hereafter  “EBA  CfA  report”),  presenting  the  main  conclusions  in  the 
context of the assessment of the policy options following different scenarios. The EBA’s CfA 
report was prepared in cooperation with the Commission’s Joint Research Centre that provided 
the  underlying  quantitative  analysis  necessary  to  conduct  the  assessments  included  in  that 
report. Detailed information on methodological assumptions is available in each section where 
these analyses are presented.  

2. 

OVERVIEW OF THE METHODOLOGY 

2.1. Data sources and references 

Each area of analysis outlined above builds on the data provided by the SRB and the data used 
in  the  EBA  CfA  report  collected  by  the  EBA  directly  from  resolution  authorities.  Table  8 
provides a mapping of the data sources used in this Annex. 

237 

 
 
 
 
 
Table 8: Mapping data sources and references 

Section # 

Data sources and references 

Conditions to access the RF/SRF 

DGS interventions 
Least cost test 
Use of DGS in resolution 
Use of resolution fund 
Availability of DGS funds and EDIS design 

2.2. Use of models 

EBA CfA report432 
SRB data 

The simulations reported in this Annex and in the EBA CfA report are based on the Systemic 
Model of Banking Originated Losses (SYMBOL). SYMBOL simulates crisis scenarios in the 
banking sector. In each scenario, a number representing a realization of the single risk factor is 
randomly  generated  for  each  bank.  To  represent  the  fact  that  all  banks  operate  in  the  same 
economy, the risk factors are correlated between themselves. Given the realisation of the risk 
factors, individual banks' losses are generated via Monte Carlo simulations using the Basel III 
Fundamental  Internal  Risk  Based  (FIRB)  loss  distribution  function  and  are  based  on  an 
estimate  of  the  average  default  probability  of  the  portfolio  of  assets  of  any  individual  bank, 
which  is  derived  from  data  on  banks'  minimum  capital  requirements  and  total  assets.  These 
losses can then be applied to the bank’s liabilities by respecting the waterfall in the hierarchy of 
claims,  possibly  triggering  the  use  of  resolution/insolvency  tools  and  corresponding  funding 
sources.  Given  a  sufficient  number  of  loss  scenario  simulations  (hundreds  of  thousands  to 
millions), it is possible to obtain statistical distributions of outcomes for the banking sector as a 
whole. This concerns mainly the dynamic simulation related to DGS interventions (section 4). 
More  detailed  information  on  SYMBOL,  including  model  structure,  analytical  approach,  key 
assumptions,  limitations  and  simplifications  are  available  in  section  3.2  of  the  EBA’s  CfA 
report. 

2.3. Assumptions and scenarios for the static and model-based analyses 

The static analyses and the simulations are based on a set of common assumptions to address 
data quality issues (e.g. missing values), data processing (e.g. size classification criteria, level 
of  consolidation  of  the  analyses,  mapping  of  national  creditor  hierarchies  into  a  simplified 
hierarchy of claims which is used for all banks in a Member State) and data aggregation (e.g. 
presentation  of  the  results).  The  main  scenarios  tested  relate  to  equity  (CET1)  depletion, 
depositor  preference  in  the  hierarchy  of  claims,  loss  simulations  and  loss  allocation  within 
banking groups depending whether the resolution group structure holds or not in resolution and 
the  run  on  short-term  liabilities.  Detailed  information  on  these  assumptions  and  scenarios  is 
available in sections 3.1 and 3.2 of the EBA CfA report. 

432 EBA (2021), Call for advice regarding funding in resolution and insolvency  

238 

 
 
                                                           
The most relevant assumptions and scenarios used in analyses relying on the EBA CfA report 
are described below. 

-  Size classification 

  For  the  purpose  of  the  assessments  conducted  in  sections  3  and  4,  institutions  are 
classified  as  “large”,  “medium”  or  “small  and  non-complex”  by  the  EBA  in 
accordance with the criteria in CRR.433 Such criteria relate to balance sheet size and 
systemic risk importance, but also elements of complexity such as trading activities 
and the location of activity outside of the European Economic Area.  

  On the basis of this classification, the sample used in the EBA CfA report is made 
of 368 institutions  (parent  and standalone entities)434, out  of which 49 large, 124 
medium and 195 small and non-complex institutions located in 27 Member States. 
When  also  considering  subsidiaries,  the  total  sample  of  entities  is  made  of  862 
entities out of which 58 large, 304 medium and 500 small and non-complex entities.  

  Where appropriate, other analyses use size classification based on total assets. 

Table 9: Size clustering criteria used in the EBA CfA report  

Category 

Criteria 
The  institution  meets  any  of  the  following  conditions,  with  the  exception  of 
condition (d) which acts like a binding threshold for all other conditions435: 
(a)  Identified  as  G-SII  in  accordance  with  Article  131(1)  and  (2)  of  Directive 

2013/36/EU 

(b) Identified  as  O-SII  in  accordance  with  Article  131(1)  and  (2)  of  Directive 

Large 

2013/36/EU 

(c)  One  of  the  three  largest  institutions  in  terms  of  total  value  of  assets  in  the 

Member State in which it is established 

(d) The  total  value  of  the  institution’s  assets  on  the  basis  of  its  consolidated 

situation is equal to or larger than EUR 30 bn 

(and 

Small 
non-
complex) 

The  institution  is  not  a  'large'  institution  and  meets  all  of  the  following 
conditions: 
(a)  The  total  value  of  its  assets  on  an  individual  basis  or,  where  applicable,  on  a 
consolidated  basis  in  accordance  with  Regulation  (EU)  No  575/2013  and 
Directive  2013/36/EU  is  on  average  equal  or  less  than  the  threshold  of 
EUR 5 bn over the four-year period immediately preceding the current annual 
disclosure period 

(b) The total  value of its derivative positions is less than or equal  2% of its total 
on-  and  off-balance  sheet  assets,  whereby  only  derivatives  which  qualify  as 

433  Regulation  (EU)  2019/876  of  the  European  Parliament  and  of  the  Council  of  20  May  2019,  OJ  L  150, 
7.6.2019, p. 1–225. The proposed criteria were simplified; see section 2.3.1 of the EBA CfA report.  
434 This statistic is based on the sample of institutions at point of entry or parent entity level, irrespective whether 
they have strategy resolution or liquidation (i.e. excluding subsidiaries).  
435 i.e. banks with a balance sheet size below EUR 30 bn are not captured in the “large” category even if they are 
O-SIIs or among the third largest institutions in their Member State.  

239 

 
 
 
 
                                                           
positions held with trading intent are included in the calculating the derivative 
positions 

(c)  More than 75% of both the institution's consolidated total assets and liabilities, 
excluding  in  both  cases  the  intragroup  exposures,  relate  to  activities  with 
counterparties located in the European Economic Area 

Medium 
Source: EBA CfA report. 

The institution is neither “large” nor “small” 

-  Funding structure classification 

For the purpose of the assessments conducted in sections 3 and 4, institutions are also classified 
according to their funding structure through an indicator describing the prevalence of deposits 
in their balance sheet. The indicator takes into account all forms of deposits, irrespective of the 
counterparty  or  the  nature  of  the  deposit  (non-preferred,  preferred,  covered).  Banks  are 
distributed in four categories of deposit prevalence: “low”, “mid”, “mid-high” and “high”. On 
the  basis  of  this  classification,  the  sample  used  in  the  EBA  CfA  report  is  made  of  368 
institutions, out of which 107 with a low, 44 with a medium, 63 with a medium-high and 154 
with a high prevalence of deposits. 

Table 10: Funding structure – deposit prevalence as per criteria used in the EBA CfA report 

Category 
Low 
Mid 
Mid-High 
High 
Source: EBA CfA report. 

Share of deposits over TLOF 
[0-60%] 
]60-70] 
]70-80] 
>80% 

-  CET1 depletion scenarios 

Five scenarios of CET1 depletion (presented in decreasing order of severity) are envisaged in 
the analyses:  

  Baseline (Scenario 1): assume no CET1 depletion, i.e. all the CET1 (including the 
Pillar  1,  Pillar  2  requirement,  combined  buffer  and  any  management  buffer)  is 
available to absorb losses at the moment of failure (in addition to other bail-inable 
liabilities); 

  Scenario  2:  assume  a  75%  depletion  of  the  combined  buffer  requirement  at  the 
moment  of  failure  (including  any  management  buffer  in  addition  to  the  buffer 
requirements)  i.e.  CET1  held  as  Pillar  1,  Pillar  2  requirement  and  25%  of  the 
combined buffer requirement are available to absorb losses at the moment of failure 
(in addition to other bail-inable liabilities); 

  Scenario  3:  assume  a  100%  depletion  of  CET1  held  as  capital  buffers,  i.e.  CET1 
held as Pillar 1, Pillar 2 requirement are available to absorb losses at the moment of 
failure (in addition to other bail-inable liabilities); 

240 

 
 
 
  Scenario 4: assume the depletion of CET1 where only Pillar 1 and 50% of Pillar 2 
requirement are available to absorb losses at the moment of failure (in addition to 
other bail-inable liabilities);  

  Scenario 5: assume only Pillar 1 is still available to absorb losses at the moment of 

failure (in addition to other bail-inable liabilities). 

Five  scenarios  of  equity  depletion  are  considered  when  assessing  the  institutions’  ability  to 
reach 8% TLOF and access the RF/SRF. As explained in Chapter 2 and Annex 8, the timing of 
triggering FOLF determines the amount of capital and liquidity remaining in the bank. At the 
same time, the supervisor can only make the FOLF determination if the conditions foreseen in 
Article 32 BRRD are fulfilled, which in the case of FOLF due to (likely) breaches of capital 
requirements foresee that the (likely) breach needs to be severe enough to justify withdrawal of 
the  authorisation.  It  should  therefore  be  acknowledged  that  in  particular  scenarios  1  and  2 
would  only  be  possible  under  very  exceptional  circumstances  based  on  the  existing  legal 
framework.  It  has  been  decided  to  include  these  scenarios  in  order  to  provide  a  more 
comprehensive sensitivity analysis, also taking into account the possible impact resulting from 
the  treatment  of  historical  losses  according  to  the  BRRD  II  which  establishes  that  all  equity 
used to absorb losses identified in the resolution valuations counts toward the calculation of the 
8%  TLOF  benchmark,  even  if  depleted  at  the  moment  of  FOLF  triggering  (Article  59(1b) 
BRRD).  

-  Short-term funding with a remaining maturity of less than 1 month 

When allocating losses or analysing the incidence of the 8% TLOF to access the RF/SRF, one 
relevant  question  is  whether  short-term  liabilities  can  be  relied  upon  to  absorb  losses  or 
whether those investors are likely to withdraw or not roll over their claims in the bank. A single 
assumption is considered, namely that short-term liabilities with a remaining maturity below 1 
month  cannot  be  relied  upon  at  the  moment  of  failure  and  only  liabilities  with  a  longer 
remaining maturity can be used to absorb losses. However, it is assumed that the exclusion of 
short-term  liabilities  below  1  month  does  not  affect  the  total  size  of  the  balance  sheet  or  the 
TLOF,  as  these  liabilities  would  be  replaced  by  secured  ones.  Other  types  of  short-term 
instruments  such as  sight  deposits  are included in  the analysis because their exclusion would 
require additional assumptions of deposit runs difficult to extrapolate to the entire sample.  

-  Loss allocation within banking groups 

When  performing  the  allocation  of  losses,  the  group  structure  should  be  considered.  In 
particular,  for  subsidiaries  which  are  part  of  resolution  group  and  which  are  not  resolution 
entities  themselves,  two  scenarios  are  relevant  when  performing  the  allocation  of  losses  in 
cases where the losses exceed the internal MREL requirement: 

  Scenario  1:  The  resolution  group  structure  holds  and  the  losses  of  a  subsidiary 
exceeding  its  pre-positioned  internal  MREL  requirement  are  transferred  to  the 
resolution  entity.  Under  this  scenario,  only  the  instruments  pre-positioned  by  the 
parent  to  the  subsidiary  can  be  written  down  (up-streamed  to  the  parent)  and  it  is 

241 

 
 
 
 
 
assumed that the parent entity will support its subsidiary beyond the internal MREL 
eligible  instruments  present  in  the  subsidiary.  Concretely,  at  subsidiary  level,  the 
allocation  of  losses  starts  with  own  funds  and  other  internal  MREL  eligible 
liabilities of the subsidiary at solo level up until the internal MREL requirement is 
exhausted.  Possible  remaining  losses  are  transferred  to  the  parent  level,  where 
together  with  the  parent’s  own  losses  they  will  be  covered  by  taking  into  account 
the  own  funds  and  liabilities  in  the  order  of  hierarchy  of  the  parent  from  its  solo 
balance sheet.  

  Scenario 2: The resolution group structure breaks-down triggering the resolution of 
the subsidiary and the allocation of the subsidiary’s losses is done at the subsidiary 
solo  level  only,  covering  all  the  subsidiary’s  balance  sheet,  according  to  the 
applicable hierarchy of claims. 

-  National creditor hierarchy assumptions 

As also described in Annex 8, the hierarchies of claims are defined by national laws and differ 
across Member States. While the ranking of certain types of claims are more harmonised across 
Member  States  than  others  (own  funds  and  subordinated  instruments,  preferred  and  covered 
deposits)  the  ranking  of  a  certain  claim  in  a  bank  balance  sheet  may  also  be  driven  by 
contractual clauses, which banks report to NRAs/SRB. Since the same typology of claim can 
rank  differently  for  the  same  bank  and/or  among  banks  within  the  same  Member  State  in 
function of contractual clauses, an assumption was necessary in order to generate an allocation 
of  claims  to  a  simplified  creditor  hierarchy  and  build  the  scenarios  of  depositor  preference 
upon this foundation.  

In  this  context,  for  liabilities  in  the  dataset,  which  had  an  outstanding  amount  different  from 
zero, a mapping was performed into a simplified hierarchy of claims (section [X] of the EBA 
CfA report).  

-  Depositor preference 

In  order  to  assess  the  possibility  to  access  resolution  financing  arrangements,  the  degree  of 
depositor  protection  or  exposure  to  losses  in  this  context  (section  3  of  this  Annex)  and  the 
potential use of DGS funds in resolution or under alternative measures in insolvency under the 
LCT (section 4), five scenarios of depositor preference have been considered:  

  Baseline  (Scenario  1):  current  hierarchy  of  claims,  i.e.  three-tier  depositor 
preference  unharmonised  across  Member  States.  In  most  Member  States,  covered 
deposits are super-preferred, ranking above preferred deposits (natural persons and 
SMEs  above  EUR 100 000),  which  in  turn  rank  above  other  deposits,  the  latter 
ranking pari passu with ordinary unsecured claims. However, some Member States 
have a three-tier depositor preference where covered deposits rank above preferred 
deposits,  which  rank  above  non-preferred  deposits,  the  latter  also  ranking  above 
ordinary unsecured claims); 

242 

 
 
 
  Scenario 2: a single-tier depositor preference for all Member States, i.e. all types of 
deposits rank pari passu among themselves and above ordinary unsecured claims; 

  Scenario 3: a three-tier depositor preference harmonised for all Member States, i.e. 
covered  deposits  rank  above  preferred  deposits,  which  rank  above  non-preferred 
deposits, the latter also ranking above ordinary unsecured claims; 

  Scenario  4:  a  two-tier  depositor  preference  in  all  Member  States,  where  covered 
deposits are super-preferred to preferred deposits, which rank pari passu with non-
preferred deposits, the latter ranking above ordinary unsecured claims; 

  Scenario  5:  a  two-tier  depositor  preference  in  all  Member  States,  where  covered 
deposits  rank  pari  passu  with  preferred  deposits,  all  of  which  rank  above  non-
preferred deposits, the latter ranking above ordinary unsecured claims. 

All  these  alternative  scenarios  prefer  depositors  in  relation  to  ordinary  unsecured  claims, 
however with varying distinctions in terms of the relative order of deposits covered by DGSs, 
preferred  and  non-preferred  deposits.  Out  of  the  four  alternative  scenarios,  two  propose 
removing  the  super-preference  of  covered  deposits  (scenarios  2  and  5),  while  the  other  two 
scenarios retain the super-preference of covered deposits in a tiered approach (scenarios 3 and 
4).  

These  scenarios  (including  the  baseline)  are  applied  under  various  quantitative  analyses 
throughout  sections  3  and  4  of  this  Annex,  aiming  at  assessing  the  access  condition  to  the 
RF/SRF (8% TLOF minimum bail-in requirement) and the DGS contribution to resolution and 
insolvency  under  the  LCT  respectively.  The  quantitative  outcome  of  these  analyses  are 
presented in detail under the respective sections. The outcome of the analyses of the different 
scenarios  of  depositor  preference  informed  the  assessments  in  Chapters  2,  5,  6,  7  as  well  as 
Annexes 5 and 8 of this impact assessment.  

-  Mandatory exclusions from bail-in 

Mandatory exclusions from bail-in under Article 44(2) BRRD were considered in the analyses 
presented in this Annex. For a complete view of the types of liabilities excluded from bail-in 
and their materiality in the banks’ balance sheets, please see Annex 8.  

The  ranking  of  these  liabilities  diverges  across  Member  States,  in  line  with  national 
specificities pertaining to areas such as  taxation, employee protection, social security or  civil 
law. In some Member States some of these excluded liabilities rank above deposits, in others, 
some they rank below or among deposits. The relative ranking of these liabilities in relation to 
deposits (in particular when ranking below or among deposits) has an impact on the allocation 
of losses in the waterfall of claims and the assessment of banks’ ability to meet 8% TLOF to 
access  the  RF/SRF,  including  the  potential  for  DGS  intervention.  In  order  to  reflect  this, 
assumptions  were  taken  with  regard  to  the  ranking  of  excluded  claims  at  the  level  of  each 
Member  State,  by  extrapolating  the  ranking  occurring  most  frequently  by  type  of  excluded 
liability, as reported by banks. 

243 

 
 
-  Least cost test (LCT) – Insolvency haircut scenario 

The objective of the LCT is to safeguard the DGS against losses when contributing to various 
measures  alternative  to  payout  and  to  determine  whether  and  for  what  maximum  amount  (if 
any) the DGS could make such contributions in a less costly way than under a payout event in 
insolvency. Assumptions with respect to losses in an insolvency counterfactual with a payout 
event  are  therefore  required  for  the  purpose  of  conducting  the  LCT.  The  following  primary 
assumption is considered for all banks in the sample:  

- 

a  15%  average  haircut  (loss)  on  all  assets  in  insolvency  (corresponding  to  a  recovery 
rate of 85%), on top of the entity’s losses. 

The assumption takes into account the fact that a haircut on assets in insolvency is greater than 
a  haircut  on  assets  in  a  scenario  of  sale  of  business  using  “disposal  value”  in  the  resolution 
valuation. The assumption of 15% haircut in insolvency which is applied to EU banks in the 
sample is  slightly higher than the one taken by the SRB in its internal  policy on the NCWO 
assessment (10%) for banks under its remit, which also requires a comparison against a loss in 
an insolvency counterfactual. The insolvency haircut of 15% on total assets has been already 
used  by  the  Commission  when  presenting  quantitative  examples  of  DGS  intervention  in  its 
Expert Group and the HLWG.  

However,  because  the  levels  of  insolvency  haircuts  (losses)  and  related  recovery  rates  vary 
greatly across banks and Member States, this Annex aims to show some of the results also for a 
50% haircut in insolvency and 50% related recovery rate, as a secondary assumption, in order 
to give a flavour of the scale of the differences in results (see section 4.5). 

The assumptions  on insolvency haircuts  and recovery rates  come  with  important  caveats  and 
limitations. The heterogeneity of recovery rates across banks and Member States is driven by a 
series  of  factors:  (i)  they  are  bank-specific,  depending  on  asset  quality,  bank’s  financial 
position and market situation; (ii) they are strongly influenced by the national insolvency laws 
and judicial systems, and in particular the duration of the proceedings; (iii) an EU benchmark 
on average recovery rates or insolvency haircuts is absent and (iv) they may be also influenced 
by  the  severity  of  the  crisis.  These  limitations  are  also  confirmed  by  the  EBA’s  findings  on 
DGS funding and uses of DGS funds published in 2020. An EBA-led survey of Member States 
concluded  that,  13  respondents  reported  recovery  rates  between  1-100%  in  cases  of  DGS 
payout since the implementation of the DGSD, while two respondents reported recovery rates 
between 20-95% in cases prior to the implementation of the DGSD436. 

To  mitigate  the  uncertainties  deriving  from  these  limitations,  the  interpretation  of  the  results 
provides qualitative clarifications to show how the results would be impacted if higher or lower 
insolvency haircuts/recovery rates were considered.  

436 EBA (January 2020),  Opinion of the European Banking Authority on deposit guarantee scheme funding and 
uses of deposit guarantee scheme funds, paragraph 27, p. 23, 24.  

244 

 
 
 
                                                           
-  Bail-inable capacity 

In order to assess the possibility to access resolution financing arrangements and the related use 
of  DGS  in  resolution  or  under  alternative  measures  in  insolvency,  sections  3  and  4  of  this 
Annex  also  look  at  the  banks’  internal  loss-absorbing  capacity  under  two  scenarios  of  bail-
inable  capacity  to  assess  whether  deposits  would  be  bailed-in  to  access  resolution  financing 
arrangements, and what is the eventual bail-inable capacity: 

  Scenario  1:  Use  of  the  amount  of  bail-inable  liabilities  with  complete  or  partial 
exclusion  of  deposits,  including  MREL  eligible  deposits  (shown  in  the  tables 
presented in the next sections); 

  Scenario  2:  Use  of  a  proxy  of  the  bail-inable  capacity  at  least  equal  to  steady-state 

MREL requirements.  

The first scenario allows measuring various degrees of severity based on the current bail-inable 
capacity, singling out the types of deposits affected by the simulations. The complete or partial 
exclusion of deposits also serves to cater for possible concerns related to the bail-in of deposits 
for  financial  stability  reasons.  The  second  scenario  assumes  an  estimated  stock  of  eligible 
liabilities held by the institutions assuming they will meet their MREL requirements by the end 
of the transition period. This latter scenario does not take into account a change in the structure 
of  the  balance  sheets  due  to  compliance  with  future  MREL  levels,  as  institutions  retain 
discretion  on  how  they  plan  to  comply  with  the  requirements  by  the  end  of  the  transition 
period437. 

-  MREL requirements 

When the MREL requirement is not reported for some resolution entities, a proxy is used, in 
function  of  the  strategy:  for  banks  with  liquidation  strategy,  the  proxy  MREL  requirement 
equals  own  funds  requirements  and  for  banks  with  resolution  strategy,  the  proxy  MREL 
requirement is twice own funds requirements.  

Where internal MREL requirement is not available for subsidiaries, a proxy is used, in function 
of  the  materiality438  and  the  strategy  defined  for  the  entity.  For  non-material  entities  and 
entities with strategy liquidation, internal MREL is assumed to equal own funds requirements. 
For material  subsidiaries and those with  strategy  resolution,  internal  MREL is  assumed to  be 
equal to twice own funds requirements.  

-  Hybrid EDIS scenarios 

437  In  particular,  the  impact  assessment  does  not  make  general  assumptions  applied  to  all  banks  on  the  type  of 
liabilities that would be issued, replaced or renewed and their relative location in the hierarchy of claims, nor on 
other strategic choices made to comply with future requirements (restructuring, disposal of assets, etc.). 
438  Material  subsidiaries  defined  as  representing  5%  of  resolution  group  TREA  for  non-Banking  Union  entities 
and 4% for Banking Union entities. 

245 

 
 
 
 
                                                           
For  the  purpose  of  assessing  the  effectiveness  and  efficiency  of  the  hybrid/EDIS439  models 
compared to  national  DGSs  to  finance banks in resolution  and insolvency, three scenarios of 
hybrid  EDIS  calibration  are  considered,  where  the  total  DGS  financial  means  amounting  to 
0.8% of covered deposits are distributed as follows: 

-  Scenario 1: Central fund 75% of the available funds, DGS 25%. 

-  Scenario 2: Central fund 50% of the available means, DGS 50%.  

-  Scenario 3: Central fund 25% of the available means, DGS 75%.  

2.4. Key steps in the static and model-based approaches 

In  line  with  the  policy  options  presented  in  Chapter  6,  the  analyses  related  to  the  access  to 
resolution financing arrangements and the DGS interventions are inter-related. Sections 3 and 4 
of this Annex cover the analysis of banks’ ability to reach 8% TLOF to access the RF/SRF and 
the potential to  unlock DGS funding under the  LCT for DGS interventions in  resolution  (i.e. 
stand-alone  or  to  bridge  the  gap  towards  8%  TLOF  and  accessing  RF/SRF)  and  alternative 
measures in insolvency, and must be considered following a consistent sequence of steps. 

The assessments described in sections 3 and 4 are based on a two-fold approach.  

First, a statistical analysis of the 8% TLOF requirement, the ability of DGS to intervene under 
the LCT safeguard and the availability of DGS financial means are carried out under a baseline 
scenario as well as under various assumptions related to CET1 depletion, depositor preference 
and  bail-inable  capacity.  This  approach  allows  to  test  a  wide  variety  of  assumptions  and 
determine  the  relative  and  incremental  impacts  of  changes  to  certain  dimensions  that  can 
support the design of policy options.  

The  outcome  of  this  first  analysis  serves  as  a  basis  for  comparison  and  defines  the  most 
relevant scenarios (notably of depositor preference) to be used in a second approach, where a 
model-based  analysis  relying  on  SYMBOL-generated  losses  is  carried  out,  using  a  dynamic 
approach whereby losses are allocated to each entity according to the waterfall of liabilities as 
per the applicable hierarchy of claims, in line with the resolution group structure. The outcome 
of  the  model-based  approach  is  used  to  test  the  ability  of  DGS  to  intervene  under  the  LCT, 
assess  the  8%  TLOF  requirement  and  the  possible  contribution  of  resolution  funds,  and 
ultimately  stress  the  DGS  financial  means  under  various  hybrid  EDIS  designs,  in  particular 
with different distributions of funds between national DGSs and the central fund. 

This  modelling  approach  complements  the  statistical  analysis  by  using  actual  losses 
simulations  based  on  bank-specific  characteristics  and  by  adding  a  resolution  group 

439  The  hybrid  EDIS  is  built  on  the  idea  of  coexistence  of  a  deposit  insurance  fund  at  central  level  and  funds 
remaining within the national DGSs. The central fund aims at providing liquidity to DGS in the Banking Union, 
once the latter have exhausted their funds. If the central fund were depleted at the time an intervention is needed, 
the SRB, on behalf of the central fund, would be able to borrow from national DGSs through a mandatory lending 
mechanism. See Annex 10 for more details on the hybrid models. 

246 

 
 
                                                           
perspective, making the analysis closer to the effective implementation of the strategy defined 
for  the  resolution  group.  It  offers  a  more  concrete,  economically  consistent,  opportunity  to 
deepen  the  analysis  and  investigate  credible  scenarios  related  to  the  materiality  and  limits  of 
DGS and resolution fund interventions.  

By design and for an improved readability of the results, the model-based approach relies on a 
subset  of  assumptions  that  differ  from  the  statistical  approach:  the  analysis  does  not  assume 
standard CET1 depletion scenarios, but  relies  on  the generation of simulated losses based on 
bank-specific  characteristics  using  SYMBOL,  depositor  preference  and  bail-inable  scenarios 
are  limited  to  the  most  relevant  ones  for  the  purpose  of  the  dynamic  analysis.  Still,  the 
incremental  effects  of  each  assumptions  independently  will  have  been  described  previously 
through the outcome of the static statistical approach and can therefore provide valuable insight 
on the possible impact of changing parameters in the modelling approach. 

Based on the assumptions and scenarios detailed above, the data analysis related to the sections 
3 and 4, building on the EBA CfA report, can be broken down into the following sequence of 
steps.  

Figure 19: Key steps in the data analysis – Access to 8% TLOF and DGS interventions 

Source: Commission services 

247 

 
 
 
Table 11: Key steps in the data analysis (details) – Access to 8% TLOF and DGS interventions 

Steps 
A: Static - 
8% TLOF 
(baseline) 

Sections 
Section  3: 
Conditions 
access 
to 
the 
RF/SRF 

B: Static - 
8% TLOF 
(combined 
scenarios) 

the 

internal 
capacity 

Objective  
Identify  the  incidence  of  8% 
TLOF  in 
the  hierarchy  of 
claims  (impact  on  deposits) 
loss-
using 
absorbing 
under 
baseline scenario. 
Identify  the  incidence  of  8% 
TLOF  in 
the  hierarchy  of 
claims  (impact  on  deposits) 
loss-
using 
under 
absorbing 
alternative 
combined 
scenarios.  

internal 
capacity 
and 

the 

Scenarios/ assumptions 
Balance  sheet  as  reported, 
depositor 
preference 
applicable  in  the  Member 
State,  available  bail-inable 
capacity. 

Four  additional  scenarios 
of CET1 depletion 
Four  additional  scenarios 
of depositor preference 
Two  additional  scenarios 
of bail-inable capacity 

Scope 
All banks 

Perimeter 
Resolution 
entity (solo) 
level 

All banks 

Resolution 
entity (solo) 
level 

Section  4: 
DGS 
interventio
ns 

The outcome of Step B serves to quantify the magnitude of the difficulty to reach 8% TLOF and is used as a 
benchmark for policy options addressing the issue 
C: Static - 
LCT 
(baseline, 
combined 
scenarios) 

Resolution 
entity (solo) 
level  

All banks 

Continuation  of  Step  B, 
assessing  whether,  based  on 
the LCT, institutions would be 
able  to  reach  8%  TLOF  via 
DGS  interventions  under  the 
baseline, 
and 
combined scenarios. 

alternative 

Counterfactual:  insolvency 
haircut 15% of assets  
Four  additional  scenarios 
of CET1 depletion 
Four  additional  scenarios 
of depositor preference 
Two  additional  scenarios 
of bail-inable capacity 

All banks 
where the 
resolution 
group 
structure 
can be 
identified 

Resolution 
entity (solo) 
level 
Entity (solo) 
level when 
resolution group 
structure breaks 

Continuation  of  Step  C, 
relying  on  the  model-based 
approach  using  SYMBOL-
generated losses. 

Counterfactual:  insolvency 
haircut 15% of assets  
Most  relevant  combined 
(depositor 
scenarios 
preference, 
bail-inable 
capacity) 
Two 
loss 
scenarios  of 
allocation  at  entity  level 
where the  resolution  group 
structure holds or breaks. 

The outcome of Step C serves to define the most relevant scenarios (notably of depositor preference) to be used 
in the dynamic assessment using SYMBOL 
D: Dynamic 
- LCT, DGS 
contributions 
and 8% 
TLOF 
(model) 
E: Dynamic 
- Use of 
resolution 
funds 
(model) 
F: Dynamic 
- DGS 
financial 
means 
(model) 
G: Static - 
DGS 
contributions 
and financial 
means 
(combined 
scenarios) 
The outcome of Step G serves as a basis for comparison with the dynamic assessment based on economic and 
bank-specific assumptions using SYMBOL (see Step F) 
H: Dynamic 
-Hybrid 
EDIS 
(model) 

Continuation 
of  Step  D 
whether 
assessing 
contributions  from  resolution 
funds (5% TLOF) can be used 
and cover all losses 
of  Step  E 
Continuation 
assessing 
DGS 
financial  means  are  sufficient 
to cover the maximum amount 
usable under the LCT.  
of  Step  C 
Continuation 
assessing 
DGS 
financial  means  are  sufficient 
to cover the maximum amount 
usable under the LCT. 

Counterfactual:  insolvency 
haircut 15% of assets 
Most  relevant  combined 
scenarios (CET1 depletion, 
depositor  preference,  bail-
inable capacity) 

Same as E, F and G 
Three  scenarios  of  hybrid 
EDIS ambition 

Resolution 
entity (solo) 
level  

Resolution 
entity (solo) 
level 

Resolution 
entity (solo) 
level 

All banks 

whether 

whether 

to  what 

of  Step  G 
Continuation 
assessing 
extent 
hybrid/EDIS  models are  more 
efficient  than  national  DGSs 
to  finance  banks  in  resolution 
and  insolvency  and  the  scope 
for target level reduction.  

248 

 
 
 
3. 

CONDITION TO ACCESS THE RF/SRF 

The  objectives  of  this  section  are  to  assess  to  what  extent  institutions  can  access,  after  a 
contribution  of  8%  TLOF  through  the  bail-in  of  their  own  funds  and  eligible  liabilities,  the 
RF/SRF, and to analyse to what extent deposits would need to bear losses to reach a level of 
8% TLOF.  

As  underlined  previously,  the  assessment  is  based  on  a  static  statistical  approach  using 
predefined loss scenarios (see section 2.3), taking into account cross-dimensional impacts, i.e. 
the amendments to the creditor hierarchy with respect to depositor preference and the scenarios 
of bail-inable capacity. It intends to show how many institutions would be able to reach the 8% 
TLOF threshold, under various scenarios and assumptions.  

Baseline scenario. In a first step, the assessments are based on a baseline scenario: 

Baseline 

Scope 

Loss 
simulation 

Loss allocation 

Creditor 
hierarchy 

Statistical 
approach 

Resolution 
entities 
(irrespective 
of the 
strategy) 

All CET1 
available 

Not relevant 
(simulated losses 
applied directly on 
the balance sheet of 
the resolution 
entity) 

Applicable 
creditor 
hierarchy in 
the Member 
State 

Bail-inable 
capacity 
All bail-inable 
liabilities 
(except those 
with maturity 
below 1 
month) with 
gradual 
exclusion of 
deposits 

In  a  second  step,  the  baseline  scenario  is  further  stressed  by  gradually  amending  each 
dimension  (level  of  CET1  depletion,  creditor  hierarchy  and  bail-inable  capacity),  all  other 
things  remaining  equal.  These  gradual  changes  will  show  the  incremental  impact  of  each 
adjustment against the baseline scenario and allow for explanations on the independent effects 
of each variable on the ability to reach the 8% TLOF threshold. 

In a third step, the assessment focuses on several combined scenarios taking into account each 
dimension  in  order  to  test  the  cumulative  impact  of  such  adjustments.  Combined  scenarios 
provide a more accurate picture of the likely impact of a package of policy options, beyond the 
mere  incremental  effects  tested  previously.  For  the  sake  of  simplification,  not  all  possible 
combinations  are  represented  in  this  Annex.  However,  the  narrative  attached  to  each  section 
intends to describe the main impacts stemming from further modifications, more or less severe, 
of the combined scenarios. 

All assessments include specific breakdowns, by size, strategy and funding structure aimed at 
providing detailed information of the impact from multiple perspectives. 

3.1. Composition of the liability structure 

The  liability  structure  of  the  institutions  in  the  sample  vary  substantially,  in  particular 
depending on their size and business model. Figure 20 and Table 12 show the breakdown of the 

249 

 
 
liability  structure  for  the  resolution  entities  covered  in  the  analysis.  The  results  are  based  on 
aggregated amounts per instrument type shown as a percentage of aggregated TLOF.  

The proportion of deposits represents 71.2% of the aggregated total liabilities and own funds of 
the small and non-complex institutions and decreases to 46.5% for the large institutions. This 
difference  is  sizeable  with  respect  to  covered  and  non-covered  but  preferred  deposits, 
highlighting the prevalence of retail-based funding structure for the smallest banks, compared 
to non-preferred deposits that have a comparable share across the population of banks.  

The composition of own funds also differs based on the size classification. In particular, CET1 
represents  94%  and  73.2%  of  the  own  funds  for  the  small  and  non-complex  and  the  large 
institutions respectively. The use of other own funds instruments also varies across institutions. 
AT1 instruments only represent a small share of the small and medium-sized institutions’ total 
liabilities  (0.2%),  four  times  lower  than  that  of  large  institutions440.  Tier  2  instruments  also 
appear more frequently in medium and large institutions than in small ones. 

Figure 20: Share of deposits in total liabilities and own funds (% based on aggregate 
amounts) 

Source: Commission services analysis, based on EBA CfA report and SRB data as of Q4 2019. 

The composition of the liability structure also differs, although to a lesser extent, depending on 
whether  the  strategy  is  resolution  or  liquidation.  On  average,  institutions  earmarked  for 
resolution  tend to  have  a higher share of deposits,  in  particular non-covered non-preferred in 
their  balance  sheet  compared  to  institutions  earmarked  for  liquidation.  AT1  and  Tier  2 
instruments also represent a higher proportion of TLOF for banks with resolution strategies. 

As shown in the following sections, the funding structure has an impact on the ability to reach 
8% TLOF with or without bailing in deposits, in particular for smaller institutions. 

440  Note:  this  is  consistent  with  the  outcome  of  the  analysis  on  public  issuances  of  own  funds  and  eligible 
liabilities, see Annex 13. 

250 

 
 
                                                           
Table 12: Composition of the liability structure (resolution entities, % TLOF based on 
aggregate amounts per category) 

Type of liability 
(% of TLOF) 

Small  Medium 

Large 

Resolution  Liquidation 

Deposits 
-  Covered 
-  Non-covered but preferred 
-  Non-covered non preferred 
Own funds 
-  Tier 2 
-  AT1 
-  CET1 
Other liabilities 
Total 

71.2% 
38.5% 
13.8% 
18.9% 
13.2% 
0.6% 
0.2% 
12.4% 
15.6% 
100.0% 

57.0% 
28.1% 
10.5% 
18.4% 
7.9% 
1.0% 
0.3% 
6.6% 
35.2% 
100.0% 

46.5% 
19.2% 
7.7% 
19.7% 
8.3% 
1.5% 
0.8% 
6.1% 
45.1% 
100.0% 

49.9% 
21.8% 
8.3% 
19.8% 
8.4% 
1.4% 
0.7% 
6.3% 
41.7% 
100.0% 

44.3% 
19.3% 
9.2% 
15.7% 
8.1% 
0.9% 
0.2% 
6.9% 
47.6% 
100.0% 

Source: Commission services analysis, based on EBA CfA report and SRB data as of Q4 2019. 

3.2.  Reaching 8% TLOF - Outcome of the statistical approach (Steps A and B) 

3.2.1.  Baseline 

Table 13 shows, in aggregate, the ability of institutions to reach the 8% TLOF threshold under 
the  baseline  scenario  (i.e.  no  CET1  depletion,  assuming  the  applicable  creditor  hierarchy  in 
each Member State and the use of the entire bail-inable capacity except liabilities with maturity 
shorter  than  one  month).  Since  the  resolution  strategy  (resolution  versus  liquidation)  of  each 
bank  is  based  on  past  PIA  decisions  as  of  Q4  2019,  and  in  view  of  the  policy  intention  to 
expand the PIA to  a larger number of smaller/medium-sized banks441, the presentation  of the 
results is covering both perimeters: the whole sample (parent level or point of entry entities442), 
irrespective  of  the  current  strategy  (resolution  or  liquidation)  and  only  banks  with  resolution 
strategies.  

Summary assessment – Baseline 

When considering no CET1 equity depletion under the baseline scenario of depositor 
preference (status  quo),  the majority of banks in the sample would be  able to  reach 
8%  TLOF  in  order  to  access  the  RF/SRF  without  imposing  losses  on  any  types  of 
deposits. However, deposits in 96 banks (26.1%) located in 20 Member States would 
suffer  losses  when  reaching  the  8%  TLOF  threshold,  up  to  an  aggregate  amount  of 
EUR 18.3 bn. In three Member States, deposits in more than half of the banks in the 
sample would be affected. When only institutions with resolution strategies under the 
2019 PIA decision are considered,  deposits in 44 banks would be affected, up to an 
aggregate amount of EUR 14.2 bn in 18 Member States.  

441 See policy options on broadening the PIA in Chapter 6. 
442  The  sample  of  institutions  referred  to  consists  of  so-called  “point  of  entry”  or  parent  level  institutions, 
irrespective whether they have strategy resolution or liquidation (i.e. excluding subsidiaries). 

251 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Detailed analysis 

The  analysis  under  the  baseline  scenario  shows  that  overall,  out  of  368  banks  in  the  sample, 
272  banks  (73.9%)  would  be  able  to  reach  8%  TLOF  without  impacting  deposits  (non-
preferred,  preferred  and  covered)  when  all  equity  is  taken  into  account  under  the  baseline 
creditor hierarchy (54.4% of these banks are small, 30.5% are medium-sized and 15.1% large). 
The  share  of  banks  with  resolution  strategies  as  per  the  2019  PIA  decisions  out  of  the  total 
sample is 187 (50.8%). Deposits would bear losses to reach 8% TLOF in 96 banks representing 
26.1% of the sample (44 banks with resolution strategy, representing 23.5% of that sample).  

In  terms  of  geographical  distribution,  all  banks  in  six  Member  States  can  reach  8%  TLOF 
without  affecting  deposits,  while  more  than  half  of  the  banks  in  three  Member  States  would 
require the bail-in of deposits in order to reach 8% TLOF. When focusing on the size of banks, 
deposits would bear losses when reaching 8% TLOF in 41 medium sized banks (of which 29 
with resolution strategy) and 47 small banks (of which 10 with resolution strategy). Five banks 
(of which two with resolution strategy) would not be able to reach the threshold at all. 

In terms of materiality, approximately EUR 18.3 bn deposits would be impacted based on the 
entire sample (EUR 14.2 bn for banks with resolution strategies). The impacted non-preferred 
deposits  represent  EUR  14.2 bn or 1.3% TLOF for all medium-sized banks (EUR 11.6 bn or 
1.3%  TLOF  for  resolution  strategies  only)  and  EUR  0.8 bn  or  1.5%  TLOF  for  small  banks 
(EUR  0.2 bn  or  1.1%  TLOF  for  resolution  strategies  only).  Expressed  differently,  the  total 
amount of deposits impacted when reaching 8% TLOF represent 0.7% of covered deposits for 
all banks, the largest impact observed for medium banks (0.6%).  

Table 13: Reaching 8% TLOF – Baseline 

Institutions 
reaching 
8% TLOF 
without 
deposits 

Count 

Institutions 
reaching 8% 
TLOF with non-
preferred 
deposits and 
amount used 

Institutions 
reaching 8% 
TLOF with 
preferred non-
covered 
deposits and 
amount used 
Count  %TLOF  Count  %TLOF  Count  %TLOF 

Institutions 
reaching 8% 
TLOF with 
covered deposits 
and amount 
used 

Institutions not 
reaching 8% TLOF 
with deposits and 
additional amount 
required 

Count 

%TLOF 

148 
83 

41 

143 
129 

86 
32 
52 
102 

272 

1.48% 
1.30% 

0.14% 

0.57% 
0.98% 

0.47% 
0.66% 
0.58% 
1.66% 

38 
37 

6 

39 
42 

15 
12 
11 
43 

81 

7 
1 

0 

1 
7 

1 
0 
0 
7 

8 

1.99% 
1.94% 

0.00% 

1.93% 
2.02% 

1.93% 
0.00% 
0.00% 
1.96% 

1 
1 

0 

2 
0 

0 
0 
0 
2 

2 

1.06% 
4.45% 

0.00% 

4.35% 
0.00% 

0.00% 
0.00% 
0.00% 
4.35% 

1 
2 

2 

2 
3 

5 
0 
0 
0 

5 

0.38% 
0.46% 

0.24% 

0.31% 
0.37% 

0.34% 
0.00% 
0.00% 
0.00% 

N. 

195 
124 

49 

Small 
Medium 

Large 

187 
Resolution 
Liquidation  181 

Low 
Mid 
Mid-High 
High 

Total 

107 
44 
63 
154 

368 

Source: Commission services analysis, based on EBA CfA report and SRB data as of Q4 2019. 

252 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
Figure 21 shows the outcome of the baseline scenario when considering additional granularity. 
Among  institutions  earmarked  for  resolution,  82%  and  67%  of  small  and  medium  banks 
respectively would reach 8% TLOF without bailing-in deposits. This proportion rises to 98% 
and  97%  when  non-preferred  deposits  are  affected,  leaving  a  residual  number  of  banks  for 
which  more  senior  forms  of  deposits  would  have  to  be  bailed-in  to  reach  the  8%  TLOF 
threshold.  

The  proportions  are  slightly  lower  for  small  banks  and  stable  for  medium-sized  banks 
earmarked for liquidation443. In particular, 5% of these small institutions would need preferred 
deposits to reach the threshold, and one medium-sized institution (out of 37) would not reach 
the  level  of  8%  TLOF  even  including  covered  deposits.  Only  40%  of  the  few  large  banks 
earmarked for liquidation would access 8% TLOF without deposits. 

In terms of funding structure, institutions going in resolution tend to have a similar proportion 
for  accessing  8%  TLOF  without  deposits,  ranging  between  79%  and  80%,  except  for  the 
category with the highest prevalence of deposits (i.e. deposits accounting for more than 80% of 
TLOF), where this proportion falls to 70%. Covered deposits would be impacted by losses in 
3%  of  the  cases  with  a  high  deposit  prevalence.  The  proportions  vary  more  significantly  for 
institutions earmarked for liquidation, where 82% to 88% of the banks with a low or mid-high 
prevalence of deposits, compared to 63% and 64% for banks with a mid and high proportion of 
deposits in their balance sheet.  

Figure 21: Reaching 8% TLOF – Baseline (granular), in function of depositor prevalence444 

Source: Commission services analysis, based on EBA CfA report and SRB data as of Q4 2019. 

443  Presenting  also  results  for  banks  with  liquidation  strategy  may  be  relevant  in  case  the  PIA  would  be 
broadened.  
444 See section 2.3 of this Annex for details on the categories of banks in function of deposit prevalence.  

253 

 
 
 
                                                           
3.2.2.  Baseline versus more severe CET1 depletion scenarios 

The Table 14 shows the ability of institutions to reach the 8% TLOF threshold under various 
scenarios of losses in line with the CET1 depletion assumptions described in section 2.3. All 
other dimensions remain as per the baseline scenario. 

Summary assessment – Baseline versus more severe CET1 depletion scenarios 

As  a  general  observation,  increasing  the  severity  of  CET1  equity  depletion,  while 
retaining  the  baseline  scenario  of  depositor  preference  (status  quo),  triggers  a 
significant increase in the number of banks where deposits would need to be bailed-in 
to reach 8% TLOF and in the amounts of affected deposits.  

In particular, the number of banks where deposits would be affected would increase 
from 96 with an aggregate EUR 18.3 bn affected deposits (44 banks with resolution 
strategy  and  an  aggregate  EUR 14.2 bn  affected  deposits)  under  the  baseline  to  246 
banks  with  an  aggregate  EUR 83.1 bn  affected  deposits  (117  banks  with  resolution 
strategy and an aggregate EUR 71.6 bn affected deposits) under the next more severe 
CET1  depletion  scenario  assuming  75%  depletion  of  buffers.  For  more  severe 
depletion scenarios, the impact is more significant.  

While  the  bulk  of  affected  deposits  are  non-preferred  deposits,  covered  deposits 
would  also  be  more  affected  as  the  severity  of  the  equity  depletion  scenarios 
increases.  

Detailed analysis 

When  considering  all  368  banks  in  the  sample  (resolution  and  liquidation  strategies),  the 
proportion of banks  where deposits  would be bailed-in  increases significantly from 96 banks 
(26.1%) under the baseline to 246 banks (66.8%), 282 (76.6%), 294 (79.9%) and 308 (83.7%) 
under the four analysed CET1 depletion scenarios respectively. When considering only banks 
with  resolution  strategies  as  per  2019  PIA  decisions  (187  banks),  the  share  of  banks  where 
deposits would be bailed-in increases from 23.5% under the baseline to 62.6%, 71.7%, 74.3% 
and 80.2% under the four CET1 depletion scenarios respectively. The significant jump in the 
number  of  banks  with  impacted  deposits  under  the  second  scenario  in  order  of  severity 
(depletion of 75% of buffers) compared to the baseline (full CET1 availability) is noteworthy, 
which demonstrates the sensitivity of the treatment of equity in these hypothetical scenarios.  

In terms of materiality, when considering all 368 banks in the sample, the aggregated amount 
of  deposits  impacted  increases  from  EUR  18.3 bn  (0.7%  of  covered  deposits)  under  the 
baseline  scenario  to  EUR  123.7 bn  (4.6%  of  covered  deposits)  under  the  third  (middle  way) 
CET1  depletion  scenario  (i.e.  depletion  of  CET1  counting  as  buffers)  and  further  to 
EUR 147.8 bn  (5.5%  of  covered  deposits)  under  the  most  severe  scenario  (i.e.  depletion  of 
CET1  except  for  Pillar 1).  Over  90%  of  deposits  impacted  are  non-preferred  deposits.  When 
considering  only  187  banks  with  resolution  strategies  as  per  Q4  2019  PIA  decisions,  the 
aggregated  amount  of  deposits  impacted  increases  from  a  total  of  EUR  14.2 bn  (0.5%  of 

254 

 
covered  deposits)  under  the  baseline  scenario  to  EUR  107.6 bn  (4.0%  of  covered  deposits) 
under the mid-depletion scenario to EUR 129.7 bn (4.8% of covered deposits) under the most 
severe scenario. Over 97% of impacted deposits are non-preferred deposits.  

The breakdown by size of banks in the sample indicates that, the amount of impacted deposits 
for medium-sized banks increases from 0.6% of covered deposits under the baseline scenario to 
2.2%  of  covered  deposits  and  2.5%  of  covered  deposits  under  the  third  and  the  most  severe 
scenario respectively.  

In  terms  of  geographical  distribution,  under  the  baseline  scenario,  covered  deposits  are 
impacted  in  two  Member  States,  the  intensity  of  the  impact  ranging  between  1.1%  TLOF445 
and 4.5% TLOF, while the impact on non-preferred deposits ranges between 0.2% TLOF and 
3.2% TLOF. Under the third scenario, the covered deposits are impacted in six Member States 
with  an  impact  ranging  between  1.7%  TLOF  and  5.7%  TLOF,  while  the  impact  on  non-
preferred  deposits  ranges  between  0.8%  TLOF  and  4.6%  TLOF  (with  two  Member  States 
recording values between 4-5% TLOF and eight Member States between 3-4% TLOF). Under 
the most severe scenario, covered deposits are impacted in eight Member States for an average 
ranging  between  0.9%  TLOF  and  6.3%  TLOF,  while  the  impact  on  non-preferred  deposits 
ranges between 0.9% TLOF and 5.1% TLOF with four Member States recording values above 
4% TLOF and six between 3-4% TLOF.  

445 I.e. covered deposits  which would bear losses  when reaching the 8% TLOF threshold represent 1.1% of the 
TLOF of the concerned bank(s) where those deposits would be affected in that particular Member State.  

255 

 
                                                           
Table 14: Reaching 8% TLOF – Baseline versus CET1 depletion scenarios 

Institution
s reaching 
8% TLOF 
without 
deposits 

Institutions 
reaching 8% 
TLOF with non-
preferred deposits 
and amount used 

Institutions 
reaching 8% TLOF 
with preferred non-
covered deposits 
and amount used 

Institutions 
reaching 8% 
TLOF with 
covered deposits 
and amount used 

N. 

Institutions not 
reaching 8% 
TLOF with 
deposits and 
additional 
amount required 

Count 

Count 

Count  %TLOF  Count  %TLOF 

Count  %TLOF  Count  %TLOF 

2 - Depletion 75% of buffers 

CET1 
Depletion 

Small 
Medium 
Large 

Resolution  
Liquidation 

Low 
Mid 
Mid-High 

High 

195 
124 
49 

187 
181 

107 
44 
63 

154 

60 
37 
25 

70 
52 

62 
14 
22 

24 

98 
78 
22 

2.30% 
2.35% 
0.75% 

107 
91 

1.18% 
1.80% 

37 
29 
40 

92 

0.83% 
1.41% 
1.72% 

2.78% 

Total 

368 

122 

198 

1.82% 
1.72% 
0.00% 

2.27% 
1.40% 

3.50% 
0.63% 
0.27% 

1.74% 

1.23% 
5.42% 
0.00% 

5.32% 
1.19% 

0.00% 
0.00% 
0.00% 

3.48% 

4 
1 
0 

2 
3 

0 
0 
0 

5 

5 

1 
4 
2 

3 
4 

7 
0 
0 

0 

7 

0.48% 
0.40% 
0.44% 

0.36% 
0.48% 

0.42% 
0.00% 
0.00% 

0.00% 

32 
4 
0 

5 
31 

1 
1 
1 

33 

36 

. 

CET1 
Depletion 

Small 

Medium 
Large 

Resolution  
Liquidation 

Low 
Mid 
Mid-High 
High 

Total 

Institutions 
reaching 
8% TLOF 
without 
deposits 

Institutions 
reaching 8% 
TLOF with non-
preferred 
deposits and 
amount used 

N. 

Institutions 
reaching 8% TLOF 
with preferred non-
covered deposits 
and amount used 

Institutions 
reaching 8% 
TLOF with 
covered deposits 
and amount used 

Institutions not 
reaching 8% 
TLOF with 
deposits and 
additional 
amount required 

Count 

Count 

Count  %TLOF  Count  %TLOF 

Count  %TLOF  Count  %TLOF 

3 - Depletion of all buffers 

195 

124 
49 

187 
181 

107 
44 
63 
154 

368 

36 

28 
22 

53 
33 

51 
10 
12 
13 

86 

3.16% 

2.90% 
1.20% 

1.69% 
2.21% 

1.16% 
2.00% 
2.35% 
3.60% 

109 

83 
24 

117 
99 

45 
32 
43 
96 

216 

41 

8 
1 

12 
38 

1 
2 
7 
40 

50 

256 

2.52% 

1.91% 
0.33% 

1.34% 
2.20% 

4.02% 
1.96% 
0.43% 
2.37% 

6 

1 
0 

2 
5 

1 
0 
1 
5 

7 

2.77% 

5.74% 
0.00% 

5.65% 
2.78% 

1.66% 
0.00% 
3.53% 
4.37% 

0.55% 

0.44% 
0.52% 

0.41% 
0.54% 

0.48% 
0.00% 
0.00% 
0.00% 

4 

4 
2 

3 
7 

10 
0 
0 
0 

10 

 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
 
Institution
s reaching 
8% TLOF 
without 
deposits 

Institutions 
reaching 8% 
TLOF with non-
preferred deposits 
and amount used 

Institutions 
reaching 8% TLOF 
with preferred non-
covered deposits 
and amount used 

Institutions 
reaching 8% 
TLOF with 
covered deposits 
and amount used 

N. 

Institutions not 
reaching 8% 
TLOF with 
deposits and 
additional 
amount required 

4 - Depletion of all buffers and 50% of P2R 

Count 

Count 

Count  %TLOF  Count  %TLOF 

Count  %TLOF 

Count  %TLOF 

195 
124 
49 

187 

181 

107 
44 
63 
154 

368 

N. 

28 
26 
20 

49 

25 

48 
10 
9 
7 

74 

3.39% 
3.05% 
1.31% 

1.83% 

2.10% 

1.22% 
2.20% 
2.56% 
3.75% 

113 
86 
26 

122 

103 

48 
31 
46 
100 

225 

44 
7 
1 

11 

41 

1 
3 
7 
41 

52 

2.41% 
2.10% 
0.53% 

1.57% 

2.19% 

4.10% 
0.88% 
0.64% 
2.49% 

7 
2 
0 

3 

6 

2 
0 
1 
6 

9 

2.97% 
2.87% 
0.00% 

2.87% 

2.98% 

1.69% 
0.00% 
3.53% 
2.91% 

0.55% 
0.42% 
0.52% 

0.38% 

0.55% 

0.48% 
0.00% 
0.00% 
0.00% 

4 
4 
2 

3 

7 

10 
0 
0 
0 

10 

Institutions 
reaching 
8% TLOF 
without 
deposits 

Institutions 
reaching 8% 
TLOF with non-
preferred deposits 
and amount used 

Institutions 
reaching 8% 
TLOF with 
preferred non-
covered 
deposits and 
amount used 

Institutions 
reaching 8% 
TLOF with 
covered deposits 
and amount used 

Institutions not 
reaching 8% TLOF 
with deposits and 
additional amount 
required 

5 - Depletion of all buffers and 100% of P2R 

Count 

Count 

Count  %TLOF  Count  %TLOF  Count  %TLOF 

Count  %TLOF 

195 
124 

49 

187 
181 

107 

44 
63 
154 

18 
24 

18 

39 
21 

43 

9 
4 
4 

121 
87 

28 

130 
106 

52 

31 
50 
103 

3.58% 
3.18% 

1.34% 

1.87% 
2.22% 

1.19% 

2.36% 
2.82% 
4.02% 

45 
9 

1 

13 
42 

1 

4 
9 
41 

2.68% 
2.09% 

0.73% 

1.65% 
2.37% 

4.39% 

0.38% 
0.80% 
2.67% 

6 
2 

0 

3 
5 

1 

0 
1 
6 

3.22% 
3.42% 

0.00% 

3.42% 
3.22% 

2.58% 

0.00% 
3.53% 
3.37% 

0.49% 
0.42% 

0.56% 

0.42% 
0.55% 

0.49% 

0.00% 
0.00% 
0.00% 

6 
4 

2 

4 
8 

12 

0 
0 
0 

12 

CET1 
Depletion 

Small 
Medium 
Large 

Resolution  

Liquidation 

Low 
Mid 
Mid-High 
High 

Total 

CET1 
Depletion 

Small 
Medium 

Large 

Resolution  
Liquidation 

Low 

Mid 
Mid-High 
High 

Total 
Source: Commission services analysis, based on EBA CfA report and SRB data as of Q4 2019 

368 

236 

55 

60 

8 

257 

 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
The  impact  of  the  increased  severity  embedded  in  each  scenario  is  further  highlighted  in 
Figure  22,  focusing  on  those  institutions,  which  can  access  the  8%  TLOF  threshold  without 
impacting any form of deposits in each scenario of CET1 depletion. Increasing the severity of 
the  CET1  depletion  scenario  has  a  material  impact  on  the  smaller  and  medium-sized  banks’ 
ability to  access  8% TLOF without deposits: compared to  the baseline, assuming 75% of the 
buffers are depleted leads to a reduction of 59% for small banks and 55% for medium banks 
which can access 8% TLOF without deposits. 

Figure 22: Institutions able to reach 8% TLOF without deposits, comparison between  
each scenario of CET1 depletion) 

Source: Commission services analysis, based on EBA CfA report and SRB data as of Q4 2019. 

3.2.3.  Baseline versus alternative depositor preferences 

Table  15  shows  the  ability  of  institutions  to  reach  the  8%  TLOF  threshold  under  various 
scenarios  of  depositor  preference  as  described  in  section  2.3  and  the  share  and  amounts  of 
deposits  impacted  under  each  scenario.  All  other  dimensions  remain  as  per  the  baseline 
scenario. 

258 

 
 
 
Summary assessment – Baseline versus alternative depositor preference scenarios 

As a general observation and by design, preferring all deposits in relation to ordinary 
unsecured  claims  increases  the  protection  of  deposits  by  leading  to  a  significantly 
higher  number  of  banks  able  to  achieve  the  8%  TLOF  threshold  without  impacting 
deposits  compared  to  the  baseline  hierarchy  of  claims.  The  aggregated  amount  of 
impacted  deposits  decreases  from  EUR  18.3 bn  under  the  baseline  scenario  to 
EUR 6.4 bn  under  each  of  the  four  depositor  hierarchy  scenarios  (and  from 
EUR 14.2 bn  under  the  baseline  to  EUR  4.6 bn  under  each  of  the  four  depositor 
hierarchy  scenarios  when  considering  only  banks  with  resolution  strategy  under  the 
2019 PIA decisions). 

The impact on the three categories of deposits is influenced by their relative ranking 
in relation to each other under the four alternative scenarios. For a complete view on 
the impact of each deposit type, the results from this section need to be read together 
with the ones under the LCT section 4.1.3. 

Detailed analysis 

As a general observation and by design, preferring all deposits in relation to ordinary unsecured 
claims  increases  significantly  the  number  of  banks  able  to  achieve  the  8%  TLOF  threshold 
without  impacting  deposits  compared  to  the  baseline  hierarchy  of  claims.  The  impact  on  the 
three  categories  of  deposits  is  influenced  by  their  relative  ranking  in  relation  to  each  other 
under the four alternative scenarios.  

When  considering  all  368  banks  in  the  sample  (resolution  and  liquidation  strategies),  the 
number of banks able to reach the 8% TLOF threshold without impacting deposits increases by 
16.5%  from  272  under  the  baseline  hierarchy  of  claims  to  317  under  each  of  the  four 
alternative scenarios of hierarchies of claims. In particular, no large banks would need deposits 
to  access  8%  TLOF  under  the  four  alternative  scenarios.  When  considering  only  banks  with 
resolution strategies as per 2019 PIA decisions (187 banks), the number of banks able to reach 
the 8% TLOF threshold without impacting deposits increases by a similar percentage (16.1%) 
from 143 under the baseline to 166 under each of the four alternative scenarios of hierarchies 
of claims. However, the impact on non-preferred, preferred and covered deposits varies across 
the four scenarios in function of when these rank pari passu or are preferred to each other. As 
shown in Table 15, when comparing:  

-  Baseline versus 2nd scenario (single-tier deposit preference, all deposits pari passu): the 
number of banks with impacted non-preferred, preferred and covered deposits changes 
from  81,  8  and  2  respectively  to  48  (when  only  banks  with  resolution  strategies  are 
considered, it changes from 39, 1 and 2 banks respectively to 20); 

-  Baseline  versus 3rd scenario (three-tier deposit preference, no  pari passu): the number 
of  banks  with  impacted  non-preferred  decreases  from  81  to  38,  while  the  number  of 
banks  with  impacted  preferred  and  covered  deposits  stays  the  same  (8  and  2 
respectively) (when only banks with resolution strategies are considered the decrease in 

259 

 
number  of  banks  with  impacted  non-preferred  deposits  is  from  39  to  17,  from  2  to  1 
with preferred deposits, and always one bank with covered deposits); 

-  Baseline  versus  4th  scenario  (two-tier  deposit  preference  with  super-preference  of 
covered  deposits,  non-preferred  and  preferred  deposits  pari  passu):  the  number  of 
banks  with  impacted  non-preferred  and  preferred  deposits  changes  from  81  and  8 
respectively to 46, while the number of banks with impacted covered deposits stays the 
same  (2)  (when  only  banks  with  resolution  strategies  are  considered  the  number  of 
banks  with  impacted  non-preferred  and  preferred  deposits  changes  from  39  and  1 
respectively to 18); 

-  Baseline  versus  5th  scenario  (two-tier  deposit  preference  with  preferred  and  covered 
deposits  pari  passu):  the  number  of  banks  with  impacted  non-preferred  deposits 
decreases  from  81  to  38,  while  the  number  of  banks  with  impacted  preferred  and 
covered  deposits  increase  from  8  and  2  respectively  to  10  (when  only  banks  with 
resolution strategies are considered, the number of banks with impacted non-preferred 
deposits decreases from  39 to 17, while the number of banks with impacted preferred 
and covered deposits increase from 1 and 2 respectively to 3). 

In  terms  of  materiality,  when  considering  all  banks  in  the  sample,  the  aggregated  amount  of 
impacted  deposits  decreases  from  EUR  18.3 bn  under  the  baseline  scenario  to  EUR  6.4 bn 
under  each  of  the  four  depositor  hierarchy  scenarios.  When  considering  only  banks  with 
resolution  strategies  as  per  Q4  2019  PIA  decisions,  the  aggregated  amount  of  impacted 
deposits decreases from EUR 14.2 bn under the baseline to EUR 4.6 bn under each of the four 
depositor hierarchy scenarios. This significant improvement in terms of depositor protection is 
enabled by the preference of deposits in relation to senior unsecured claims.  

The  biggest  improvement  in  terms  of  protected  non-preferred  deposits  is  recorded  when 
comparing  the  baseline  (on  aggregate  EUR  17.2 bn  (0.6%  TLOF)  impacted  non-preferred 
deposits for 81 banks) against the single-tier depositor preference scenario (EUR 2.7 bn (0.6% 
TLOF)  impacted  non-preferred  deposits  for  48  banks)  when  reaching  8%  TLOF.  The 
aggregated amount of covered deposits, which in theory would be impacted in this simulation 
when reaching 8% TLOF, would increase from EUR 0.3 bn (4.4% TLOF) for two banks under 
the baseline to EUR 2.8 bn (0.8% TLOF) for 48 banks under the single-tier preference.  

However,  the  impact  of  changing  the  relative  ranking  of  covered  deposits  vis-à-vis  other 
deposits by ensuring a single ranking does not affect or decrease in any way the protection of 
the covered deposits. As also detailed in Annex 8 and Chapter 5 (section 5.5) this is because of 
the  following  reasons:  (i)  covered  deposits  continue  to  be  excluded  from  bail-in  as  per 
Article 44(2) BRRD; (ii) the protection of covered deposits is not defined by their ranking, but 
by being defined as eligible deposits (i.e. they are not excluded from DGS protection) up to the 
coverage amount whose repayment is  guaranteed by the DGS (generally, EUR 100 000); (iii) 
the protection of cover deposits can be ensured  by the DGS through alternative interventions 
such as contribution to resolution (to bridge the gap to 8% TLOF in order to gain access to the 
RF/SRF  or  independently  from  using  the  RF/SRF,  e.g.  when  transferring  deposits  to  an 
acquirer  as  part  of  resolution  action)  or  to  alternative  measures  in  insolvency  (e.g.  when 

260 

 
 
transferring  deposits  of  a  bank  with  negative  PIA  to  an  acquirer  as  part  of  insolvency 
proceedings).  

In  terms  of  geographical  distribution,  in  two  Member  States,  the  number  of  banks  without 
impacted  deposits  increased  by  200%  when  comparing  the  baseline  with  a  scenario  where  a 
single-tier  depositor  preference  is  introduced  and  increased  by  more  than  30%  in  four  other 
Member States when all the sample was considered. 

Table 15: Reaching 8% TLOF – Baseline versus depositor preference scenarios 

Instituti
ons 
reaching 
8% 
TLOF 
without 
deposits 

N. 

Institutions 
reaching 8% 
TLOF with non-
preferred 
deposits and 
amount used 

Institutions 
reaching 8% 
TLOF with 
preferred non-
covered deposits 
and amount used 

Institutions 
reaching 8% 
TLOF with 
covered 
deposits and 
amount used 

Institutions not 
reaching 8% 
TLOF with 
deposits and 
additional 
amount required 

2 - Single-tier 

Count 

Count 

Count  %TLOF 

Count  %TLOF 

Count  %TLOF 

Count  %TLOF 

Hierarchy 

Small 
Medium 

Large 

Resolution  
Liquidation 

Low 

Mid 
Mid-High 
High 

195 
124 

49 

187 
181 

107 

44 
63 
154 

166 
102 

49 

166 
151 

102 

38 
60 
117 

28 
20 

0 

20 
28 

2 

6 
3 
37 

0.70% 
0.61% 

0.00% 

0.63% 
0.60% 

0.98% 

0.27% 
1.84% 
0.51% 

Total 

368 

317 

48 

28 
20 

0 

20 
28 

2 

6 
3 
37 

48 

0.77% 
0.27% 

0.00% 

0.27% 
0.42% 

0.48% 

0.25% 
0.30% 
0.36% 

0.92% 
0.82% 

0.00% 

1.12% 
0.40% 

2.54% 

1.32% 
0.56% 
0.69% 

28 
20 

0 

20 
28 

2 

6 
3 
37 

48 

1 
2 

0 

1 
2 

3 

0 
0 
0 

3 

0.16% 
0.44% 

0.00% 

0.41% 
0.44% 

0.42% 

0.00% 
0.00% 
0.00% 

261 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
 
 
 
 
 
 
 
 
 
 
Institutions 
reaching 
8% TLOF 
without 
deposits 

Institutions 
reaching 8% TLOF 
with non-preferred 
deposits and 
amount used 

N. 

Institutions 
reaching 8% 
TLOF with 
preferred non-
covered deposits 
and amount used 

Institutions 
reaching 8% 
TLOF with 
covered deposits 
and amount used 

Institutions not 
reaching 8% 
TLOF with 
deposits and 
additional 
amount required 

Count 

Count 

Count  %TLOF  Count  %TLOF  Count  %TLOF  Count  %TLOF 

3 - Three-tier 

Hierarchy 

Small 
Medium 
Large 

Resolution  

Liquidation 

Low 
Mid 
Mid-High 
High 

195 
124 
49 

187 

181 

107 
44 
63 
154 

166 
102 
49 

166 

151 

102 
38 
60 
117 

Total 

368 

317 

20 
18 
0 

17 

21 

1 
6 
3 
28 

38 

1.80% 
1.16% 
0.00% 

1.21% 

1.17% 

1.00% 
1.83% 
2.54% 
1.05% 

1.99% 
1.94% 
0.00% 

1.93% 

2.02% 

1.93% 
0.00% 
0.00% 
1.96% 

7 
1 
0 

1 

7 

1 
0 
0 
7 

8 

1 
1 
0 

2 

0 

0 
0 
0 
2 

2 

1.06% 
4.45% 
0.00% 

4.35% 

0.00% 

0.00% 
0.00% 
0.00% 
4.35% 

0.16% 
0.44% 
0.00% 

0.41% 

0.44% 

0.42% 
0.00% 
0.00% 
0.00% 

1 
2 
0 

1 

2 

3 
0 
0 
0 

3 

Institutions 
reaching 
8% TLOF 
without 
deposits 

Institutions 
reaching 8% TLOF 
with non-preferred 
deposits and 
amount used 

N. 

Institutions 
reaching 8% 
TLOF with 
preferred non-
covered deposits 
and amount used 

Institutions 
reaching 8% 
TLOF with 
covered deposits 
and amount used 

Institutions not 
reaching 8% 
TLOF with 
deposits and 
additional 
amount required 

Count 

Count 

Count  %TLOF  Count  %TLOF  Count  %TLOF  Count  %TLOF 

4 - Two-tier (covered senior to preferred) 

Hierarchy 

Small 
Medium 

Large 

Resolution  
Liquidation 

Low 

Mid 
Mid-High 
High 

195 
124 

49 

187 
181 

107 

44 
63 
154 

166 
102 

49 

166 
151 

102 

38 
60 
117 

Total 

368 

317 

1.45% 
0.87% 

0.00% 

1.05% 
0.77% 

2.59% 

0.90% 
1.07% 
0.94% 

1 
1 

0 

2 
0 

0 

0 
0 
2 

2 

1.06% 
4.45% 

0.00% 

4.35% 
0.00% 

0.00% 

0.00% 
0.00% 
4.35% 

1 
2 

0 

1 
2 

3 

0 
0 
0 

3 

0.16% 
0.44% 

0.00% 

0.41% 
0.44% 

0.42% 

0.00% 
0.00% 
0.00% 

27 
19 

0 

18 
28 

2 

6 
3 
35 

46 

0.95% 
0.83% 

0.00% 

0.89% 
0.73% 

0.99% 

0.94% 
2.03% 
0.70% 

27 
19 

0 

18 
28 

2 

6 
3 
35 

46 

262 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
 
Institutions 
reaching 8% 
TLOF 
without 
deposits 

Institutions 
reaching 8% TLOF 
with non-preferred 
deposits and 
amount used 

N. 

Institutions 
reaching 8% 
TLOF with 
preferred non-
covered deposits 
and amount used 

Institutions 
reaching 8% 
TLOF with 
covered deposits 
and amount used 

Institutions not 
reaching 8% 
TLOF with 
deposits and 
additional 
amount required 

Hierarchy 

5 - Two-tier (covered pari passu with preferred) 

Count 

Count 

Count  %TLOF  Count  %TLOF  Count  %TLOF  Count  %TLOF 

Small 
Medium 
Large 

Resolution  
Liquidation 

Low 
Mid 
Mid-High 
High 

195 
124 
49 

187 
181 

107 
44 
63 
154 

166 
102 
49 

166 
151 

102 
38 
60 
117 

Total 

368 

317 

20 
18 
0 

17 
21 

1 
6 
3 
28 

38 

1.80% 
1.16% 
0.00% 

1.21% 
1.17% 

1.00% 
1.83% 
2.54% 
1.05% 

8 
2 
0 

3 
7 

1 
0 
0 
9 

1.23% 
0.46% 
0.00% 

0.46% 
1.25% 

0.31% 
0.00% 
0.00% 
0.65% 

8 
2 
0 

3 
7 

1 
0 
0 
9 

0.78% 
2.24% 
0.00% 

2.23% 
0.77% 

1.62% 
0.00% 
0.00% 
1.90% 

10 

10 

1 
2 
0 

1 
2 

3 
0 
0 
0 

3 

0.16% 
0.44% 
0.00% 

0.41% 
0.44% 

0.42% 
0.00% 
0.00% 
0.00% 

Source: Commission services based on EBA CfA report and SRB data as of Q4 2019. 

3.2.4.  Baseline versus alternatives for bail-inable capacity 

The  results  described  in  the  previous  sections  assess  the  impacts  of  various  scenarios  when 
considering  the  bail-inable  capacity  of  banks  (with  the  complete  or  partial  exclusion  of 
deposits) as of Q4 2019. Additionally, as described in section 2.3, considering the final MREL 
requirement  that  banks  need  to  comply  with  by  the  end  of  the  transitional  period  would 
complement the previous results by also anticipating the ability of banks to meet 8% TLOF and 
the assessment of DGS interventions in the steady state. However, based on the data available, 
only one entity (out of 368) has a bail-inable capacity (including deposits) based on the 2019 
balance  sheet  data  that  is  currently  lower  than  its  estimated  MREL  target  by  the  end  of  the 
transition period. Irrespective of the possible changes of the bail-inable capacity linked to the 
progressive path to the compliance with MREL requirements, the other analyses will therefore 
not  rely on this  additional  scenario (i.e. MREL requirement when higher than the bail-inable 
capacity). 

3.2.5.  Combined scenarios 

Combining  the  various  dimensions  of  the  statistical  approach  allows  for  a  more  accurate 
description of the impacts along a set of reasonable assumptions underpinning the analysis of 
the policy options.  

The  tables  included  in  this  section  are  based  on  three  selected  combined  scenarios  (static 
approach).  While  a  larger  number  of  combined  scenarios  could  have  been  shown  (25 

263 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
combinations of CET1 depletion and depositor preference), this section focuses on a selection 
of reasonable combined scenarios in the context of the policy options. In particular, combined 
scenario  1  underpins  the  retained  policy  option,  while  the  additional  combined  scenarios 
present a level of severity for CET1 depletion, which is the mid-point between the baseline and 
the  most  severe  scenario  and  the  three-tier  depositor  preference,  which  retains  the  super-
preference of covered deposits: 

Statistical 
approach 

Combined 
scenario 1 

Combined 
scenario 2 

Combined 
scenario 3 

Scope 

Loss 
allocation 

Loss simulation 
(CET1 depletion) 

Creditor 
hierarchy 

Bail-inable 
capacity 

Resolution 
entities 
(irrespectiv
e of 
strategy) 

Not 
relevant 
(simulated 
losses 
applied 
directly on 
the balance 
sheet of the 
resolution 
entity) 

Scenario 1: No 
depletion  

Scenario 3: CET1 
depleted down to 
the level of Pillar 1 
and Pillar 2 
requirement 

Scenario 2: Single-
tier depositor 
preference  

Scenario 3: Three-
tier depositor 
preference 

Scenario 1: All 
bail-inable 
liabilities (except 
those with 
maturity below 1 
month) with 
gradual exclusion 
of deposits 

Source: Commission services. 

-  Combined  scenario  1  reflects  a  situation  without  CET1  depletion,  a  single-tier 
depositor preference and all bail-inable liabilities reported as of end-2019 (except short-
term  liabilities)  with  gradual  exclusion  of  deposits.  The  design  of  this  combined 
scenario  is  relevant  insofar  as  it  allows  measuring  the  ability  to  access  8%  TLOF  by 
considering all CET1 that could account for historical losses and relies on the depositor 
preference scenario that maximises the equal treatment of depositors (pari passu across 
all  eligible  categories)  without  lowering  the  level  of  protection  and  therefore  creating 
space for DGS interventions under the LCT (see also section 4). 

-  Combined scenario 2 reflects a situation where the CET1 level is depleted and the bank 
would enter resolution  after all buffers absorbed losses, and assumes the same single-
tier depositor preference and bail-inable capacity as above. The design of this combined 
scenario  is  relevant  insofar  as  it  allows  a  direct  comparison  with  the  first  combined 
scenario  to  measure  the  effect  of  further  CET1  depletion,  featuring  larger  losses  or  a 
different  timing  for  FOLF  determination  at  the  point  where  solvency  conditions  for 
authorisation are at risk. 

-  Combined scenario 3 reflects the same depletion of CET1 as above, but it considers a 
three-tier  depositor  preference  and  applies  the  same  bail-in  capacity  as  the  other 
combined  scenarios.  The  design  of  this  combined  scenario  is  relevant  insofar  as  it 
shows  the  effect,  compared  to  the  second  combined  scenario,  of  preserving  more 
discrimination in the depositor preference and retaining the super-preference of covered 
deposits,  which  lowers  the  possible  use  of  DGS  via  the  LCT.  As  previous  combined 
scenarios,  it  also  shows,  compared  to  the  baseline,  the  effect  of  introducing  a  general 
depositor preference vis-à-vis ordinary unsecured liabilities. 

264 

 
 
 
Summary assessment – Combined scenarios 

The analysis of the three combined scenarios enables a comparative view of impacts 
on deposits  when reaching the 8% TLOF threshold  when different  severity of CET1 
depletion would be combined with different depositor preference.  

Combining various levels of CET1 depletion and depositor preference shows that the 
introduction of a single-tier depositor preference has an important effect on the ability 
of banks to  reach the 8% TLOF threshold without using deposits, irrespective of the 
loss  scenario  used  for  the  analysis.  In  particular,  compared  to  the  baseline  scenario 
(where the applicable creditor hierarchy is used), an additional 45 banks would be able 
to  reach  the  threshold  without  using  deposits  due  to  increasing  the  ranking  of  non-
preferred  deposits  against  other  ordinary  unsecured  liabilities.  Assuming  CET1 
depleted  down  to  the  level  of  Pillar  1  and  Pillar  2  requirement,  under  a  single-tier 
depositor preference, 45% of the banks would be able to reach the 8% TLOF threshold 
without  deposits  compared  to  23%  when  considering  a  similar  magnitude  of  CET1 
depletion but no change to the depositor preference. Given that all deposits would rank 
pari passu, the number  of banks  for which preferred and  covered deposits  would be 
reached also increases, and may allow using DGS under the LCT (see also section 4).  

Maintaining a super-preference for covered deposits would lead to an increased impact 
on  other  forms  of  deposits,  often  leaving  covered  deposits  unaffected  (which  has  an 
important impact on the LCT, see section 4), when assessing the ability to reach 8% 
TLOF, in particular when loss scenarios are more severe.  

Detailed analysis 

The following tables shows the ability of institutions to reach the 8% TLOF threshold under the 
three combined scenarios. 

The analysis under the first combined scenario shows that, assuming no CET1 depletion and a 
single-tier  depositor  preference,  a  total  of  317  out  of  368  institutions  would  reach  the  8% 
TLOF threshold without imposing losses on deposits, representing up to 89% of the sample for 
the banks earmarked for resolution. In particular, deposits would have to be bailed-in in 12.5% 
of the small and 15% of the medium-sized banks to reach the threshold, for an amount of EUR 
0.21 bn  and  EUR  2.52 bn  respectively.  When  considering  the  funding  structure,  banks 
earmarked for resolution with a high prevalence of deposits are more prone to inflict losses on 
deposits  when  reaching  8%  TLOF  (14  out  of  60).  The  proportions  are  similar  for  banks 
earmarked  for  liquidation,  with  84%  of  small  and  78%  of  medium-sized  banks  able  to  reach 
8% TLOF without deposits. The impact of the funding structure for banks with high prevalence 
of deposits is also comparable (76% of banks earmarked for liquidation would reach 8% TLOF 
without deposits against 77% for banks  earmarked for resolution). In addition, deposits in 13 
Member States would be protected when reaching the 8% TLOF threshold under the combined 
scenario 1, against seven Member States under the baseline. 

265 

 
 
The  second  combined  scenario  shows  that,  when  considering  a  more  severe  CET1  depletion 
scenario, the number of institutions where deposits would be protected when reaching the 8% 
TLOF decreases materially, representing 54% of the banks earmarked for resolution. The effect 
of the prevalence of deposits in  the funding structure is more important: 31 banks earmarked 
for resolution having a high or medium-high share of deposits out of 99 (31%) would reach 8% 
TLOF without deposits. This proportion falls to 18.6% when considering banks earmarked for 
liquidation. 

In comparison, under the third combined scenario the same number of banks would not be able 
to reach the 8% TLOF without imposing losses on deposits, with mostly non-preferred deposits 
affected. Even with a three-tier depositor preference, covered deposits would be reached in 10 
cases  considering  all  banks  irrespective  of  their  strategy,  mostly  small  institutions  with  high 
prevalence of deposits.  

In  terms  of  materiality,  when  considering  all  banks  in  the  sample,  the  aggregated  amount  of 
impacted  deposits  decreases  from  EUR  18.3 bn  under  the  baseline  scenario  to  EUR  6.4 bn 
under  the  first  combined  scenario  where  a  single-tier  depositor  preference  is  introduced, 
keeping  all  other  parameters  unchanged.  Assuming  a  higher  level  of  CET1  depletion,  up  to 
EUR  47.4 bn  of  deposits  would  be  affected  under  a  single-tier  or  a  three-tier  depositor 
preference  (scenario  2  or  3),  compared  to  more  EUR  123.7 bn  using  currently  applicable 
depositor preference. This result must however be read in conjunction with the outcome of the 
analysis performed in section 4.1.4, based on which the introduction of a single-tier depositor 
preference allows for greater interventions of DGS to protect depositors. 

266 

 
 
 
Table 16: Reaching 8% TLOF – Combined scenarios 

Institutio
ns 
reaching 
8% 
TLOF 
without 
deposits 

Institutions 
reaching 8% 
TLOF with non-
preferred 
deposits and 
amount used 

N. 

Institutions 
reaching 8% TLOF 
with preferred non-
covered deposits 
and amount used 

Institutions 
reaching 8% 
TLOF with 
covered deposits 
and amount used 

Institutions not 
reaching 8% 
TLOF with 
deposits and 
additional 
amount required 

1 (No depletion, single-tier depositor preference) 

Count 

Count 

Count  %TLOF 

Count  %TLOF  Count  %TLOF  Count  %TLOF 

56 
87 
44 

63 
25 

39 

60 

49 
73 
44 

61 
22 

37 

46 

7 
13 
0 

1 
3 

2 

1.27% 
0.61% 
0.00% 

0.99% 
0.24% 

2.71% 

7 
13 
0 

1 
3 

2 

0.15% 
0.28% 
0.00% 

0.00% 
0.24% 

0.10% 

7 
13 
0 

1 
3 

2 

0.36% 
1.15% 
0.00% 

0.00% 
1.50% 

0.13% 

14 

0.38% 

14 

0.29% 

14 

1.03% 

Comb. 
Scenarios 

Small 
Medium 
Large 

Low 
Mid 
Mid-
High 
High 

Resolution 

Total 

187 

166 

Small 
Medium 
Large 

Low 
Mid 
Mid-
High 
High 

139 
37 
5 

44 
19 

24 

94 

117 
29 
5 

41 
16 

23 

71 

20 

21 
7 
0 

1 
3 

1 

0.50% 
0.62% 
0.00% 

0.10% 
0.33% 

0.15% 

20 

21 
7 
0 

1 
3 

1 

20 

21 
7 
0 

1 
3 

1 

1.10% 
0.25% 
0.00% 

2.54% 
0.90% 

1.37% 

0.98% 
0.24% 
0.00% 

0.48% 
0.30% 

0.39% 

23 

0.68% 

23 

0.45% 

23 

0.23% 

Total 

181 

151 

28 

28 

28 

Liquidation 

267 

0.00% 
0.41% 
0.00% 

0.41% 
0.00% 

0.00% 

0.00% 

0.16% 
0.47% 
0.00% 

0.44% 
0.00% 

0.00% 

0.00% 

0 
1 
0 

1 
0 

0 

0 

1 

1 
1 
0 

2 
0 

0 

0 

2 

 
 
  
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
  
  
  
  
 
 
 
Comb. 
Scenarios 

Small 

Medium 
Large 

Low 
Mid 
Mid-
High 
High 

Resolution 

56 

87 
44 

63 
25 

39 

60 

20 

45 
36 

55 
15 

19 

12 

Total 

187 

101 

Small 
Medium 
Large 

Low 
Mid 
Mid-
High 
High 

139 
37 
5 

44 
19 

24 

94 

Total 

181 

40 
20 
5 

35 
8 

10 

12 

65 

Liquidation 

Institutions 
reaching 
8% TLOF 
without 
deposits 

Institutions 
reaching 8% TLOF 
with non-preferred 
deposits and 
amount used 

Institutions 
reaching 8% TLOF 
with preferred non-
covered deposits 
and amount used 

Institutions 
reaching 8% 
TLOF with 
covered deposits 
and amount used 

N. 

Institutions not 
reaching 8% 
TLOF with 
deposits and 
additional 
amount required 

2 (Depletion of buffers, single-tier depositor preference) 

Count 

Count 

Count  %TLOF 

Count  %TLOF 

Count  %TLOF  Count  %TLOF 

36 

40 
8 

6 
10 

20 

48 

84 

97 
15 
0 

5 
11 

14 

82 

1.16% 

1.04% 
0.65% 

3.53% 
0.29% 

0.32% 

1.61% 

0.91% 
1.45% 
0.00% 

0.60% 
0.41% 

0.51% 

1.96% 

36 

40 
8 

6 
10 

20 

48 

84 

97 
15 
0 

5 
11 

14 

82 

0.49% 

0.45% 
0.24% 

0.33% 
0.32% 

0.26% 

0.71% 

0.93% 
0.62% 
0.00% 

0.72% 
0.33% 

0.53% 

1.03% 

36 

40 
8 

6 
10 

20 

48 

84 

97 
15 
0 

5 
11 

14 

82 

1.35% 

1.71% 
0.65% 

0.57% 
1.46% 

1.23% 

1.51% 

2.09% 
1.16% 
0.00% 

2.38% 
1.01% 

1.57% 

1.61% 

112 

112 

112 

0 

2 
0 

2 
0 

0 

0 

2 

2 
2 
0 

4 
0 

0 

0 

4 

0.00% 

0.34% 
0.00% 

0.34% 
0.00% 

0.00% 

0.00% 

0.32% 
0.47% 
0.00% 

0.46% 
0.00% 

0.00% 

0.00% 

268 

 
 
  
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
  
  
  
  
 
 
 
Institutions 
reaching 
8% TLOF 
without 
deposits 

Institutions 
reaching 8% 
TLOF with non-
preferred 
deposits and 
amount used 

N. 

Institutions 
reaching 8% TLOF 
with preferred non-
covered deposits 
and amount used 

Institutions 
reaching 8% 
TLOF with 
covered deposits 
and amount used 

Institutions not 
reaching 8% 
TLOF with 
deposits and 
additional 
amount required 

3 (Depletion of buffers, three tier depositor preference) 

Count 

Count 

Count  %TLOF 

Count  %TLOF  Count  %TLOF  Count  %TLOF 

Comb. 
Scenarios 

Small 
Medium 
Large 

Low 
Mid 
Mid-
High 
High 

Resolution 

56 
87 
44 

63 
25 

39 

60 

20 
45 
36 

55 
15 

19 

12 

Total 

187 

101 

Small 

Medium 
Large 

Low 
Mid 
Mid-
High 
High 

139 

37 
5 

44 
19 

24 

94 

Total 

181 

40 

20 
5 

35 
8 

10 

12 

65 

Liquidation 

30 
33 
7 

6 
10 

16 

38 

70 

56 

13 
0 

3 
9 

10 

47 

69 

2.84% 
2.73% 
1.43% 

3.71% 
2.07% 

1.73% 

3.03% 

3.02% 

2.72% 
0.00% 

2.35% 
1.72% 

2.55% 

5 
6 
1 

0 
0 

4 

8 

12 

36 

2 
0 

1 
2 

3 

1.61% 
1.94% 
0.33% 

0.00% 
0.00% 

0.41% 

2.49% 

2.69% 

1.84% 
0.00% 

4.02% 
1.96% 

0.74% 

3.42% 

32 

2.26% 

38 

1 
1 
0 

0 
0 

0 

2 

2 

5 

0 
0 

1 
0 

1 

3 

5 

2.61% 
5.74% 
0.00% 

0.00% 
0.00% 

0.00% 

5.65% 

2.78% 

0.00% 
0.00% 

1.66% 
0.00% 

3.53% 

2.79% 

0 
2 
0 

2 
0 

0 

0 

2 

2 

2 
0 

4 
0 

0 

0 

4 

0.00% 
0.34% 
0.00% 

0.34% 
0.00% 

0.00% 

0.00% 

0.32% 

0.47% 
0.00% 

0.46% 
0.00% 

0.00% 

0.00% 

Sources: Commission services, based on EBA CfA report and SRB data as of Q4 2019. 

Figure 23 shows the comparison among the combined scenarios and with the baseline on the 
banks’ ability to reach 8% TLOF with or without deposits.  

The top chart provides an overview of the impact of the introduction of a single-tier depositor 
preference  on  the  ability  of  banks  to  reach  the  8%  TLOF  threshold,  by  comparing  the  first 
combined scenario and the baseline. Compared to the baseline scenario (where the applicable 
creditor hierarchy is used), an additional 45 banks are able to reach the threshold without using 
deposits due to increasing the ranking of non-preferred deposits against other normal unsecured 
liabilities.  Given  that  all  deposits  would  rank  pari  passu,  the  number  of  banks  for  which 

269 

 
 
 
  
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
  
  
  
  
 
preferred  and  covered  deposits  would  be  reached  also  increases,  and  may  allow  using  DGS 
under the least cost test (see section 5). 

The second chart illustrates how the single-tier depositor preference would be impacted by  a 
greater  severity  of  loss  depletion  scenario,  by  comparing  the  first  and  the  second  combined 
scenario. Assuming a depletion of all buffers leads to a sharp decrease of the number of banks 
able  to  reach  8%  TLOF  without  deposits  under  a  single-tier  depositor  preference, 
commensurate  to  the  increase  of  cases  where  deposits,  all  ranking  pari  passu,  would  be 
touched. Under this scenario, 45% of the banks would be able to reach the 8% TLOF threshold 
without deposits  compared to  23% when considering a similar magnitude of CET1 depletion 
but no change to the depositor preference. 

The  third  chart  describes  the  relative  impact  of  the  introduction  of  a  single-tier  depositor 
preference compared to a three-tier depositor preference, by comparing the first and the second 
combined  scenario,  i.e.  both  relying  on  the  same  level  of  CET1  depletion.  Compared  to  a 
single-tier  system,  a  general  three-tier  depositor  preference  would  significantly  reduce  the 
number of banks able to reach the 8% TLOF even considering covered deposits. 

270 

 
 
 
Figure 23: Reaching 8% TLOF – Combined scenarios 

Source: Commission services, based on EBA CfA report and SRB data as of Q4 2019.  

271 

 
 
 
 
4. 

DGS INTERVENTIONS 

The objectives  of this section are to  determine:  (i) the ability of DGS to  intervene as per the 
LCT  under  various  scenarios  to  protect  depositors  and  substitute  possible  losses  born  by 
depositors, (ii) the extent to which DGS interventions are likely to absorb losses in insolvency 
and, in resolution, to reach the 8% TLOF threshold after a bail-in of the eligible liabilities, and 
(iii)  the  availability  of  DGS  funds  and  the  likely  impact  of  hybrid  EDIS.  In  this  quantitative 
analysis,  the  LCT  amount  is  defined  as  the  amount  of  covered  deposits  affected  by  the 
simulated losses under an insolvency counterfactual, which represents the maximum amount of 
DGS contribution to various measures.  

As a first step, section 4.1 relies on the static approach, based on predefined scenarios of loss 
simulations (i.e. CET1 depletion), depositor preference and bail-inable capacity, applied when 
testing  the  ability  to  reach  8%  TLOF.  The  focus  is  primarily  on  the  scenario  of  depositor 
preference that can support a DGS intervention.  

On  this  basis,  a  second  step  is  carried  out  in  section  4.2  based  on  the  modelling  approach 
described in section 2.4, whereby losses are simulated by the SYMBOL model and allocated 
within resolution groups, primarily assuming that the resolution group structure is maintained 
(i.e.  losses  are  allocated  to  subsidiaries  up  until  the  level  of  internal  loss  absorbing 
requirements,  while  and  any  remaining  losses,  if  any,  are  transferred  to  the  parent  entity)446. 
The  most  relevant  scenarios  from  the  static  statistical  analysis  are  used  in  the  model-based 
approach,  which  gives  a  more  accurate  view  of  the  impact  on  institutions  by  simulating  and 
allocating losses according to bank-specific parameters. Results are presented for three types of 
crises: a crisis similar to the global financial crisis of 2008 and two other crises, one less and 
one more severe.  

Overall,  the  results  are  very  sensitive  to  the  level  of  assumed  recovery  rate:  the  higher  the 
losses  on  the  assets  in  insolvency  (haircut),  the  lower  the  recovery  rate  in  a  payout  in 
insolvency  and  the  higher  the  amount  that  the  DGS  could  contribute  to  various  measures,  as 
emerging  from  the  LCT.  This  means  that  the  alternative  DGS  interventions  allowed  by  the 
LCT  are  comparatively  less  expensive  than  a  DGS  payout  in  insolvency.  As  a  result,  DGS 
interventions  may  become  more  frequent  and  contribute  to  a  larger  extent  to  the  various 
measures (compared to the status quo).  

The recovery rate is instrumental in determining the amount of expected losses of the DGS in 
case  of  payout  (i.e.  the  insolvency  counterfactual  in  the  LCT  calculation).  Lowering  the 
recovery  rate  would  increase  the  amount  of  expected  losses  in  insolvency  for  the  DGS  and, 
consequently through the  LCT, unlock more DGS funds. As mentioned in  section 2.3 in  this 
Annex, the assessments in this Annex are primarily based on an 85% recovery rate in the LCT 

446 According to the BRRD, the resolution group structure is maintained when resolution tools are applied only to 
the resolution entity (e.g. the parent entity), while other subsidiaries in the group which are not resolution entities 
themselves absorb losses by transferring them to the resolution entity through the bail-in of internal loss absorbing 
capacity (so-called internal MREL) which has pre-positioned ex ante by the parent entity on the balance sheet of 
the subsidiary).  

272 

 
                                                           
insolvency counterfactual,  however results for a  50% recovery rate are  also  briefly described 
(see section 4.5) in order to illustrate the sensitivity of the results to this parameter. Two main 
impacts  could  be  observed  by  applying  a  recovery  rate  lower  than  85%447.  First,  it  would 
reduce  the  number  of  banks  that  cannot  reach  the  8%  TLOF  threshold  as  a  result  of  an 
insufficient  or  a  negative  LCT.  Second,  as  more  DGS  funds  would  be  used,  it  would  also 
increase  the  number  of  national  DGSs  unable  to  finance  the  gap  to  the  8%  TLOF  due  to  a 
liquidity shortfall. The lower the recovery rate, the stronger these two impacts448. 

Considerations on the impact of recovery rates can also be found in section 3.1.5 of the EBA 
CfA report.  

4.1. Least cost test and DGS interventions (statistical approach) (Step C) 

This section complements the analysis in section 3  and assesses the maximum level of funds 
unlocked by the LCT for DGS contributions in resolution or to finance an alternative measure 
in  insolvency449.  Additionally,  for  those  institutions  where  DGS  interventions  would  be 
deemed possible under the LCT, this section assesses to what extent the DGS contributions in 
resolution  would  allow  reaching  the  threshold  of  8%  TLOF.  The  analysis  also  shows  the 
number  of  cases  where  DGS  interventions  in  resolution  would  not  be  sufficient  to  access 
external  financing via the resolution  fund. Statistics on cases  where the 8% TLOF cannot  be 
reached could inform  the considerations of including indirect  costs in  the  LCT calculation  in 
the new CMDI framework. 

4.1.1.  Baseline 

Table  17  shows,  in  aggregate,  the  number  of  institutions  for  which  DGS  interventions  are 
possible  (positive  LCT)  under  the  baseline  scenario  (no  CET1  depletion,  applicable  creditor 
hierarchy in each Member State, full bail-inable capacity except liabilities with maturity shorter 
than one month) and, whether DGS contributions would allow reaching a level of 8% TLOF to 
access  the  RF/SRF.  As  for  previous  analyses,  the  results  concern  all  entities,  irrespective  of 
their strategy. 

Summary assessment – LCT Baseline 

The  LCT  would  yield  a  positive  result  for  only  three  out  of  91  banks  that  would 
require  a  DGS  intervention  to  reach  the  8%  TLOF  under  the  baseline  scenario 
considering an 85% recovery rate in insolvency (out of a total sample of 368 banks). 
The DGS support would suffice for two out of these three banks. 

447 These impacts would be the same for all the figures in this section. 
448  Conversely,  a  recovery  rate  higher  than  85%  would  increase  the  number  of  banks  unable  to  reach  the  8% 
TLOF due to an insufficient LCT and would reduce the number of DGSs facing a liquidity shortfall. 
449 Where covered deposits would bear losses under various scenarios, and therefore determine the potential cost 
of the payout for the DGS in an insolvency counterfactual. 

273 

 
 
                                                           
Detailed analysis 

Under the baseline scenario and an assumed recovery rate of 85%, the banks that cannot access 
the  8%  TLOF  threshold  without  imposing  losses  on  deposits  would  need  to  unlock  DGS 
intervention  based  on  the  LCT  in  order  to  access  the  RF/SRF.  Out  of  the  91  banks  (from  a 
sample of 368 banks) that would need deposits to reach 8% TLOF, the LCT would be positive 
for only three banks, out of which the DGS support would be sufficient to bridge the gap until 
the 8% TOLF threshold in only two cases. DGS interventions would not be possible (negative 
LCT) for 88 banks thereby exposing deposits to losses in order to access resolution financing 
arrangements  unless  public  support  would  be  envisaged.  The  results  are  very  similar 
irrespective of the size of the bank, the resolution strategy or its geographical location.  

Table 17: LCT – Baseline 

Institutions 
reaching 8% 
TLOF with 
deposits, 
requiring DGS 
contribution 

Of which: 
Institutions for 
which DGS can 
intervene 
(positive LCT) 

Of which: 
Institutions for 
which DGS 
interventions 
under the LCT 
are sufficient to 
reach 8% TLOF 

Count 

Count 

Count 

46 
39 

6 

42 
49 

16 

12 
11 
52 

91 

2 
1 

0 

1 
2 

1 

0 
0 
2 

3 

1 
1 

0 

1 
1 

0 

0 
0 
2 

2 

N. 

195 
124 

49 

187 
181 

107 

44 
63 
154 

368 

Small 
Medium 

Large 

Resolution 
Liquidation 

Low 

Mid 
Mid-High 
High 

Total 

Source: Commission services, based on EBA CfA report and SRB data as of Q4 2019, assuming an 85% recovery 
rate.  

4.1.2.  Baseline versus more severe CET1 depletion scenarios 

Table 18 shows the increasing risks for depositors under various scenarios of losses in line with 
the CET1 depletion assumptions described in section 2.3. All other dimensions remain as per 
the baseline scenario. 

274 

 
 
 
 
 
 
 
 
 
 
 
Summary assessment – Baseline versus more severe CET1 depletion scenarios 

As  a  general  observation,  while  the  more  severe  CET1  depletion  scenarios  increase 
the number of institutions where deposits would need to bear losses, the effects of the 
scenarios  remain  limited  with  respect  to  the  ability  of  DGS  to  intervene  and 
contribute enough to reach the 8% TLOF threshold due to the LCT.   

Detailed analysis 

As highlighted in  section 3.2.2, a higher severity  of CET1 depletion increases the number of 
institutions  where  deposits  would  need  to  bear  losses  to  reach  the  8%  TLOF  threshold, 
irrespective of the size classification. Figure 24 highlights the changes in the number of banks 
reaching 8% TLOF using deposits for each scenario of CET1 depletion. In aggregate, deposits 
in  299  banks  would  be  impacted  to  access  resolution  financing  arrangements  under  the  most 
severe CET1 depletion scenario, i.e. an increase of 208 banks against the baseline scenario. In 
total, deposits would have to bear losses in 88% of the small banks, 79% of the medium-sized 
and 59% of the large banks in this most extreme CET1 depletion scenario. 

Figure 24: Baseline versus depletion scenarios (number of institutions reaching 8% TLOF 
with deposits, per scenario of CET1 depletion) 

Source: Commission services, based on EBA CfA report and SRB data as of Q4 2019.  

However,  irrespective  of  the  CET1  depletion  scenario,  the  number  of  institutions  where  the 
DGS can intervene under the LCT would remain limited to a maximum of six banks, of which 
four  small  and  two  medium-sized  institutions,  most  of  them  having  a  high  prevalence  of 
deposits  in  their  balance  sheet.  The  results  are  identical  in  the  three  most  severe  CET1 
depletion scenarios (i.e. as soon as buffers are depleted) showing the constraint imposed by the 
LCT due in part to the applicable creditor hierarchies in each Member State. 

275 

 
 
 
Table 18: LCT – Baseline versus CET1 depletion scenarios 

N. 

195 
124 
49 

187 

181 

107 
44 
63 
154 

368 

N. 

195 
124 
49 

187 
181 

107 
44 

63 
154 

368 

CET1 Depletion 

Small 
Medium 
Large 

Resolution 

Liquidation 

Low 
Mid 
Mid-High 
High 

Total 

CET1 Depletion 

Small 
Medium 
Large 

Resolution 
Liquidation 

Low 
Mid 

Mid-High 
High 

Total 

Institutions 
reaching 8% 
TLOF with 
deposits, 
requiring DGS 
contribution 

Of which: 
Institutions for 
which DGS can 
intervene 
(positive least 
cost test) 

Of which: 
Institutions for 
which DGS 
interventions 
under the LCT 
are sufficient to 
reach 8% TLOF 

2 - Depletion 75% of buffers 

Count 

Count 

Count 

134 
83 
22 

114 

125 

38 
30 
41 
130 

239 

3 
2 
0 

2 

3 

1 
0 
0 
4 

5 

1 
1 
0 

1 

1 

0 
0 
0 
2 

2 

Institutions 
reaching 8% 
TLOF with 
deposits, 
requiring DGS 
contribution 

Of which: 
Institutions for 
which DGS can 
intervene 
(positive least 
cost test) 

Of which: 
Institutions for 
which DGS 
interventions 
under the LCT 
are sufficient to 
reach 8% TLOF 

3 - Depletion of all buffers 

Count 

Count 

Count 

1 
2 
0 

2 
1 

0 
0 

0 
3 

3 

156 
92 
25 

131 
142 

47 
34 

51 
141 

273 

4 
2 
0 

2 
4 

1 
0 

0 
5 

6 

276 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
N. 

195 
124 
49 

187 
181 

107 
44 
63 
154 

368 

N. 

195 
124 
49 

187 

181 

107 
44 
63 
154 

CET1 Depletion 

Small 
Medium 
Large 

Resolution 
Liquidation 

Low 
Mid 
Mid-High 
High 

Total 

CET1 Depletion 

Small 
Medium 
Large 

Resolution 

Liquidation 

Low 
Mid 
Mid-High 
High 

Institutions 
reaching 8% 
TLOF with 
deposits, 
requiring DGS 
contribution 

Of which: 
Institutions for 
which DGS can 
intervene 
(positive least 
cost test) 

Of which: 
Institutions for 
which DGS 
interventions 
under the LCT 
are sufficient to 
reach 8% TLOF 

4 - Depletion of all buffers and 50% of P2R 

Count 

Count 

Count 

164 
95 
27 

136 
150 

51 
34 
54 
147 

286 

4 
2 
0 

2 
4 

1 
0 
0 
5 

6 

1 
1 
0 

1 
1 

0 
0 
0 
2 

2 

Institutions 
reaching 8% 
TLOF with 
deposits, 
requiring DGS 
contribution 

Of which: 
Institutions for 
which DGS can 
intervene 
(positive least 
cost test) 

Of which: 
Institutions for 
which DGS 
interventions 
under the LCT 
are sufficient to 
reach 8% TLOF 

5 - Depletion of all buffers and 100% of P2R 

Count 

Count 

Count 

172 
98 
29 

146 

153 

54 
35 
60 
150 

4 
2 
0 

2 

4 

1 
0 
0 
5 

6 

1 
1 
0 

1 

1 

0 
0 
0 
2 

2 

Total 

368 

299 

Source: Commission services, based on EBA CfA report and SRB data as of Q4 2019, assuming an 85% 
recovery rate.  

277 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.1.3.  Baseline versus alternative depositor preference scenarios 

This  section  shows  when  DGS  interventions  would  be  possible  (positive  LCT)  under 
various  scenarios  of  depositor  preference  as  described  in  section  2.3  and whether  DGS 
contributions would allow reaching a level of 8% TLOF. All other dimensions remain as 
per the baseline scenario. 

Summary assessment – Baseline versus alternative depositor preference scenarios 

Under  a  comparative  analysis,  the  introduction  of  depositor  preference  would 
shield  deposits  from  bearing  losses  by  reducing  most  significantly  the  number  of 
banks where non-preferred deposits would be impacted when reaching 8% TLOF. 

When assuming a 85% recovery  rate, the number of banks where deposits would 
be impacted would decrease from 91 banks in the baseline scenario to 48 under the 
single-tier  depositor  preference  (out  of  368  in  total),  reducing  the  EUR  value  of 
impacted deposits from EUR 18.3 bn in the baseline to EUR 6.4 bn and unlocking 
the  most  significant  amount  of  funds  for  DGS  contributions  under  the  LCT  (on 
average  up  to  twenty  times  higher  (EUR  0.98 bn)  than  under  the  baseline  or  the 
alternative  scenarios  retaining  the  super-preference  of  covered  deposits  (EUR 
0.05 bn)). The DGS intervention under the LCT would be sufficient to bridge the 
gap towards 8% TLOF in 76% of cases when considering the entire sample and in 
88% of cases when considering only banks with resolution strategy.  

Detailed analysis 

When  assuming  a  85%  recovery  rate  and  considering  a  single-tier  depositor  preference 
(scenario 2) and the entire sample, DGS can intervene under the LCT for 89% of small 
banks and 80% of medium banks for which deposits would be impacted when calculating 
the  8%  TLOF  threshold  (reminder:  under  the  alternative  scenarios  of  depositor 
preference, no large banks would need deposits to access 8% TLOF). When considering 
only  entities  for which the strategy is  resolution,  DGS interventions under the  LCT are 
possible for 80% of the  banks for  which deposits  would be bailed-in,  and would allow 
reaching the 8% TLOF threshold in 88% of the cases. The proportion of banks for which 
DGS interventions would be possible but insufficient to reach the 8% TLOF threshold is 
particularly concentrated in one Member State (75% of banks in that Member State for 
which deposits would need to be bailed-in), accounting for two-thirds of the total cases in 
the sample where DGS interventions under the LCT are insufficient.  

Changing  the  creditor  hierarchy  but  retaining  the  super-preference  of  covered  deposits 
has no impact against the baseline. Finally, scenario 5, where covered deposits rank pari 
passu with preferred deposits is an intermediate step between the baseline and the single-
tier depositor preference: under scenario 5, the LCT would enable the DGS intervention 
for 18 banks to protect deposits when reaching 8% TLOF (against 41 under a single-tier 
depositor preference), and these interventions would allow reaching a level of 8% TLOF 
in 13 cases (against 31 under a single-tier depositor preference). 

278 

 
 
Table 19: LCT – Baseline versus depositor preference scenarios 

Hierarchy 

Small 
Medium 
Large 

Resolution 
Liquidation 

Low 
Mid 
Mid-High 

High 

Total 

Hierarchy 

Small 
Medium 
Large 

Resolution 
Liquidation 

Low 
Mid 
Mid-High 
High 

Total 

N. 

195 
124 
49 

187 
181 

107 
44 
63 

154 

368 

N. 

195 
124 
49 

187 
181 

107 
44 
63 
154 

368 

Institutions 
reaching 8% 
TLOF with 
deposits, 
requiring DGS 
contribution 

Of which: 
Institutions for 
which DGS can 
intervene 
(positive least 
cost test) 

Of which: 
Institutions for 
which DGS 
interventions 
under the LCT 
are sufficient to 
reach 8% TLOF 

2 - Single-tier 

Count 

Count 

Count 

28 
20 
0 

20 
28 

2 
6 
3 

37 

48 

25 
16 
0 

16 
25 

1 
5 
2 

33 

41 

20 
11 
0 

14 
17 

1 
5 
2 

23 

31 

Institutions 
reaching 8% 
TLOF with 
deposits, 
requiring DGS 
contribution 

Of which: 
Institutions 
for which 
DGS can 
intervene 
(positive least 
cost test) 

Of which: 
Institutions for 
which DGS 
interventions 
under the LCT 
are sufficient to 
reach 8% TLOF 

3 - Three-tier 

Count 

Count 

Count 

1 
1 
0 

1 
1 

0 
0 
0 
2 

2 

28 
20 
0 

20 
28 

2 
6 
3 
37 

48 

2 
1 
0 

1 
2 

1 
0 
0 
2 

3 

279 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Institutions 
reaching 8% 
TLOF with 
deposits, 
requiring DGS 
contribution 

Of which: 
Institutions for 
which DGS can 
intervene 
(positive least 
cost test) 

Of which: 
Institutions for 
which DGS 
interventions 
under the LCT 
are sufficient to 
reach 8% TLOF 

4 - Two-tier (super-preference for covered 
deposits ) 
Count 

Count 

Count 

28 

20 
0 

20 
28 

2 
6 
3 
37 

48 

2 

1 
0 

1 
2 

1 
0 
0 
2 

3 

1 

1 
0 

1 
1 

0 
0 
0 
2 

2 

Institutions 
reaching 8% 
TLOF with 
deposits, 
requiring DGS 
contribution 

Of which: 
Institutions 
for which 
DGS can 
intervene 
(positive least 
cost test) 

Of which: 
Institutions for 
which DGS 
interventions 
under the LCT 
are sufficient to 
reach 8% TLOF 

5 - Two-tier (no super-preference for covered 
deposits) 
Count 

Count 

Count 

28 
20 
0 

20 
28 

2 
6 
3 

37 

48 

12 
6 
0 

4 
14 

1 
1 
1 

15 

18 

10 
3 
0 

2 
11 

1 
0 
1 

11 

13 

N. 

195 

124 
49 

187 
181 

107 
44 
63 
154 

368 

N. 

195 
124 
49 

187 
181 

107 
44 
63 

154 

368 

Hierarchy 

Small 

Medium 
Large 

Resolution 
Liquidation 

Low 
Mid 
Mid-High 
High 

Total 

Hierarchy 

Small 
Medium 
Large 

Resolution 
Liquidation 

Low 
Mid 
Mid-High 

High 

Total 

Source: Commission services, based on EBA CfA report and SRB data as of Q4  2019, assuming an 85% 
recovery rate. 

Figure 25 depicts a comparative view of the ability to reach 8% TLOF with or without 
deposits according to each depositor preference scenario. The shift from the baseline to 

280 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
the single-tier deposit preference (scenario 2) would impact all deposits (non-preferred, 
preferred, covered) to the same extent, however, in a smaller number of banks. As shown 
in  Figure  26,  this  would  improve  the  depositor  protection  and  attain  the  objective  of 
facilitating  a  greater  DGS  contribution  to  various  measures  (preventive,  resolution, 
alternative measures in insolvency) under the LCT. While some other scenarios maintain 
the  super-preference  of  covered  deposits,  they  do  not  meet  the  objective  of  facilitating 
DGS  funding  under  the  LCT,  which  due  to  the  very  nature  of  the  LCT,  would  be  less 
costly  than  a  payout  intervention  in  insolvency.  Please  see  also  the  explanations  in 
section  3.2.3  on  maintaining  the  full  protection  of  covered  deposits  under  a  single-tier 
ranking preference.  

Figure 25: Reaching 8% TLOF – Baseline versus depositor preference scenarios 

Source: Commission services based on EBA CfA report and SRB data as of Q4 2019. 

In  fact,  the  following  Figure  26  highlights  the  relative  impact  of  each  scenario  of 
depositor preference against the baseline on the ability for DGS to intervene based on a 
positive  LCT.  The dark  blue bars represent the percentage  of banks for  which deposits 
would need to be bailed-in to reach 8% TLOF, but where the LCT is negative, preventing 
a  DGS  intervention.  The  introduction  of  a  single-tier  preference  would  have  a 
comparable effect across all size groups, irrespective of their strategy, with 55% to 71% 
of  banks  benefiting  from  DGS  interventions  sufficient  to  reach  8%  TLOF,  under  an 
assumed recovery rate of 85%.  

281 

 
 
 
 
Figure 26: LCT – Baseline versus depositor preference 

Source: Commission services, based on EBA CfA report and SRB data as of Q4 2019, assuming an  85% 
recovery rate. 

The  type  of  depositor  preference  also  impacts  the  maximum  amount  of  DGS  funds 
allowed under the LCT in resolution or to finance alternative measures in insolvency. In 
particular,  the  single-tier  depositor  preference  unlocks  the  maximum  amount  of  funds 
pursuant to the LCT, on average up to twenty times higher than under the current creditor 
hierarchy  at  national  level  or  the  alternative  scenarios  3  and  4.  The  difference  is 

282 

 
particularly  sizeable  for  large  and  mid-sized  institutions.  The  last  scenario  of  depositor 
preference (i.e. covered deposits ranking  pari passu and preferred deposits) also allows 
for  larger  DGS  contributions,  however,  not  as  significant  as  under  the  single-tier 
preference. 

Table 20: LCT – Baseline versus depositor preference scenarios - Maximum amount of 
DGS interventions under the LCT (EUR bn) 

Hierarchy 

Small 
Medium 
Large 

Resolution 
Liquidation 

Low 
Mid 
Mid-High 
High 

Maximum amount of DGS funds based on LCT (EUR bn) 

1 
EUR 
0.02 
0.03 
0.00 

0.03 
0.02 

0.00 
0.00 
0.00 
0.05 

2 
EUR 
0.12 
0.74 
0.12 

0.75 
0.23 

0.01 
0.15 
0.31 
0.51 

3 
EUR 
0.02 
0.03 
0.00 

0.03 
0.02 

0.00 
0.00 
0.00 
0.05 

4 
EUR 
0.02 
0.03 
0.00 

0.03 
0.02 

0.00 
0.00 
0.00 
0.05 

5 
EUR 
0.03 
0.18 
0.00 

0.06 
0.16 

0.00 
0.00 
0.01 
0.21 

Total 
Source: Commission services, based on EBA CfA report and SRB data as of Q4 2019, assuming an 85% 
recovery rate. 

0.21 

0.05 

0.05 

0.05 

0.98 

4.1.4.  Combined scenarios 

The same combined scenarios as described under section 3.2.5 are also assessed in this 
section order to determine the LCT and the extent of potential DGS contributions.  

283 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Summary assessment – Combined scenarios  

The  analysis  of  the  three  combined  scenarios  enables  a  comparative  view  of  the 
ability  of  DGS  to  intervene  and  possibly  reach  the  8%  TLOF  threshold  when 
different  severity  of  CET1  depletion  would  be  combined  with  different  depositor 
preference scenarios, under an assumption of 85% recovery rate.  

As  indicated  in  section  3.2.5,  combining  various  levels  of  CET1  depletion  and 
depositor preference shows that the introduction of a single-tier depositor preference 
has  an  important  effect  on  the  ability  of  DGS  to  intervene  and  support  reaching  a 
level  of  8%  TLOF,  irrespective  of  the  loss  scenario  used  for  the  analysis.  In 
particular, under the baseline scenario, DGS interventions would be possible under 
the LCT for only 3.3% of banks for which deposits are needed to reach 8% TLOF. 
The  introduction  of  a  single-tier  depositor  preference  increases  this  proportion  to 
85%  of  banks  when  considering  no  depletion,  and  69%  when  assuming  that  all 
buffers  have  been  depleted.  Similarly,  76%  of  the  DGS  interventions  would  be 
sufficient to reach 8% TLOF assuming no depletion (40% assuming all buffers are 
depleted). 

Maintaining  the  super-preference  of  covered  deposits  would  prevent  the  DGS  to 
intervene and reaching the 8% TLOF to access the RF/SRF may have a high impact 
on the other types of deposits, in particular under more severe loss scenarios. 

Detailed analysis  

Table  26  shows  the  number  of  institutions  for  which  DGS  interventions  are  possible 
(positive  LCT)  and,  whether  DGS  contributions  would  allow  reaching  a  level  of  8% 
TLOF. It is complemented by Figure 27 showing the comparison between the combined 
scenarios and the baseline with regard to DGS’ ability to intervene under the LCT.  

284 

 
 
 
 
 
 
 
 
 
 
 
 
Table 21: LCT– Combined scenarios 

Institutions 
reaching 8% 
TLOF with 
deposits 

N. 

Of which: 
Institutions for 
which DGS 
can intervene 
(positive least 
cost test) 

Of which: 
Institutions for 
which DGS 
interventions 
under the LCT 
are sufficient 
to reach 8% 
TLOF 

Institutions 
reaching 8% 
TLOF with 
deposits 

Of which: 
Institutions for 
which DGS 
can intervene 
(positive least 
cost test) 

Of which: 
Institutions 
for which 
DGS 
interventions 
under the 
LCT are 
sufficient to 
reach 8% 
TLOF 

Comb. Scenarios 

1 (No depletion, single-tier preference) 

Count 

Count 

Count 

2 (Depletion of buffers, single-tier 
preference) 
Count 

Count 

Count 

Resolution 

Liquidation 

Small 
Medium 
Large 

Low 
Mid 
Mid-High 

High 

Total 

Small 
Medium 
Large 

Low 

Mid 
Mid-High 
High 

56 
87 
44 

63 
25 
39 

60 

187 

139 
37 
5 

44 

19 
24 
94 

Total 

181 

7 
13 
0 

1 
3 
2 

14 

20 

21 
7 
0 

1 

3 
1 
23 

28 

6 
10 
0 

0 
3 
1 

12 

16 

19 
6 
0 

1 

2 
1 
21 

25 

5 
9 
0 

0 
3 
1 

10 

14 

15 
2 
0 

1 

2 
1 
13 

17 

36 
40 
8 

6 
10 
20 

48 

84 

97 
15 
0 

5 

11 
14 
82 

112 

25 
31 
2 

1 
7 
10 

40 

58 

68 
10 
0 

1 

6 
7 
64 

78 

10 
14 
1 

0 
3 
5 

17 

25 

26 
3 
0 

1 

3 
4 
21 

29 

285 

 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
  
 
  
 
 
 
Institutions 
reaching 8% 
TLOF with 
deposits 

Of which: 
Institutions for 
which DGS 
interventions 
under the LCT 
are sufficient to 
reach 8% TLOF 
3 (Depletion of buffers, three-tier preference) 

Of which: 
Institutions for 
which DGS 
can intervene 
(positive least 
cost test) 

Count 

Count 

Count 

Comb. Scenarios 

Small 
Medium 
Large 

Low 
Mid 
Mid-High 
High 

Total 

Small 

Medium 
Large 

Low 
Mid 
Mid-High 
High 

Resolution 

Liquidation 

N. 

56 
87 
44 

63 
25 
39 
60 

187 

139 

37 
5 

44 
19 
24 
94 

36 
40 
8 

6 
10 
20 
48 

84 

97 

15 
0 

5 
11 
14 
82 

Total 

181 

112 

0 
2 
0 

0 
0 
0 
2 

2 

3 

0 
0 

1 
0 
0 
2 

3 

0 
2 
0 

0 
0 
0 
2 

2 

1 

0 
0 

0 
0 
0 
1 

1 

Source: Commission services, based on EBA CfA report and SRB data as of Q4 2019, assuming an 85% 
recovery rate. 

The first graph in Figure 27 shows the impact of the single-tier depositor preference on 
the ability of DGS to intervene based on the LCT for those banks reaching the 8% TLOF 
threshold with deposits, by comparing the first combined scenario and the baseline, under 
the assumption of an 85% recovery  rate. Compared to  the baseline scenario (where the 
applicable  creditor  hierarchy  is  used),  under  the  single-tier  preference,  43  additional 
banks  would  be  able  to  reach  the  threshold  without  using  deposits  due  to  lifting  the 
ranking  of  non-preferred  deposits,  and  the  DGS  could  intervene  for  an  additional  38 
banks, to an extent that would enable 29 more of them to reach the 8% TLOF. Under the 
first combined scenario, the DGS could intervene based on a positive LCT in 85% of the 
cases  where  deposits  would  bear  losses  to  reach  8%  TLOF,  compared  to  3.3%  in  the 
baseline.  In total,  the  LCT would be negative for seven small  and medium-sized banks 
out  of  48  that  would  need  deposits  to  reach  8%  TLOF.  DGS  interventions  would  be 
sufficient to reach 8% TLOF in all cases but two for banks earmarked for resolution. 

The second graph in Figure 27 illustrates how the single-tier depositor preference would 
be impacted by a greater severity of loss depletion scenario, by comparing the first and 

286 

 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
the  second  combined  scenario.  Assuming  a  depletion  of  all  buffers,  leads  to  a  sharp 
increase in the number of banks for which deposits are needed to reach 8% TLOF (+148 
compared  to  a  scenario  without  CET1  depletion).  Even  under  this  loss  scenario,  DGS 
interventions  would  remain  possible  under  the  LCT  for  69%  of  the  banks,  considering 
the entire sample or only institutions earmarked for resolution. However, the severity of 
the  less  scenario  has  an  impact  on  the  proportion  of  banks  for  which  the  DGS 
interventions  would  be  sufficient  to  reach  8%  TLOF,  decreasing  from  76%  in  the  first 
combined  scenario  to  40%  in  the  second  combined  scenario.  Still,  in  absolute  amount, 
the  number  of  banks  for  which  DGS  interventions  would  be  possible  and  sufficient  to 
reach  the  8%  TLOF  is  higher  than  in  the  first  combined  scenario,  and  the  baseline, 
indicating the strong impact of the introduction of a single-tier depositor preference. 

The third graph in Figure 27 describes the relative impact of the introduction of a single-
tier depositor preference compared to a three-tier depositor preference, by comparing the 
first  and  the  second  combined  scenarios,  i.e.  both  relying  on  the  same  level  of  CET1 
depletion.  As  already  mentioned,  maintaining  a  super-preference  of  covered  deposits 
prevents the DGS from intervening under the LCT and severely hampers the possibility 
to reach the 8% TLOF.  

287 

 
 
 
Figure 27: LCT – Combined scenarios 

Source: Commission services, based on EBA CfA report and SRB data as of Q4 2019, assuming a recovery 
rate of 85%. 

288 

 
 
 
 
 
 
 
 
 
4.2. Least cost test and DGS interventions (modelling approach) (Step D) 

Summary assessment – Least cost test and DGS interventions (modelling approach) 

The  analysis  of  the  results  using  SYMBOL-generated  losses  allows  to  compare  the 
ability of DGS interventions to reach 8% TLOF based on economically consistent and 
bank-specific characteristics, including considering the banking group’s structures.  

Overall,  under  a  recovery  rate  assumption  of  85%,  the  analysis  shows  that  DGS 
interventions  would  allow  reaching  the  8%  TLOF  threshold  on  average  for  7%  of 
banks facing losses and for which DGS interventions are required under the currently 
applicable  creditor  hierarchy,  assuming  a  stress  scenario  of  a  similar  intensity  as  the 
2008  global  financial  crisis.  The  introduction  of  a  single-tier  depositor  preference 
increases this probability to 81%, enabling DGS interventions to bridge to 8% TLOF 
irrespective of the severity of the crisis scenario. 

These  results  confirm  the  outcome  of  the  statistical  static  analysis  on  the  ability  of  a 
single-tier depositor preference to reduce the number of banks that need deposits to reach 
the 8% TLOF and at the same time unlock more possibilities for DGS to intervene based 
on the LCT. As set out previously, maintaining a super-preference for covered deposits 
may ultimately reduce the maximum amount of the LCT and thereby limit the ability of 
DGS  interventions  to  reach  8%  TLOF.  At  the  same  time,  the  magnitude  of  the 
differences compared to the current situation may limit the possibility for changes to the 
LCT, including indirect costs or other factors, to yield similar results. 

Detailed analysis 

The  outcome  of  the  previous  analyses  serves  to  define  the  most  relevant  scenarios 
(notably of depositor preference) for the dynamic assessment using SYMBOL-generated 
losses.  The  assessments  are  conducted  based  on  the  generation  of  a  multitude  of  loss 
scenarios, from which three specific loss scenarios are extracted: a scenario with a loss 
intensity similar to the global financial crisis in 2008, a second less severe scenario, and a 
third  more  severe  scenario.  The  results  consider  institutions  that,  based  on  the  crisis 
scenarios, would face losses that need to  be absorbed. Cases where banks  would either 
not face losses or would face losses but not trigger the need for DGS (under the LCT) or 
resolution funds to intervene, are not the focus of the analysis.  

As in previous sections, the analysis relies on a recovery rate in insolvency of 85% used 
to calculate the LCT. Using other recovery rates would impact the findings.  

As set out in section 2.4, the modelling approach is based on a set of assumptions: 

289 

 
Baseline 

Scope 

Modelling 
approach 

All 
entities 
(irrespecti
ve of the 
strategy) 

Loss allocation 

Creditor 
hierarchy 

Bail-inable 
capacity 

Simulated losses 
applied to 
resolution entities 
and subsidiaries 
under the 
assumption that 
the resolution 
group structure is 
maintained or 
breaks450  

Applicable 
creditor hierarchy 
in Member States 

Single-tier 
depositor 
preference 

Three-tier 
depositor 
preference 

Bail-inable 
liabilities 
(except those 
with maturity 
below 1 
month) with 
gradual 
exclusion of 
deposits 

Loss 
simulation 

Simulated 
losses using 
SYMBOL 

CET1 
available for 
the purpose of 
8% TLOF 
calculation 
after depletion 
of buffers 

Recapitalisatio
n in resolution 
up to P1 + 
P2R 

This section provides a detailed view of the expected probabilities for DGS to intervene 
under  the  LCT  and  whether  those  interventions  would  allow  reaching  the  8%  TLOF 
threshold in resolution under three scenarios of different crisis intensity.  

Error! Reference source not found. provides the outcome of the simulation under the 
modelling approach, indicating the number of institutions  for which DGS interventions 
are possible (positive LCT) and, for those institutions, whether DGS contributions would 
allow  reaching  a  level  of  8%  TLOF.  As  for  previous  analyses,  the  results  concern  all 
entities, irrespective of their strategy, and assumes that the resolution group structure is 
maintained in resolution. 

On average, considering the entire sample, DGS interventions would allow reaching the 
8% TLOF threshold for 7% of banks for which a DGS intervention is required under the 
currently  applicable  creditor  hierarchy  and  assuming  a  stress  scenario  of  a  similar 
intensity  as  the  2008  global  financial  crisis.  The  average  number  of  banks  where  the 
DGS could intervene to allow bridging up the gaps to 8% TLOF is similar for small and 
medium-sized  banks  (on  average  7%  of  banks  for  which  DGS  interventions  are 
required), while DGS interventions would not be sufficient on average for any large bank 
to help it reach 8% TLOF. At the same time, banks with a high prevalence of deposits for 
which  the  LCT  is  positive  would  see  the  probability  of  DGS  intervening  in  sufficient 
amounts to reach 8% TLOF in 9% of the cases, compared to generally lower levels when 
the prevalence of deposits is reduced. 

More  specifically,  under 
the  currently  applicable  creditor  hierarchy  (baseline), 
considering  the  entire  sample,  the  probability  that  the  DGS  would  need  to  intervene  to 
reach the 8% TLOF for at least one bank in a crisis similar to the 2008 one is equal to 

450  The  single  point  of  entry  group  resolution  strategy  is  maintained  where  the  losses  are  allocated  at 
subsidiary  level  up  until  the  level  of  internal  loss-absorbing  capacity  pre-positioned  by  the  parent 
(resolution  entity);  any  remaining  losses  impacting  the  subsidiary  are  covered  by  the  parent.  When  the 
group resolution strategy is maintained, this system of upstreaming losses from subsidiary to the resolution 
entity ensures that the subsidiary absorbs losses and gets recapitalised without being placed in resolution.  

290 

 
 
 
 
 
 
                                                           
100%, for an average of 19.4 banks and an average amount of EUR 3.9 bn. By size, there 
is  a  96%  or  99%  probability  for  medium-sized  or  small  banks  respectively  that  DGS 
would  intervene  and  reach  8%  TLOF  (i.e.  at  least  one  intervention  is  quasi  certain). 
However,  under  a  crisis  similar  to  the  2008  one,  the  probability  that  the  DGS  funds 
needed are not sufficient to bridge the gap to 8% TLOF for at least one banks is equal to 
100% for an average of 18 banks and an average amount of EUR 3.8 bn (either because 
the  LCT does  not  unlock sufficient  funds, or because the DGS cap of 0.4% of covered 
deposits per single use is binding). 

These  results  change  materially  when  assuming  a  single-tier  depositor  preference.  On 
average,  at  the  level  of  the  entire  sample,  DGS  interventions  would  allow  reaching  the 
8%  TLOF  in  81%  of  the  cases  where  the  LCT  is  positive,  i.e.  an  increase  by  74 
percentage points compared to the currently applicable creditor hierarchies. This effect is 
particularly important for banks with a mid to high prevalence of deposits as well as for 
small and medium-sized institutions where DGS interventions would allow reaching 8% 
in  80%  and  57%  of  the  cases  where  a  DGS  intervention  is  required,  respectively.  The 
three-tier  depositor  preference,  by  keeping  a  super-preference  for  covered  deposits, 
generally leads to comparable results as the baseline. 

At the same time, the introduction of a single-tier depositor preference reduces the likely 
number  of  DGS  interventions:  considering  the  entire  sample,  an  average  of  11  banks 
would  be  subject  to  a  DGS  intervention  under  a  single-tier  depositor  preference, 
compared to an average of approximately 19 banks based on currently applicable creditor 
hierarchies.  Similarly,  the  number  of  banks  where  the  LCT  is  not  enough  to  enable  a 
sufficient  DGS  contributions  towards  8%  TLOF  despite  the  need  to  absorb  further 
losses451  falls  from  an  average  of  18  under  the  applicable  depositor  preference  to  10 
under  a  three-tier  preference  and  an  average  of  approximately  two  when  a  single-tier 
preference  is  considered.  This  also  applies  when  restricting  the  sample  to  entities  with 
resolution strategy.  

These  results  confirm  the  outcome  of  the  statistical  static  analysis  on  the  ability  of  a 
single-tier depositor preference to reduce the number of banks that need deposits to reach 
the 8% TLOF and at the same time unlock more possibilities for DGS to intervene based 
on the LCT. As set out previously, maintaining a super-preference for covered deposits 
may ultimately reduce the maximum amount of the LCT and thereby limit the ability of 
DGS  interventions  to  reach  8%  TLOF.  At  the  same  time,  the  magnitude  of  the 
differences compared to the current situation may limit the possibility for changes to the 
LCT, including indirect costs or other factors, to yield similar results. 

Finally, assuming a different crisis intensity does not change the overall conclusions, as 
the  trend  keeps  applying  irrespective  of  the  scenario  used,  but  makes  the  DGS 
interventions  to  facilitate the  access  to  8% TLOF more or less likely depending  on the 

451 For the purpose of the analysis, the inability to reach the 8% TLOF may be due either to an insufficient 
LCT or the limit  set by the cap of 0.4% of covered deposits applicable for DGS interventions set out in 
Article 109(5) BRRD. However, the analysis suggests that the results are driven by the LCT that may often 
be too limited to allow reaching 8% TLOF threshold. In particular, as shown in the statistical analysis, the 
number of DGS interventions under the LCT is very limited as losses often do not reach covered deposits, 
that are taken into account for the purpose of the LCT calculations. 

291 

 
                                                           
scenario. In particular, a less severe crisis may lead to a situation where a smaller amount 
of deposits may be hit, resulting in a smaller LCT that may not be sufficient to reach the 
8% TLOF, threshold and conversely in case of higher losses. In each case, the difference 
brought by the type of depositor preference is substantial. 

Table 22: Percentage of average number of banks where DGS interventions would be 
sufficient to reach 8% TLOF (average number of banks where the DGS intervention 
would  be  sufficient  to  reach  8%  TLOF  over  average  number  of  banks  where  DGS 
interventions are required, assuming the resolution group structure is maintained) 

Global financial crisis (2008) 

Less severe crisis 

More severe crisis 

Depositor 
preference 

Baseline 

Single-
tier 

% 

% 

Three-
tier 

% 

   Baseline 

Single-
tier 

Three-
tier 

Baseline 

Single-
tier 

Three-
tier 

% 

% 

% 

% 

% 

% 

Small 

Medium 
Large 

Resolution 
Liquidation 

Low 
Mid 
Mid-High 
High 

All 

7% 
7% 
0% 

7% 

7% 

6% 
1% 
2% 
9% 

80% 
57% 
13% 

74% 

72% 

10% 
45% 
38% 
80% 

8%    
9% 
0% 

9% 

8% 

8% 
1% 
1% 
10% 

7% 
7% 
0% 

7% 

6% 

6% 
0% 
1% 
9% 

77% 
51% 
10% 

70% 

68% 

9% 
37% 
33% 
77% 

8% 
8% 
0% 

8% 

7% 

7% 
1% 
1% 
9% 

8% 
8% 
0% 

8% 

8% 

8% 
1% 
2% 
11% 

86% 
65% 
21% 

10% 
12% 
0% 

82% 

77% 

10% 

9% 

15% 
59% 
50% 
84% 

14% 
2% 
2% 
12% 

7% 

81% 

9% 

7% 

78% 

8% 

8% 

84% 

10% 

Source: Commission services, based on EBA CfA report and SRB data as of Q4 2019, assuming an 85% 
recovery rate. 

Error!  Reference  source  not  found.  shows  the  impact  of  the  simulation  when  the 
resolution  group  structure  is  not  maintained,  i.e.  simulating  a  break  of  the  resolution 
group  leaving  individual  subsidiaries  without  the  possibility  to  pass-on  losses  to  the 
resolution entity and subject to being placed in resolution themselves. In these cases, the 
loss  allocation  follows  the  waterfall  of  claims  at  each  individual  entity  level  until  all 
losses  are  covered  and  no  transfer  of  losses  is  taking  place  from  subsidiaries  to  the 
resolution  entities.  The  number of observations  underlying the figures contained in  this 
table  exceeds  the  one  in  other  analyses  (carried  out  at  resolution/parent  entity  level) 
because the analysis is conducted at individual level for the subsidiaries (where possible 
due to data availability). 

Overall, the average results are slightly different from the situation where the resolution 
group structure is maintained. More specifically, under the currently applicable creditor 
hierarchy (baseline), considering the entire sample, the probability that the DGS would 
need to  intervene to  reach the 8% TLOF for  at  least  one bank in  a crisis similar to  the 
2008 one is equal to 100%, for an average of 36.9 banks and an average amount of EUR 
7.6 bn.  However,  under  the  same  type  of  crisis,  the  probability  that  the  DGS  funds 
needed are not sufficient to bridge the gap to 8% TLOF for at least one banks is equal to 

292 

 
 
  
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
100% for an average of 33.8 banks and an average amount of EUR 7.3 bn (either because 
the  LCT does  not  unlock sufficient  funds, or because the DGS cap of 0.4% of covered 
deposits per single use is binding). 

Overall, DGS interventions would allow reaching 8% TLOF on average in 8% and 13% 
of  the  cases  (i.e.  at  the  level  of  the  subsidiaries  that  would  have  to  absorb  losses 
individually and not pass them trough up to the resolution entity) when considering the 
currently  applicable  creditor  hierarchies  or  the  introduction  of  a  three-tier  depositor 
preference.  On  the  contrary,  single-tier  depositor  preference  ensures  that  DGS 
interventions,  when  needed  and  possible  under  the  LCT,  often  allow  reaching  the  8% 
TLOF threshold.  

Table 23: Percentage of average number of banks where DGS interventions would be 
sufficient to reach 8% TLOF (average number of banks where the DGS intervention 
would  be  sufficient  to  reach  8%  TLOF  over  average  number  of  banks  where  DGS 
interventions are required, assuming the resolution group structure is not maintained) 

Global financial crisis 
(2008) 
Single-
tier 

Three-
tier 

Baseline 

Less severe crisis 

More severe crisis 

   Baseline 

Single-
tier 

Three-
tier 

Baseline 

Single-
tier 

Three-
tier 

% 

% 

11% 
5% 
0% 

3% 
0% 
1% 
14% 

85% 
63% 
14% 

12% 
47% 
49% 
84% 

% 
15%    
10% 
0% 

4% 
1% 
1% 
17% 

% 

% 

12% 
5% 
0% 

3% 
0% 
1% 
14% 

84% 
59% 
11% 

10% 
41% 
43% 
82% 

% 

15% 
9% 
0% 

4% 
1% 
1% 
17% 

% 

% 

% 

10% 
6% 
0% 

3% 
1% 
1% 
14% 

87% 
68% 
24% 

15% 
62% 
59% 
85% 

14% 
11% 
1% 

7% 
2% 
1% 
16% 

8% 

81% 

13% 

9% 

81% 

14% 

8% 

81% 

13% 

Depositor 
preference 

Small 

Medium 
Large 

Low 
Mid 
Mid-High 
High 

All 

Source: Commission services, based on EBA CfA report and SRB data as of Q4 2019, assuming an 85% 
recovery rate.  

293 

 
 
  
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.3. Use of resolution funds (Step E) 

Summary assessment – Use of resolution funds 

The analysis of the use of resolution funds shows that, assuming a single-tier depositor 
preference and a stress scenario similar to the 2008 financial crisis, resolution funds 
would make a contribution for an average of 1.5% of the banks with resolution 
strategy in the sample on the basis the 8% TLOF is reached and further losses need to 
be absorbed. Interventions are less likely under the currently applicable creditor 
hierarchies or a three-tier depositor preference.  

Resolution funds would also be more likely to intervene for large banks or, under a 
single-tier depositor preference, when the prevalence of deposits in the balance sheet 
structure is higher, pointing at the possible higher contribution of the bank’s internal 
loss absorbing capacity and, in the latter case, the higher likelihood of DGS 
interventions based on the LCT.  

Under an assumed recovery rate of 85%, the resolution funds’ contributions would, on 
average, amount to EUR 1.5 bn when considering the currently applicable creditor 
hierarchy, and be reduced to EUR 1.3 bn in case of a single-tier depositor preference, 
under a similar crisis as 2008. When considering a more severe crisis, interventions 
from resolution funds could amount to EUR 3.9 bn or 3 bn, respectively. 

These amounts must be considered with caution for three reasons. First, important 
caveats must be mentioned such as the limitation of resolution fund usage only for 
loss-absorption and recapitalisation (e.g. excluding liquidity measures or 
compensation of NCWO risks), the reliance on a sample that does not represent the 
entire banking sector and on specific methodological assumptions (e.g. no 
discretionary exclusions from bail-in). Second, the limited size of the resolution fund 
contribution may also be explained by the progress made in terms of risk reduction 
and strengthening of the banking sector as a whole, thanks to post-crisis regulatory 
reforms, contributing to increased robustness in terms of prudential capital, bail-inable 
capacity and market discipline. Third, without prejudice to the need for mutualised 
safety nets to promote financial stability and ensure market discipline, further analysis 
could be conducted in the future to explore whether and how the calibration of safety 
nets (RF/SRF and DGS/EDIS) may yield further cost synergies. 

Detailed analysis 

Building  on  the  previous  results,  this  section  assesses  to  what  extent  the  maximum 
contribution of the RF/SRF can absorb all the remaining losses for institutions for which 
DGS interventions were deemed possible under the LCT and allowed reaching a level of 
8%  TLOF,  assuming  a  recovery  rate  of  85%.  Article  44(5)(b)  BRRD  states  that  the 
contribution  of  the  RF/SRF  should  not  exceed  5%  TLOF  of  the  institution  under 
resolution, measured at the time of resolution action. For the purpose of this analysis, the 
maximum  contribution  of  RF/SRF  is  calculated  using  the  reported  TLOF  amounts,  in 
absence of credible forecasts of banks’ balance sheets prior to resolution. 

294 

 
 
This  analysis  relies  on  the  previous  LCT  computations  and  assessments  of  DGS 
interventions.  It  aims  to  show  the  number  of  cases  where  resolution  fund  contributions 
could  absorb  the  simulated  losses  (i.e.  within  the  cap  of  5%  TLOF),  following  DGS 
intervention in resolution, based on the different approaches of depositor preference.  

Table  33  shows  the  average  proportion  of  banks  for  which  resolution  funds  would 
intervene  under  various  stress  scenarios  and  depositor  preference,  on  the  basis  of  the 
entire  sample.  For  the  purpose  of  this  analysis,  the  resolution  group  structure  is 
maintained in resolution. In addition, the probabilities do not take into account the factors 
that allowed an institution to reach the 8% TLOF threshold, i.e. through its own internal 
loss-absorbing capacity or via a DGS intervention based on the LCT. 

Assuming a single-tier depositor preference, resolution funds would make a contribution 
for an average of 1.6% of the banks with resolution strategy in the sample on the basis 
the  8%  TLOF  is  reached  and  further  losses  need  to  be  absorbed.  Interventions  are  less 
likely  under  the  currently  applicable  creditor  hierarchy  or  a  three-tier  depositor 
preference. Resolution funds would also be more likely to intervene for large banks or, 
under a single-tier depositor preference, when the prevalence of deposits in the balance 
sheet  structure  is  higher,  pointing  at  the  possible  higher  contribution  of  the  bank’s 
internal  loss  absorbing  capacity  and,  in  the  latter  case,  the  higher  likelihood  of  DGS 
interventions based on the LCT.  

As described in Table 34 considering a crisis of a similar intensity as the global financial 
crisis in 2008, there is a probability of 92% that the resolution funds would intervene for 
at least one bank, for an average of 4.1 banks assuming the currently applicable creditor 
hierarchy. The introduction a single-tier depositor preference would increase the number 
of  interventions  to  an  average  of  5.9  banks,  linked  to  the  more  frequent  probability  to 
reach 8% TLOF. 

295 

 
 
 
 
 
 
 
 
 
 
 
Table 24: Average proportion of banks for which resolution funds would intervene (in 
percentage  of  all  banks  in  the  sample,  assuming  the  resolution  group’s  structure  is 
maintained) 

Global financial crisis (2008) 
Single-
tier 
% 

Baseline 

% 

   Baseline 

Less severe crisis 
Single-
tier 
% 

Three-
tier 
% 

% 

Baseline 

More severe crisis 
Single-
tier 
% 

Three-
tier 
% 

% 

Resolution 
Liquidation 

1.6% 

1.1% 

1.6% 

2.0% 

Three-
tier 
% 
1.2%    
1.3% 
2.3% 

1.0% 

1.1% 

1.1% 
2.6% 
2.5% 
1.4% 

1.7% 
1.2% 
2.4% 

2.2% 
1.8% 
2.4% 

1.7% 
2.6% 
2.3% 
1.5% 

1.1% 
3.3% 
3.0% 
2.7% 

Depositor 
preference 

Small 
Medium 
Large 

Low 
Mid 
Mid-High 
High 

All 

1.4% 
1.1% 
2.3% 

1.3% 

1.0% 

1.5% 
2.6% 
2.2% 
1.3% 

1.7% 
1.5% 
2.4% 

1.0% 
1.2% 
2.2% 

1.3% 

1.6% 

0.9% 

0.9% 

1.1% 
3.0% 
2.6% 
2.2% 

1.1% 
2.5% 
2.2% 
1.2% 

2.8% 
1.4% 
2.8% 

2.4% 

1.7% 

2.4% 
3.0% 
2.9% 
2.3% 

3.8% 
2.8% 
2.8% 

1.8% 
1.7% 
2.5% 

2.8% 

3.5% 

1.5% 

1.7% 

1.3% 
4.4% 
4.5% 
4.7% 

1.3% 
2.9% 
3.3% 
2.1% 

1.1% 

1.6% 

0.8% 

0.9% 

1.2% 

0.7% 

1.9% 

3.0% 

1.4% 

Source: Commission services, based on EBA CfA report and SRB data as of Q4 2019. 

Table 25: Average number of banks for which resolution funds would intervene 

Depositor 
preference  Baseline 
All 
4.12 

Global financial crisis (2008) 
Single-
tier 

Three-
tier 

Less severe crisis 
Single-
tier 

   Baseline 

5.89  

3.01  

3.30  

4.53  

Baseline 

More severe crisis 
Single-
tier 
 11.07  

 7.14  

Three-
tier 

5.24  

Three-
tier 
 2.47  

Source: Commission services, based on EBA CfA report and SRB data as of Q4 2019. 

The contribution of the resolution fund would, on average, amount to EUR 1.5 bn when 
considering the currently applicable creditor hierarchy, and be reduced to EUR 1.3 bn in 
case  of  a  single-tier  depositor  preference,  under  a  similar  crisis  as  in  2008.  When 
considering a more severe crisis, interventions from the resolution funds could amount to 
EUR 3.9 bn or 3 bn, respectively.  

These results must be read with caution. First, the analysis only covers for the usage of 
resolution funds for loss-absorption and recapitalisation, and not interventions to provide 
liquidity  support  or  compensate  certain  classes  of  creditors  when  mitigating  NCWO 
risks.  The  analysis  also  considers  that  all  bail-inable  capacity  excluding  deposits  (e.g. 
including derivatives and structured notes, where applicable) is used in order to reach the 
8%  TLOF  threshold,  i.e.  without  considering  potential  discretionary  exclusions  from 
bail-in pursuant to Article 44(3) BRRD. The results must also be considered taking into 
account that the sample used for the impact assessment represents approximately a third 
of the amount of covered deposits in the EU. 

296 

 
 
  
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
Second, the limited size of the resolution funds contribution may also be explained by the 
strengthening  of  balance  sheets  since  the  last  financial  crisis  and  the  resulting  lower 
impact of a similar loss scenario on more robust asset and liability structures at EU level. 
The  progress  made  on  risk  reduction,  via  the  reduction  of  non-performing  loans  or  the 
build-up of capital ratios and MREL capacity may render the use of contributions from 
resolution funds for loss-absorption and recapitalisation purposes more limited. Without 
prejudice of the need for mutualised safety nets to promote financial stability and ensure 
market  discipline,  further  analysis  could  be  conducted  to  explore  whether  and  how  the 
calibration of the safety nets may be revisited at a later stage. 

Table  35  shows  the  impact  of  the  simulation  under  the  assumption  that  the  resolution 
group  structure  is  not  maintained.  The  number  of  observations  underlying  the  figures 
contained  in  the  table  is  larger  than  in  the  previous  analysis  because  the  assessment  is 
conducted at individual level including subsidiaries. 

On  average,  resolution  funds  would  intervene  for  an  average  of  0.5%  to  1.0%  of  the 
banks  in  the  sample  depending  the  depositor  preference,  especially  for  large  banks  or, 
under a single-tier depositor preference, for banks with a high prevalence of deposits in 
the  balance  sheet.  Consequently,  in  a  crisis  similar  to  2008,  on  average  between  seven 
and nine banks would need an intervention of the RF/SRF under a single-tier preference, 
and  on  average  17  banks  in  case  of  a  more  severe  crisis.  Similarly,  the  three-tier 
depositor  preference  lowers  the  probabilities  for  resolution  funds  to  intervene,  also 
compared to the baseline. 

When  considering  the  amounts,  assuming  the  resolution  group’s  structures  break 
increases the amounts of the interventions to EUR 1.9 bn under the currently applicable 
creditor hierarchies, compared to EUR 1.9 bn or EUR 1 bn under a single-tier and three-
tier  depositor  preference,  respectively.  Assuming  a  more  severe  crisis,  interventions 
could amount up to EUR 4.3 bn under a single-tier depositor preference, i.e. allowing for 
a more frequent use of resolution funds. 

297 

 
 
 
 
 
 
 
 
 
 
Table 26: Average proportion of banks for which resolution funds would intervene (in 
percentage of all banks in the sample, assuming the resolution group’s structure is not 
maintained) 

Depositor 
preference 

Small 
Medium 
Large 

Low 

Mid 
Mid-High 
High 

% 

Baseline 

Global financial crisis (2008) 
Three-
Single-
tier 
tier 
% 
% 
0.7%    
0.6% 
1.9% 

1.1% 
0.7% 
2.1% 

1.2% 
1.0% 
2.1% 

1.3% 
1.1% 
0.8% 
1.1% 

0.6% 
1.4% 
1.1% 
2.1% 

0.6% 
1.1% 
0.8% 
1.1% 

   Baseline 

Less severe crisis 
Single-
tier 
% 

Three-
tier 
% 

% 

Baseline 

More severe crisis 
Single-
tier 
% 

Three-
tier 
% 

% 

0.9% 
0.6% 
2.0% 

1.1% 
1.1% 
0.7% 
0.9% 

0.9% 
0.8% 
2.0% 

0.6% 
1.3% 
0.9% 
1.6% 

0.5% 
0.6% 
1.9% 

0.5% 
1.0% 
0.7% 
0.9% 

1.7% 
1.0% 
2.4% 

1.9% 
1.4% 
1.1% 
1.8% 

2.2% 
1.8% 
2.4% 

1.1% 
1.0% 
2.2% 

0.8% 
1.9% 
1.7% 
3.7% 

0.8% 
1.2% 
1.1% 
1.8% 

All 

0.8% 

1.0% 

0.5% 

0.7% 

0.8% 

0.4% 

1.4% 

1.9% 

1.0% 

Source: Commission services, based on EBA CfA report and SRB data as of Q4 2019. 

4.4. Availability of DGS funds and EDIS (Steps F, G and H) 

The objectives of this section are to: (i) compare the DGS funding needs (in resolution 
and insolvency) with the DGS financial means, both under the statistical and modelling 
approaches in order to identify potential DGS liquidity shortfalls per Member State, (ii) 
assess the efficiency of EDIS models versus national DGS in providing funding. 

In  resolution,  the  DGS  funds  would  be  used  to  bridge  the  gap  towards  8%  TLOF  for 
banks that cannot reach this threshold without imposing losses on deposits. The amount 
of  DGS  funds  is  capped  by  the  LCT,  calculated  as  the  amount  of  affected  covered 
deposits  in  insolvency,  taking  into  account  a  recovery  rate  in  the  insolvency 
counterfactual of 85%.  In addition, the amount of DGS funds used in resolution is also 
capped by a limit of 50% of the DGS available financial means per intervention, in line 
with the BRRD. 

In  insolvency,  the  DGS  fund  can  contribute  to  alternative  measures  up  to  the  limit 
provided by the LCT. This method has two biases: (i) an alternative measure may be less 
costly  than  the  limit  provided  by  the  LCT,  and  (ii)  payout  cases  are  not  taken  into 
account. The same LCT calculation applies in insolvency as in resolution, however, the 
50% limit on DGS funds per individual intervention does not apply. 

Given the sample size limitations and to ensure comparability of results, the amounts of 
DGS available financial means are restated for the sample for the purpose of this analysis 
(i.e. 0.8% contribution rate applied to covered deposits in the sample per Member State). 
While it does not reflect the real amounts of DGS financial means in Member States, this 

298 

 
 
  
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
adjustment is  key in  avoiding  overestimating  the DGS financial means452.  This  method 
also assumes that the DGS target level is reached in all Member States. 

4.4.1.  Statistical analysis – Baseline versus combined scenarios 

Summary assessment – Baseline versus combined scenarios 

Under the baseline scenario and considering a recovery rate of 85% in the insolvency 
counterfactual, due to negative LCT, the DGS would not be allowed to finance the gap 
to the 8% TLOF threshold in almost all cases.  

The  combined  scenario  1  has  two  main  impacts:  (i)  it  reduces  the  number  of  banks 
unable  to  reach  the  8%  TLOF  threshold  and;  (ii)  it  unlocks  significantly  more  DGS 
funds.  However,  for  35%  of  the  banks  unable  to  reach  the  8%  TLOF  threshold,  the 
LCT  is  still  not  sufficient  to  bridge  the  gap.  Including  indirect  costs  in  the  LCT 
calculation could be considered to mitigate this shortcoming. Assuming the DGS were 
allowed to fully finance the gap to the 8% TLOF under the LCT, three DGSs would 
face a liquidity shortfall. 

Detailed analysis 

When  considering  the  entirety  of  the  sample  under  the  baseline  scenario,  under  the 
baseline creditor hierarchy and assuming a recovery rate of 85%, the DGSs would not be 
allowed to bridge the gap to 8% TLOF in 88 cases (negative LCT) and under the LCT, 
DGS interventions would be allowed in only three cases. The LCT would only allow the 
DGS to finance EUR 0.05 bn while the gap to reach 8% TLOF would be EUR 18.3 bn. 
In  case the DGSs  would be able to  finance the  gap towards 8%  TLOF, 6 DGSs would 
face a liquidity shortfall. 

Under the combined scenario 1 (no CET1 depletion and single-tier depositor preference), 
creating  one  single  preferred  category  for  all  deposits  has  the  following  impacts.  In 
general,  as  also  explained  in  Annex  8,  it  leads  to  a  better  protection  of  deposits  and  a 
lower  protection  of  senior  unsecured  creditors.  The  number  of  banks  where  deposits 
would be impacted in order to reach 8% TLOF decrease significantly from 91 under the 
baseline to 48 under the single-tier deposit preference.  

However,  among  the  different  categories  of  deposits,  the  non-preferred  deposits  would 
be  better  protected  and  the  covered  ones  would  become  theoretically  more  exposed453 
than under the baseline: EUR 17.2 bn of non-preferred deposits under the baseline versus 
EUR  2.7 bn  under  the  single-tier  preference.  Conversely,  EUR  0.25 bn  of  covered 
deposits are affected by the 8% TLOF threshold under the baseline versus EUR 2.82 bn 
under  the  single-tier  preference.  In  terms  of  LCT  impact,  the  single-tier  deposit 
preference would unlock the largest amount of DGS funds to allow for a more effective 
substitution  of  potential  depositors  losses  by  the  DGS.  However,  even  under  a  revised 
single-tier hierarchy of claims, the LCT would still not provide all the funds necessary to 

452 Otherwise, the DGS funding needs  would be based on the  sample of banks,  while the  DGS financial 
means would be reflecting the real banking sectors. 
453 Covered deposits are always protected. 

299 

 
 
                                                           
reach  the  8%  TLOF  in  all  cases.  Among  the  48  banks  unable  to  reach  the  8%  TLOF 
without deposits, 17 banks would have a negative or an insufficient LCT.  

Besides, in almost all cases, the cap corresponding to the maximum amount a DGS can 
use in resolution (i.e. 50% of the DGS financial means) does not seem binding. The LCT 
is  the  main  driver  explaining  the  inability  of  the  DGS  to  finance  the  gap  to  the  8% 
threshold. 

The combined scenarios 2 and 3 were also analysed. However, while the results of these 
combined  scenarios  are  relevant  for  other  parts  of  the  annex,  such  scenarios  involving 
significant  capital  depletion  simultaneously  for  all  the  banks  in  the  sample  should  be 
carefully considered in the context of assessing the DGS financial means454.  

Under  the  combined  scenario  2,  the  number  of  banks  unable  to  reach  the  8%  TLOF 
without  affecting  the  deposits  is  quite  important  for  the  DGSs  funding  capacity  (198 
institutions).  The  LCT  would  allow  54  banks  to  reach  the  8%  but  most  of  the  DGSs 
would face liquidity shortfalls.  

As regards combined scenario 3, the number of banks unable to reach the 8% TLOF and 
the  amounts  of  DGS  funds  necessary  to  reach  this  threshold  are  similar  as  under 
combined  scenario  2.  However,  the  LCT,  based  on  a  three-tier  depositor  preference, 
would only allow three banks to reach the 8% TLOF. 

When considering only the 187 banks with resolution strategies, the main conclusions of 
the analysis do not change. Under the baseline scenario, among the 42 banks that could 
not  reach  the  8%  TLOF  threshold  without  touching  deposits,  only  1  would  have  a 
sufficient LCT to allow for DGS intervention. In case the DGSs would be able to finance 
the  gap  towards  8%  TLOF,  5  DGSs  would  face  a  liquidity  shortfall455.  Under  the 
combined  scenario  1,  the  single-tier  depositor  preference  leads  to  a  lower  number  of 
banks unable to reach the 8% TLOF threshold and unlock more DGS funds.  

454 The assumption of simultaneous failures for all members of a DGS is not a realistic assumption for the 
purpose of this analysis.  

455 When identifying the DGS shortfalls, the  uses of funds both in resolution and alternative measures in 
insolvency  are  taken  into  account.  In  insolvency,  it  is  assumed  that  the  LCT  represents  the  cost  for  the 
DGS. 

300 

 
 
 
 
 
 
 
 
                                                           
 
Table 27: DGS financial means – Static statistical analysis (all sample of resolution 
entities) 

Baseline scenario 

Combined scenario 1 

Of which: 
resolution 
strategies 

Of which: 
resolution 
strategies 

Institutions unable to reach the 8% TLOF without deposits 

Count 

   of which positive LCT and sufficient to reach 8% TLOF 
   of which the positive LCT, but insufficient to reach 8% TLOF 

of which negative LCT 

Count 

Count 

Count 

Total amount of DGS funds needed to reach the 8% TLOF 

EUR bn 

Number  of  DGSs  facing  a  liquidity  shortfall,  where  DGSs  
allowed to finance all the gap to the 8% TLOF 

Count 

Maximum amount used by all the DGSs under the LCT 

EUR bn 

Total DGSs financial means (restated to the sample) 

EUR bn 

91 

2 

1 

88 

18 

6 

0 

22 

42 

1 

0 

41 

14 

5 

0 

48 

31 

10 

7 

6 

3 

1 

20 

14 

2 

4 

5 

2 

1 

22 

22 

22 

Source: Commission services, based on EBA CfA report, data as of Q4 2019, assuming an 85% recovery 
rate. 

4.4.2.  Modelling analysis 

Summary assessment 

The modelling analysis confirms the general conclusions of the static statistical analysis. 
In most of the cases, assuming an 85% recovery rate in the insolvency counterfactual, the 
current hierarchy of claims does not allow the DGSs to finance the gaps to the 8% TLOF 
threshold.  The  single-tier  preference  has  two  main  impacts.  It  reduces  the  number  of 
banks that need DGS funds, while unlocking more DGS funds to finance the remaining 
gaps to the 8% TLOF threshold.  

The  results  vary  substantively  depending  on  whether  the  structures  of  the  resolution 
groups  are  assumed  to  be  maintained.  Considering  that  the  resolution  structures  break 
leads to  an increase of the amount of DGS funding and consequently of  the number of 
DGSs facing a liquidity shortfall. Indeed, the number of DGSs facing a liquidity shortfall 
increases significantly when assuming  the break-up of resolution  structures (from three 
to nine DGSs under a crisis as severe as in 2008). 

An estimation of the probabilities and of the amounts of liquidity shortfall for the DGSs 
and the EDIS designs aim at assessing the relative effectiveness of EDIS in providing the 
funding  needed.  It  shows  that,  while  it  is  likely  that  the  DGSs  face  liquidity  shortfalls, 
EDIS would strongly mitigate this risk. However, these results should be interpreted with 
caution  as  they  are  subject  to  many  assumptions  and  caveats  that  may  lead  to 
significantly underestimate the results. 

301 

 
  
  
  
  
  
  
  
  
 
 
 
Detailed analysis 

Under crisis simulations as severe as in 2008, 5.28% of the banks would need DGS funds 
to reach the 8% TLOF threshold under the current creditor hierarchy. However, 97.11% 
of the funds needed to reach this threshold could not be financed by the DGSs, mainly 
due  to  an  insufficient  LCT.  The  cap  of  0.4%  of  the  covered  deposits  does  not  appear 
binding  in  most  of  the  simulations.  Changing  the  intensity  of  the  crisis  simulations  or 
assuming  that  the  resolution  group  structures  are  not  maintained  do  not  change  this 
general  conclusion456. However, in  case the DGS would be allowed to  finance the gap, 
between  six  and  15  DGSs  would  face  a  liquidity  shortfall.  The  number  DGSs  facing  a 
liquidity shortfall mainly depends on the resolution group structure holding or breaking 
up. When assuming that the resolution group structures are maintained, the parent entities 
absorb  the  losses  of  their  subsidiaries.  Consequently,  the  DGS  funding  needs  are 
minimised,  as  is  the  number  of  DGSs  facing  a  liquidity  shortfall  (between  six  and  10 
depending on the intensity of the crisis). Conversely, when assuming that the resolution 
group structures are not  maintained, more subsidiaries fail as the parents  do not  absorb 
their losses, leading to more DGS funding needs and a higher number of DGSs facing a 
liquidity shortfall (between nine and 15 depending on the intensity of the crisis). 

Compared  to  the  baseline,  the  single-tier  preference  has  two  main  impacts.  First,  it 
reduces  the  number  of  banks  where  deposits  would  be  on  the  line  to  take  losses  and 
requiring  DGS  funds  to  reach  the  8%  TLOF  threshold,  lowering  the  amount  of  DGS 
funding  needed.  In  addition,  it  unlocks  more  DGS  funds  to  finance  the  remaining  gap, 
significantly increasing  the number of banks that  would be able to  reach  the threshold. 
Under crisis simulations as severe as in 2008, around 80% of the banks that need DGS 
funds would be able to reach the 8% TLOF threshold (versus only 7% under the baseline 
and 9% under the three-tier preference).  

The  inclusion  of  indirect  costs  in  the  LCT  calculation  may  be  envisaged  in  order  to 
unlock more DGS funds and allow a higher percentage of banks to reach the 8% TLOF 
threshold.  Under  the  single-tier  preference,  on  average,  the  gap  to  reach  the  8%  TLOF 
represents 0.25% of covered deposits457. Assuming as objective covering this entire gap, 
indirect costs would need to be calibrated accordingly. However, this amount should be 
seen as a preliminary result due to the following considerations: (i) the amount of indirect 
costs  needed  to  unlock  sufficient  DGS  funds  range  from  0.02%  to  0.70%  of  covered 
deposits among the DGSs; (ii) the LCT is based on an 85% recovery rate that may not be 
appropriate in all cases. For instance, assuming a lower recovery rate would unlock more 
DGS  funds  under  the  current  LCT,  potentially  lowering  the  level  of  indirect  costs 
required in the LCT calculation. 

Assuming that the resolution group structures are not maintained has a significant impact 
on the number of DGSs facing liquidity shortfalls. Under a crisis as severe as in 2008, on 

456 For instance, under more severe crisis simulations, the share of banks that would need DGS funds 
would increase, as well as the amount of DGS funds needed to reach the 8% TLOF. However, the LCT 
would still prevent the DGSs from providing around 97% of the funds needed. 

457 The percentage does not change significantly when increasing the severity of the crisis simulations. 

302 

 
                                                           
average  the  amount  of  DGS  funds  needed  would  increase  from  EUR  1.2 bn  to  EUR 
2.73 bn and some DGSs would not be able to service their liquidity needs. The number of 
DGSs  facing  a  liquidity  shortfall  would  increase  from  three  to  nine  under  these 
assumptions. 

The three-tier depositor preference would lead to similar DGS funding needs as under the 
single-tier  preference.  However,  in  most  of  the  cases,  the  DGSs  would  not  be  able  to 
finance the gap to the 8% TLOF threshold as a result of an insufficient LCT.  

Table 33 presents the results under the assumption that all the resolution group structures 
are maintained, leading to minimise the amount of DGS funds needed and the number of 
DGSs facing a liquidity shortfall. Table 34 presents the results under the assumption that 
all the resolution group structures break down, leading to maximise the amount of DGS 
funds needed and the number of DGSs facing a liquidity shortfall. 

Table 28: DGS financial means – Modelling analysis (all sample of resolution entities 
– resolution structures are maintained) 

Resolution structure is 
maintained 

Global financial crisis (2008) 

Less severe crisis 

More severe crisis 

Baseline 

Single-
tier 

Three-
tier 

Baseline 

Single-
tier 

Three-
tier 

Baseline 

Single-
tier 

Three-
tier 

Average % of 
banks that need 
DGS funds to 
reach the 8% 
TLOF threshold 
Among which, 
average % of 
banks that cannot 
reach the 8% 
threshold 
Average amount 
of DGS funds 
needed to reach 
the 8% TLOF 
threshold, 
Among which, 
average % of the 
needed amount 
that cannot be 
provided 
Number of DGSs 
facing a liquidity 
shortfall, if 
DGSs were 
allowed to 
finance all the 
gap to the 8% 
TLOF threshold 

% 

5.28 

3.01 

3.01 

4.04 

2.30 

2.30 

9.28 

5.35 

5.35 

% 

92.99 

19.18 

91.43 

93.21 

21.59 

91.77 

92.39 

16.15 

90.15 

EUR bn 

3.94 

1.17 

1.17 

2.77 

0.84 

0.84 

8 

2.41 

2.41 

% 

97.11 

29.88 

94.01 

97.11 

34.22 

94.30 

96.77 

23.86 

92.84 

Count 

7 

3 

3 

6 

3 

3 

10 

4 

4 

Source:  Commission  services,  based  on  EBA  CfA  report,  data  as  of  Q4  2019,  assuming  an  85% 
recovery rate. 

303 

 
  
  
 
 
 
Table 29: DGS financial means – Modelling analysis (all sample of resolution entities 
– resolution structures are not maintained) 

Resolution structure is 
not maintained 

Global financial crisis 
(2008) 
Single-
tier 

Three-
tier 

Baseline 

Less severe crisis 

More severe crisis 

Baseline 

Single-
tier 

Three-
tier 

Baseline 

Single-
tier 

Three-
tier 

Average % of 
banks that need 
DGS funds to 
reach the 8% 
TLOF threshold 
Among which, 
average % of 
banks that cannot 
reach the 8% 
threshold 
Average amount 
of DGS funds 
needed to reach 
the 8% 
threshold, 
Among which, 
average % of the 
needed amount 
that cannot be 
provided 
Number of 
DGSs facing a 
liquidity 
shortfall, if 
DGSs were 
allowed to 
finance all the 
gap to the 8% 
TLOF threshold 

% 

4.28 

2.14 

2.14 

3.25 

1.64 

1.64 

7.64 

3.78 

3.78 

% 

91.77 

18.83 

86.74 

91.47 

19.45 

86.27 

92.17 

19.06 

87.22 

EUR bn 

7.62 

2.73 

2.73 

5.38 

1.95 

1.95 

15.71 

5.85 

5.85 

% 

96.39 

25.16 

92.04 

96.22 

24.69 

91.71 

96.34 

27.25 

92.25 

Count 

9 

9 

9 

8 

8 

8 

15 

11 

11 

Source:  Commission  services,  based  on  EBA  CfA  report,  data  as  of  Q4  2019,  assuming  an  85% 
recovery rate.  

Table 35 and Table 40 compare the probabilities and the amounts of liquidity shortfalls 
in  the  Banking  Union,  considering  in  turn  only  the  DGSs  and  different  ways  to  design 
EDIS458. 

Under  a  high-ambition  hybrid  EDIS,  a  target  level  of  0.6%  of  covered  deposits  is 
considered,  where  75%  of  the  funds  are  in  the  central  fund  and  25%  remaining  in  the 
national  DGSs.  A  medium-ambition  hybrid  EDIS  considers  a  target  level  of  0.7%  of 
covered deposits, where 50% of the funds are in the central fund and 50% remaining in 
the  national  DGSs.  A  low-ambition  hybrid  EDIS  considers  a  0.8%  covered  deposits 
target level with 25% of the funds in the central fund and 75% in the national DGSs. 

The results show an important probability that at least one DGS faces a liquidity shortfall 
in the Banking Union in case of financial crisis. For instance, under a financial crisis as 
severe  as  in  2008  and  considering  a  single-tier  depositor  preference,  there  is  30.78% 
probability that at  least  one DGS faces  a liquidity shortfall. On average, the amount of 
the liquidity shortfall would amount to EUR 0.3 bn. Assuming that the resolution group 
structures  break  down  has  a  significant  impact  on  the  results.  The  probability  of  DGS 

458 See Annex 10 for more details on the hybrid model designs.  

304 

 
  
  
 
 
                                                           
liquidity  shortfall  would  raise  from  30.78%  to  74.78%  and  the  amount  of  liquidity 
shortfall  would  increase  on  average  from  EUR 0.3 bn  to  EUR 0.8 bn.  In  addition, 
increasing  the  severity  of  the  crisis  simulations would  have  a  significant  impact  on  the 
probability  of  shortfall  (58.17%  if  the  resolution  group  structure  is  maintained  and 
91.34% if the resolution group structure is not maintained). 

The hybrid EDIS models would significantly mitigate the risk of liquidity shortfall. The 
high-ambition  hybrid  EDIS  would  reduce  the  probability  of  liquidity  shortfall  to  a 
negligible  level  in  all  situations.  The  low-ambition  hybrid  EDIS  would  also  reduce  the 
probability of liquidity shortfall.  In case the resolution  group structures are maintained, 
the probability of liquidity shortfall is negligible, but it raises to 6.68% in the worst case 
scenario including crisis simulations more severe than in 2008 and considering a break-
up of the resolution group. The shortfall amount would be limited. 

These  results  should  be  interpreted  with  great  caution,  as  the  probabilities  and  the 
amounts of liquidity shortfalls are may be significantly underestimated:  

-  First,  the  results  do  not  include  payout  cases,  which  are  much  more  cash 
consuming. Including them would significantly increase the funding needs of the 
DGSs  and  hybrid  EDIS  models,  leading  to  higher  probabilities  and  amounts  of 
liquidity shortfalls both for the DGSs and the hybrid EDIS models.  

-  Second,  the  analysis  is  based  on  an  85%  recovery  rate.  Assuming  a  lower 
recovery  rate  would  unlock  more  funds,  leading  to  higher  probabilities  and 
amounts of shortfalls for the DGSs and the hybrid EDIS models.  

-  Third,  the  results  are  based  on  restated  amounts  of  DGS  and  hybrid  EDIS 
financial means that may not be fully representative for all Member States459. In 
addition, a larger sample of banks would automatically increase the probabilities 
and the amounts of liquidity shortfall. 

459 Given that the analysed sample only covers a  share of the EU banks, the  size  of the  DGS  funds and 
hybrid EDIS funds have been restated for comparability reasons.  

305 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Table  30:  Performances  of  the  DGSs  and  the  hybrid  EDIS  in  providing  funding  in 
resolution (Resolution structure is maintained) 

Resolution structure is maintained 

Global financial crisis 
(2008) 
Single-tier 

Less severe crisis  More severe crisis 

Single-tier 

Single-tier 

DGSs only 

High 
ambition 
hybrid 
EDIS 
Medium 
ambition 
hybrid 
EDIS 
Low 
ambition 
hybrid 
EDIS 

Probability of 
liquidity shortfall 
Amount of liquidity 
shortfall 
Probability of 
liquidity shortfall 
Amount of liquidity 
shortfall 
Probability of 
liquidity shortfall 
Amount of liquidity 
shortfall 
Probability of 
liquidity shortfall 
Amount of liquidity 
shortfall 

% 

EUR 
bn 

% 

EUR 
bn 

% 

EUR 
bn 

% 

EUR 
bn 

30.78 

0.3 

0 

0 

0 

0 

0.05 

0 

22.06 

0.3 

0 

0 

0 

0 

0 

0 

58.17 

0.5 

0 

0 

0 

0 

0.25 

0 

Source:  Commission  services,  based  on  EBA  CfA  report,  data  as  of  Q4  2019,  assuming  an  85% 
recovery rate. 

Table  31:  Performances  of  the  DGSs  and  the  hybrid  EDIS  in  providing  funding  in 
resolution (Resolution structure is not maintained) 

Resolution structure is not maintained  Global financial crisis 

DGSs only 

High 
ambition 
hybrid 
EDIS 
Medium 
ambition 
hybrid 
EDIS 
Low 
ambition 
hybrid 
EDIS 

Probability of 
liquidity shortfall 
Amount of liquidity 
shortfall 
Probability of 
liquidity shortfall 
Amount of liquidity 
shortfall 
Probability of 
liquidity shortfall 
Amount of liquidity 
shortfall 
Probability of 
liquidity shortfall 
Amount of liquidity 
shortfall 

% 

EUR 
bn 

% 

EUR 
bn 

% 

EUR 
bn 

% 

EUR 
bn 

(2008) 
Single-tier 

74.28 

0.8 

0.1 

0 

0.5 

0.02 

1.74 

0.08 

Less severe crisis  More severe crisis 

Single-tier 

Single-tier 

63.02 

91.34 

0.6 

0.05 

0 

0.25 

0.01 

0.99 

0.05 

1.4 

0.5 

0.01 

2.48 

0.07 

6.68 

0.28 

Source:  Commission  services,  based  on  EBA  CfA  report,  data  as  of  Q4  2019,  assuming  an  85% 
recovery rate. 

4.5. Sensitivity analysis of the impact of the recovery rates in insolvency 

The recovery rates in insolvency are extremely heterogeneous across banks and Member 
States  and  are  impacted  by  many  factors,  such  as  the  bank’s  individual  characteristics 
(asset quality, other financial fundamentals), the market situation, the national insolvency 
laws and national judicial regimes as well as the severity of the crisis. 

306 

 
  
  
 
 
 
 
  
  
 
 
 
 
In this context, the results of the analyses are very sensitive to the value of the haircuts 
and corresponding recovery rates applied to the assets in insolvency that serves as a basis 
for  the  calculation  of  the  LCT.  Lower  recovery  rates  (i.e.  higher  haircuts)  lead  to 
comparatively larger losses in insolvency due to the inability to recover all proceeds from 
the  liquidation  of  the  assets,  and  would  result  in  a  higher  probability  to  reach  covered 
deposits  in  the hierarchy of claims in  the insolvency  counterfactual. As  a consequence, 
more banks may face a positive LCT on the basis of low recovery rates on assets. 

These  results  affect  the  magnitude  of  the  different  options  tested  in  the  quantitative 
analysis, but do not alter the conclusions related to the banks’ ability to reach 8% TLOF 
without  DGS  interventions  nor  to  the  comparison  between  the  various  scenarios  of 
depositor preference. 

In  fact,  changing  the  level  of  haircuts  does  not  affect  the  liability  structure  and,  as  a 
result,  the  capacity  of  institutions  to  access  the  8%  TLOF  without  deposits,  or  to  what 
extent  certain  forms  of  deposits  would  have  to  bear  losses  in  order  to  reach  that 
threshold.  However,  higher  haircuts  impact  the  frequency  with  which  DGS  could 
intervene under the LCT as well as the ability of the DGS’s intervention to help reaching 
8% TLOF. The number of banks with a positive LCT and the maximum amount of DGS 
funds unlocked by the LCT increases significantly with a recovery rate of 50% compared 
to the primary assumption of 85%.  

More  specifically,  assuming  a  50%  recovery  rate,  the  currently  applicable  creditor 
hierarchies  and  no  CET1  depletion,  232  institutions  would  have  a  positive  LCT 
irrespective  of  their  ability  to  reach  the  8%  TLOF  threshold,  against  eight  when 
considering  an  85%  recovery  rate.  In  this  case,  63%  of  the  small  banks,  76%  of  the 
medium-sized and 64% of the large banks would have a positive LCT. At least 90% of 
the banks in the sample would have a positive LCT in eight Member States.  

Under a single-tier depositor preference, the number of banks with a positive LCT would 
increase from 150 assuming a recovery rate of 85% to 300 with a recovery rate of 50% 
(out of a total sample of 343 institutions). Under this scenario, 84% of the small banks, 
92% of the medium-sized and 86% of the large banks would have a positive LCT. When 
considering the funding structure, 98% of the banks in the sample with a prevalence of 
deposits higher than 70% of TLOF would have a positive LCT. Similarly, at least 90% of 
the banks in the sample would have a positive LCT in 14 Member States. 

In terms of amounts of DGS funds unlocked under the LCT, lowering the recovery rate 
increases the maximum amount for DGS intervention to EUR 15.8 bn assuming a 50% 
recovery  rate,  the  currently  applicable  creditor  hierarchies  and  no  CET1  depletion, 
compared to EUR 0.23 bn with a recovery rate of 85%. Results are similar for scenarios 
3  and  4  of  depositor  preference.  This  amount  increases  from  EUR  1.15 bn  to  EUR 
20.8 bn when considering a single-tier creditor hierarchy, and from EUR 0.40 bn to EUR 
18.7 bn under scenario 5 of depositor preference. While the magnitude of the increase is 
higher  for  all  other  scenarios,  the  single-tier  depositor  preference  remains  the  option 
under which the maximum amounts of DGS funds can be mobilised under the LCT, even 
assuming  a 50% recovery  rate, while being the  most protective of depositors given the 
number of banks able to reach the 8% TLOF without deposits, as shown in section 3.2.3.  

307 

 
5. 

CAVEATS AND DISCLAIMERS 

Overview of main caveats and disclaimers 

Caveat/disclaimer 

Description 

Mitigating factor(s) 

The sample represents 73% of the 
total EU domestic banking assets, 
excluding third country assets.  

For the purpose of assessing the 
DGS intervention against the DGS 
financial means, the level of DGS 
financial means has been 
recalibrated to match the banks in 
the sample.  

The calculations and analyses 
carried out in this Annex illustrate 
the results on two perimeters:  

level) 
resolution 

-  the  entire  sample  of  banks 
(parent 
irrespective  of 
strategy 
their 
(resolution  or  liquidation).  This 
would 
impacts 
assuming  all  banks  would  be 
placed in resolution; and 

show 

the 

-  only 

banks  with 
resolution as per 2019 data. 

strategy 

Representativeness of the 
sample 

Expansion of the PIA as per 
policy options in Chapters 5 
and 6 could not be quantified.  

The sample of banks underpinning 
all analyses in this Annex is based 
on the data collected by the EBA as 
part of their annual exercise 
whereby national resolution 
authorities report banks’ liability 
data and MREL decisions to the 
EBA. The sample include 368 
banks when considering parent-
level entities and 862 banks when 
counting also subsidiaries. A 
number of entities have been 
eliminated from the sample due to 
data quality issues. The banks in 
the sample represent approximately 
52% (when also considering third 
country assets) to 73% (when only 
considering domestic assets) of the 
total banking asset in the EU. The 
covered deposits of the banks in the 
sample represent 38.3% of the 
covered deposits reported for the 
entire EU as of Q4 2019.  

The number of additional banks 
that would go in resolution under 
the policy options cannot be 
estimated upfront, as the PIA 
remains a case-by-case assessment 
by resolution authorities, retaining 
elements of discretion and highly 
dependent on the financial 
condition of the bank at the 
moment of failure. Moreover, the 
strategy set out for a bank at the 
planning stage (resolution vs 
liquidation) is a presumptive path 
based on backward looking 
information, which allows 
deviations to take account of the 
specific situation at the time of 
failure. 

308 

 
haircut 

Insolvency 
(loss) 
assumption  of  15%  of  total 
assets  (corresponding  to  a 
recovery  rate  of  85%)  in  the 
context  of  calculating 
the 
LCT.  

The recovery rates and therefore, 
the losses in insolvency, range 
widely across Member States as 
they are impacted by national 
insolvency laws and judicial 
regimes. Moreover, recovery rates 
are also highly case-dependant.  

clarifications 

To  mitigate 
the  uncertainties 
deriving  from  these  limitations, 
qualitative 
are 
provided in order to show how the 
results  would  be 
if 
higher  or  lower  recovery  rates 
were considered. 

impacted 

The impact of using different 
insolvency haircuts or 
corresponding recovery rates 
on the results cannot be 
clearly attributed to a single 
factor – such as the need to 
harmonise insolvency laws. 

Creditor hierarchy applicable 
in each Member State 

For the purpose of the analyses 
carried out in, one primary 
assumption has been used (15% 
haircut in insolvency corresponding 
to a recovery rate of 85%), however 
results corresponding to a 50% 
haircut and recovery rate have also 
been presented.  

The recovery rates which are 
extremely heterogeneous across 
banks and Member States are 
impacted by many factors, such as: 
the bank’s individual characteristics 
(asset quality, other financial 
fundamentals), the market situation, 
the national insolvency laws and 
national judicial regimes as well as 
the severity of the crisis. While one 
may argue that further 
harmonisation of insolvency laws 
may reduce the heterogeneity in 
recovery rates, this may not be 
necessarily the case, as a direct 
relationship cannot be established 
between these two elements. The 
impact of insolvency laws on 
recovery rates cannot be 
disentangled from the impact of 
other relevant factors.  

Each national creditor hierarchy has 
been adjusted to follow a common 
list of insolvency ranking based on 
a simpler standard structure to 
perform the analysis in sections 3 
and 4. Individual liabilities reported 
in the dataset have been mapped 
accordingly. 

309 

Transparency is ensured in the 
reading of the results throughout 
this Annex, with respect to the 
impact of various recovery rates 
on the results. However, the 
variation in results cannot be 
clearly attributed to one particular 
cause.  

The ranks under the national 
hierarchies have been mapped to a 
standard ladder keeping the 
relative seniority between the 
main categories of liabilities, in 
particular deposits, and taking into 
account the most frequent rank 
reported for each form of 
liabilities to cater for cases where 
contractual features affect the rank 
of a given liability. 

 
 
The analyses reflect the 
balance sheet data as of Q4 
2019 when banks were still in 
transitional period to comply 
with their MREL 
requirements.  

Modelling or estimating potential 
changes in balance sheets as of 
2024 when most banks are expected 
to reach compliance with their 
MREL requirements was not 
attempted in this analysis due to the 
complexity of such a task and the 
additional required assumptions 
that would require extrapolation 
across the sample.  

The results of the model-
based approach are based on 
three scenarios of crises: one 
similar to the 2008 global 
financial crisis and two other 
crises, one less severe and one 
more severe.  

A multitude of crises with different 
intensities have been simulated 
using the SYMBOL model. 
However, for reasons related to 
complexity, readability and 
relevance, not all results are 
presented in this analysis.  

Impact of COVID-19 crisis on 
presented results 

The figures presented in this Annex 
reflect the situation as of Q4 2019, 
prior to the set-up of the COVID-19 
crisis. 

A scenario was added assessing 
the impact of reaching 8% TLOF 
and allowing for DGS 
intervention by considering 
MREL requirements (assuming all 
banks will comply with their 
requirements by 2024) rather than 
the bail-inable capacity as of Q4 
2019. However, this scenario was 
not relevant as for almost all 
banks (except one), the bail-inable 
capacity as of Q4 2019 exceeded 
their MREL requirement.  

The results are presented for three 
selected simulated crises, to which 
the reader can easily relate. The 
CMDI framework was enacted in 
the wake of the 2008 global 
financial crisis, therefore 
presenting simulations of a crisis 
similar to that particular crisis, as 
well as less and more severe crises 
is a sensible approach. 

As shown by the report 
monitoring risk reduction 
indicators as of May and 
November 2021 by the 
Commission, the ECB and the 
SRB, the consequences of the 
COVID-19 pandemic have not led 
to a material deterioration of 
Banking Union institutions’ 
solvency or liquidity position. 
This is in part due to the 
extraordinary policy measures 
taken in response to the COVID-
19 pandemic including in 
particular the introduction of loan 
moratoria and public guarantee 
schemes. The borrower relief and 
liquidity support measures have 
mitigated the impact of the 
pandemic on bank balance sheets, 
and as these measures have or are 
being phased out, banks remained 
resilient.  

See also the analysis of the 
evolution of balance sheets 
changes in section 6 ‘Other 
methodological considerations’. 

310 

 
 
 
6. 

OTHER METHODOLOGICAL CONSIDERATIONS 

General information on data 

The  analysis  in  this  annex  is  based  on  resolution  data  reported  under  Commission 
Implementing  Regulation  (EU)  2018/1624  of  23  October  2018  (ITS  on  resolution 
reporting) by institutions included in the scope of the BRRD and submitted to the EBA. 
The analysis is complemented with data on formally adopted MREL decision that were 
reported to the EBA for the reference date 31 December 2019. Where formally adopted 
MREL decision were not yet available at the point of reporting, indicative decisions are 
considered.  Where  neither  formal  nor  indicative  MREL  decisions  were  included,  an 
MREL proxy was considered, as explained in the assumptions and scenarios section 2.3. 

General information on the sample and data quality checks 

The  sample  of  covered  institutions  includes  368 entities  when  counting  all  parent-level 
institutions and 862 entities when also including the subsidiaries. The composition of the 
sample  and  the  exclusion  of  certain  entities  is  driven  by  number  of  institutions 
participating in the data collection exercise and data quality criteria460. 

General information on the reference date for data analysis 

The quantitative assessments included in this annex are based on data as of 31 December 
2019, in line with the analysis published in the EBA’s CfA report on 22 October 2021.  

The  recent  evolution  of  key  indicators  of  banks’  balance  sheets  shows  that  the 
conclusions  drawn  in  this  annex  would  not  change  if  they  were  based  on  the  latest 
available data points (e.g. end-2022). 

-  Evolution of the liability structure 

In the EU, banks’ total liabilities increased by 8.7% between end-2019 and end-2022461. 
This  evolution  is  partly  driven  by  an  increase  in  deposits  and  other  MREL  eligible 
liabilities.  

At the level of the EU, covered deposits increased by 14.3% between end-2019 and end-
2021462. However, despite this nominal increase, the share of deposits from households 
and  non-financial  corporations  as  percentage  of  the  total  liabilities  remained  stable  (on 
average, 47.6% of total  liabilities as of end-2022, compared to  44.9%  as  of end 2019), 
suggesting the absence of material changes in banks’ liability structure463.  

460 EBA (22 October 2021), Call for advice regarding funding in resolution and insolvency. As shown by 
the EBA CfA report, the loss simulation requires a minimum set of three variables (total assets, total risk 
exposure amount (TREA) and CET1 capital) to be reported by each entity to be included in the analysis. 
Entities, for  which this information  is  missing are excluded from the analysis. Prior to excluding entities 
without reported total assets, reported TLOF is used as a proxy for non-systemic and smaller institutions 
(< EUR 50 bn TLOF). 
461 EBA risk dashboards 
462 EBA Deposit Guarantee Schemes data 
463 EBA risk dashboards 

311 

 
 
                                                           
In  fact,  based  on  data  covering  the  Banking  Union,  the  aggregated  amount  of  MREL 
eligible liabilities held by banks within the SRB remit increased by 14.8% between end-
2019  and  Q3-2022.  The  stock  of  eligible  liabilities  in  percentage  of  TREA  (i.e. 
considering  the  risk  profile  of  the  banks)  increased  in  most  Member  States  during  that 
period464.  In  the  EU,  and  with  a  focus  on  smaller  banks,  data  shows  that  the  share  of 
MREL resources, in percentage of TREA, generally increased for domestically systemic 
banks (by 1.6% for the larger ones, and approximately 4% for systemic banks with less 
than EUR 10 billion balance sheet) as well as for other smaller lenders (by approximately 
6% for non-systemic banks with less than EUR 5 billion balance sheet). These groups of 
banks often rely on deposits to comply with MREL requirements, representing up to 5-
6% TREA for the smaller banks465. 

As  a  result,  the  impact  on  banks’  ability  to  reach  8%  TLOF  without  deposits  would 
remain  neutral  because  of  these  two  conflicting  trends:  the  increase  of  loss-absorbing 
capacity  improves  banks’  resilience  using  internal  resources,  which  are  often  ranking 
lower than deposits in the hierarchy of  claims, reducing the need to rely  on deposits to 
reach  8%  TLOF;  at  the  same  time,  part  of  the  increase  of  these  MREL  eligible 
instruments takes the form of deposits.  

In addition, the amount of assets, which is used to estimate the losses in SYMBOL, has 
increased  in  the  same  proportion  as  the  liabilities,  in  particular  the  amount  of  loss-
absorbing capacity. Higher potential losses stemming from the increased asset base  are 
therefore  commensurate  to  an  observed  higher  amount  of  loss-absorbing  capacity, 
maintaining the conclusion as regards the ability to reach the 8% TLOF without deposits. 
The  absence  of  a  relative  shift  in  the  share  of  deposits  in  banks’  balance  sheets  also 
supports  the  assumption  that  the  evolution  of  the  liability  composition  is  not  likely  to 
fundamentally  affect  the  analysis  of  banks’  ability  to  access  resolution  funding 
arrangements.  

Similarly,  these  evolutions  are  not  expected  to  materially  impact  DGS’s  ability  to 
intervene  based  on  the  least  cost  test  to  support  the  access  to  resolution  funding 
arrangement. In fact, two independent effects can be drawn from the evolution of banks’ 
liability  structure.  On  one  hand,  the  least  cost  test  may  lead  to  a  higher  amount  of 
possible support due to the increased volumes of covered deposits that would have to be 
paid out in insolvency. This may facilitate the bridge to the 8% TLOF threshold. On the 
other hand, the stable proportion of deposits in banks’ total liabilities, compared to other 
loss-absorbing  resources,  would  not  materially  affect  the  triggers  based  on  which  DGS 
can intervene (i.e. when loss absorption needs reach deposits). As a result, the possible 
higher  volume  of  DGS  support  would  not  necessarily  be  accompanied  by  a  more 
frequent ability of DGS to intervene compared to the situation as of end 2019. 

464 SRB MREL Dashboard, Q3 2022 
465 EBA quantitative MREL reports 2019 (27 May 2021) and 2020 (22 April 2022). 

312 

 
 
 
                                                           
-  Evolution of the asset quality and prudential requirements 

In  addition,  data  shows  that  the  quality  of  the  assets  have  not  materially  changed,  nor 
deteriorated over the last  years despite the impact  of the COVID  pandemic, which had 
led  to  an  expectation  of  credit  risk  deteriorations.  Importantly,  banks  keep  fulfilling 
prudential requirements. 

Banks  risk-weighted assets  slightly increased between end-2019 and end-2022, with  an 
increase  of  6.4%  mainly  since  end-2021,  driven  by  credit  risk466.  In  this  context,  the 
gross non-performing loans (NPL) ratios continued to decrease between 2020 and 2022 
for  the  majority  of  Member  States  while  remaining  largely  stable  for  the  remaining 
Member States and closed at 1.8% in Q4 2022 respectively. The feared negative impact 
of  the  Covid-pandemic  did  not  materialize.  The  gross  and  net  NPL  ratios  continued  to 
decrease  in  2021  and  2022,  in  almost  all  Member  States,  highlighting  the  absence  of 
significant  negative  shift  in  asset  quality.  These  evolutions  could  be  explained  by  the 
effectiveness  of  the  various  policy  measures  introduced  to  cushion  the  impact  of  the 
COVID-19  pandemic.  Since  the  start  of  the  pandemic,  all  Member  States,  with  the 
support  of  SURE  and  Next  Generation  EU,  implemented  various  forms  of  support  for 
households  (furlough)  and  non-financial  corporations 
including  some  form  of 
moratorium on payments of credit obligations467. 

At  the  same  time,  prudential  ratios,  both  on  solvency  and  liquidity,  remained  high, 
showing  a  resilience  of  the  banking  sector  despite  the  economic  environment. 
Compliance with MREL requirements also improved over the period468. 

In this context, the crisis scenarios simulated by the SYMBOL model would apply to a 
population  of  banks,  which  is  essentially  unchanged,  in  particular  not  riskier  and 
displaying a resilience level comparable to the evidence as of end-2019. Since the impact 
of  the  recent  evolution  of  banks’  balance  sheet  did  not  lead  to  major  shift  in  terms  of 
liability  structure  or  general  riskiness,  one  may  assume  that  the  models  used  in  this 
assessment would lead to comparable results even if fed with more recent data. 

These elements provide comfort that the conclusions of the assessment performed on the 
ability to access the resolution fund and the possible use of DGS would not be materially 
affected  by  adding  more  recent  data.  In  fact,  banks’  balance  sheets  have  not  changed 
fundamentally over the recent years and the risks remain contained. 

-  Evolution of DGS available financial means 

Finally,  recent  trends  in  banks’  balance  sheets  would  not  affect  the  robustness  of  the 
safety nets tested in this analysis either, in particular on the ability of DGS to provide the 
necessary  funding.  Data  shows  that  the  DGS  available  financial  means  in  the  EU 
increased by 33.4% between end-2019 and end-2021. As of end-2021, available financial 
means stood at 0.75% of covered deposits, in aggregated terms (0.64% as of end-2019), 

466 EBA risk dashboards 
467 Monitoring reports on risk reduction indicators (Commission, ECB, SRB), May 2021, November 2021 
468 Idem. 

313 

 
 
 
                                                           
remaining high despite the significant  increase of covered deposits  observed during the 
period. However, there are still important differences among Member States and deposit 
guarantee  schemes  (even  within  some  jurisdictions  when  they  have  several  deposit 
guarantee schemes)469.  

Noteworthy, the analysis performed in this annex assumes that target levels are reached 
(the  deadline  foreseen  in  DGSD  is  July  2024).  As  a  result,  the  evolution  of  the  DGS 
available  financial  means  does  not  change  the  assumptions  nor  the  outcome  of  the 
simulations. 

Other considerations 

The  analyses  in  this  annex  are  based  on  the  solo  balance  sheet  data  of  the  entities 
included in the sample. This is to reflect that resolution action such as bail-in of eligible 
liabilities  in  order  to  access  resolution  financing  arrangements  (if  needed)  is  applied  to 
the parent entity, assuming that the resolution group structure holds.  

Statistics in this annex show results covering the entire perimeter of the sample at parent 
entity  level  as  well  as  the  sub-sets  of  banks  with  resolution  and  liquidation  strategies 
reflecting  the  PIA  decisions  as  of  Q4  2019.  Offering  results  for  the  entire  perimeter 
caters for a potential expansion of the PIA to more banks. Still, results displayed in the 
various sections provides for a breakdown per type of resolution strategy. 

In the tables in section 3 of this annex, the figures expressed as percentage of TLOF have 
as  denominator  the  total  TLOF  of  the  banks  where  each  type  of  deposits  would  be 
impacted (non-preferred, preferred, covered deposits), broken down by the perimeter of 
banks concerned (e.g. by size, funding profile, strategy, etc.). 

469 EBA Deposit Guarantee Schemes data 

314 

 
 
 
                                                           
ANNEX 8: IMPACT ASSESSMENT OF TECHNICAL TOPICS THAT 
WERE NOT EXHAUSTIVELY COVERED IN THE MAIN BODY OF THE 
IMPACT ASSESSMENT  

1. 

EXPERIENCES WITH BAILING-IN DEPOSITORS  

The  liability  structure  of  banks  shows  substantial  differences  across  the  European 
banking sector. In this regard, recent experiences demonstrated that bailing-in470 certain 
liabilities  -  such  as  uncovered  deposits  -  could  entail  a  certain  risk  of  depositor  runs 
thereby  putting  the  overall  financial  stability  at  risk.  In  some  instances,  a  bank  run 
occurred  although  a  harmonised  depositor  protection  was  already  in  place471.  In 
particular,  during  and  after  the  global  financial  crisis,  Cyprus,  Greece  and  Iceland 
adopted  several  types  of  administrative  measures  to  stop  financial  instability  and 
contagion.  In  Italy  precautionary  measures  were  required  to  maintain  depositor 
confidence. Conversely, the resolution of a small Danish bank in 2016 apparently did not 
influence depositor confidence although uncovered depositors were bailed-in.  

Non-exhaustive list of observed depositor runs/outflow in the context of bail-in  

The  case  of  Northern  Rock472  in  England  in  2007  represents  one  of  the  emblematic 
examples  of  bank  runs.  Throughout  that  summer,  serious  concerns  emerged  about  the 
viability  of  Northern  Rock’s  business  model  (heavy  reliance  on  wholesale  market 
funding  leading  to  considerable  liquidity  risk),  which  were  compounded  by  the 
developments  in  the  US  sub-prime  mortgage  market.  Both  elements  combined  led 
Northern Rock seeking assistance from the Bank of England in September 2007, which 
sparked a dramatic bank run with GBP 3 bn of deposits withdrawn in the span of three 
days473.  

In 2008 in Iceland, a loss of market access caused three systemic cross-border banks to 
default on their foreign liabilities and led to  a widespread financial distress resulting in 

470 From January 1, 2015, all EU Member States were required to transpose the BRRD into their national 
law. A key element of the new powers is the bail-in tool (as of January 1, 2016), requiring banks to absorb 
losses and recapitalise thanks to own resources. Some Member States had already similar tools available in 
their national laws. 
471 The original DGS Directive of 1994 only required a minimum level of harmonisation between domestic 
deposit  guarantee  schemes  in  the  EU.  It  proved  disruptive  for  financial  stability  and  the  internal  market, 
especially during the financial crisis of 2007-2009. An amending Directive in 2009 required EU countries 
to increase their protection of deposits firstly to a minimum of EUR 50,000, and then to a uniform level of 
EUR 100,000 by the end of 2010. In 2014, the EU adopted Directive 2014/49/EU (DGSD). It requires EU 
countries to introduce laws setting up at least one DGS that all banks must join and to ensure a harmonised 
level of protection for depositors on the basis of protected types of deposits. 
472 Reference research gate (2009), The Northern Rock Crisis: a multi-dimensional problem.   
473 In February 2008, Northern Rock was nationalised. By using emergency legislation to pass the Banking 
(Special Provisions) Act, which enabled HM Treasury to carry out direct transfers of securities, liabilities 
and property. Two years later, the bank was eventually split into two to facilitate its return to the private 
sector and Virgin Money, in 2012, completed their purchase of NR, costing approximately GBP 1 bn (see: 
(PDF) The Northern Rock Crisis: a multi-dimensional problem in previous footnote.  

315 

 
 
                                                           
intense deposits outflows, accompanied by a currency depreciation. The banking crisis in 
Iceland474  was  unprecedented  in  certain  aspects,  as  the  three  banks  Kaupthing, 
Landsbanki and Glitnir (over 80% of the Icelandic financial system) collapsed within a 
few days. The main causes of the collapse were multidimensional475. In September 2008, 
Glitnir Bank was the first amongst the three to request Emergency Liquidity Assistance 
(ELA)  from  the  Central  Bank  of  Iceland  as  it  had  exhausted  its  market  options.  The 
request  was  declined  by  the  Central  Bank  of  Iceland  and  suggestions  about  a  partial 
nationalisation were raised instead. The announcement of the latter caused credit default 
swap  spreads  to  jump,  leading  to  funding  problems  for  several  other  banks.  This  was 
coupled with an important deposit withdrawal by retail depositors that brought the entire 
Icelandic banking system on the brink of collapse by October 2008. As the crisis erupted, 
several  measures  were  taken  in  relation  to  deposits,  starting  with  the  government’s 
announcement  of  a  blanket  guarantee  for  all  domestic  deposits.  The  aim  of  the 
announcement  was  to  stop  the  run  on  the  banks.  It  was  limited  to  covered  deposits  in 
domestic  banks  in  Iceland,  given  the  limited  resources  of  the  Deposit  Guarantee  Fund 
and  the  Ministry  of  Finance’s  inability  to  provide  a  credible  backstop.  Further,  it  was 
required to introduce a depositor preference in the creditor hierarchy via the Emergency 
Act (regardless whether they were collected through domestic or foreign branches). Until 
then,  deposits  were  general  claims  and  were  therefore  more  likely  to  bear  losses.  The 
change  in  the  creditor  hierarchy  was  expected  to  reduce  losses  to  depositors,  both  in 
branches  and  subsidiaries  in  Iceland  and  abroad476.  A  government  bailout  could  not  be 
realised  as  the  State’s  resources  unmatched  the  size  of  the  problem.  Furthermore,  the 
Central Bank of  Iceland was unable to act  as a lender of last resort in  foreign currency 
given that its foreign credit lines and FX reserves could not cope with the banks’ needs. 
Therefore,  each  bank  was  resolved  through  the  transfer  of  domestic  activities  to  a  new 
bank  and  the  economic  and  financial  assistance  of  the  IMF  programme  was  provided 
where capital controls and the restructuring of private debt were introduced. 

In 2013 in Cyprus, depositors suffered losses in two systemic banks (following the bail-
in of retail investors), which undermined the short-term confidence leading to significant 
outflows of deposits, especially from the affected banks. The Cypriot banking sector was 

474  Financial  Stability  Institute  (FSI)  (2020),  FSI  crisis  management  series  No.1,  The  banking  crisis  in 
Iceland.  
475  First,  the  Icelandic  banking  system  grew  at  a  significant  pace  in  the  years  prior  to  the  crisis,  which 
subsequently  led  to  liquidity  and  funding  concerns  as  the  three  banks  increasingly  relied  on  funding 
abroad. Second, there were undetected asset quality issues, where the prudential rules on large exposures 
could often be circumvented, enabling banks to build up important concentration risk. Finally, Iceland was 
particularly  vulnerable  to  the  global  financial  crisis  due  to  its  own  imbalances.  A  high  proportion  of  the 
banks’  assets  and  liabilities  were  denominated  in  foreign  currency  and  larger  banks  were  even 
interconnected through credit links. Reference: FSI crisis management series papers, see link in previous 
footnote. 
476  Several  other  emergency  measures  introduced  were  directed  towards  deposits:  (i)  domestic  branches 
transferred  their  guaranteed  deposits  to  new  banks  and  remained  unaffected  by  the  crisis,  (ii)  payment 
systems  continued  to  be  operational  throughout  the  resolution  process  and  all  bank  branches  remained 
open, (iii) in 2011, a new separated guarantee fund within the deposit guarantee fund was established. The 
resources  in  the  new  fund  are  devoted  to  cover  deposits  in  the  new  Icelandic  banks,  without  the  risk  of 
being  claimed  by  the  depositors  in  the  old  banks.  Besides  other  features  the  0.15%  limit  on  banks’ 
contributions was abolished. Reference: FSI crisis management series papers, the banking crisis in Iceland, 
see link in previous footnote. 

316 

 
                                                           
increasingly  cut  off  from  international  market  funding  and  major  financial  institutions 
recorded substantial capital shortfalls against the backdrop of the exposure to the Greek 
economy  and  deteriorating  loan  quality  in  Cyprus477.  Research  confirms  that  concerns 
about  the  safety  and  soundness  of  the  banking  system  are  very  likely  to  result  in  a 
reallocation of deposit holdings towards cash. As part of the agreement for the Economic 
Adjustment  Program  for  Cyprus  (the  Cypriot  Program),  in  March  2013478,  Cyprus 
implemented  an  estimated  EUR  7  bn  bail-in  solution479  to  recapitalise  the  largest 
systemic  bank  (Bank  of  Cyprus,  BoC).  The  second  largest  bank  (Cyprus  Popular 
Bank, Laiki) was subject to the sale-of-business tool merging it with BoC. For the first 
time in the euro area, unsecured depositors were called upon to recapitalise their banks 
raising  the  risk  of  a  system  wide  run.  As  a  result,  capital  controls  and  certain  other 
administrative  measures  (like  bank  holidays,  limits  on  cash  withdrawals  and  domestic 
transfers) were imposed480. By the time the final agreement on the Cypriot program was 
reached481,  the  two  banks  had  experienced  deposit  outflows  of  about  EUR  10-17  bn. 
Through  the  intense  outflows,  fewer  deposits  remained  available  for  the  bail-in  and 
exacerbated the loop between bank and sovereign balance sheets (including cross-border 
in Greece). To ring-fence exposure of Cyprus to Greek risks482, all Greek-related assets 
(loans and fixed assets) and customer deposits of all Cypriot banks in Greece (including 
of  the  third  largest,  Hellenic  Bank)  were  sold  to  Piraeus  Bank  at  a  net  asset  value 
estimated using an adverse valuation scenario (around EUR 3.2 bn)483. 

477  European  Commission  (2013),  The  economic  adjustment  programme  for  Cyprus,  Occasional  Papers, 
149. 
478  In  March  2013,  the  Eurogroup  reached  a  political  agreement  with  the  Cypriot  authorities  on  the  key 
elements  necessary  for  a  future  macroeconomic  adjustment  programme.  The  European  Commission,  the 
European Central Bank (ECB) and the International Monetary Fund (IMF) agreed an economic adjustment 
programme with the Cypriot authorities on 2 April 2013. The programme covered the period 2013-16 and 
the  financial  package  covered  up  to  EUR  10  bn  with  the  ESM  providing  up  to  EUR  9  bn,  and  the  IMF 
contributing around EUR 1 bn. 
479 World Bank Group, Bank resolution and “bail-in” in the EU: selected case studies pre and post BRRD. 
On March 22 2013, the Parliament urgently approved a new law enabling the Central Bank of Cyprus to 
resolve  insolvent  institutions  (Cyprus  Resolution  Law  (2013)).  A  new  bail-out  plan  was  announced  on 
March 25 2013, which did not require further parliamentary approval. The new bank resolution law now 
provided  a  legal  basis  to  implement  change:  Laiki  was  resolved  immediately  with  full  contribution  from 
shareholders,  bondholders  and  uninsured  depositors.  Selected  Laiki  assets  and  EUR  9  bn  of  ELA  were 
folded  into  the  BoC  with  uninsured  depositors  converted  to  shareholders  (at  a  rate  determined  after  a 
detailed asset valuation by the summer of 2013 but expected at the time to be between 40-50%). 
480 IMF publication (2020), Managing systemic bank crises, new lessons and lessons relearned.  
481 The Cypriot authorities requested financial assistance from the EU and the IMF on 25 June 2012, while 
a  political  agreement  on  the  key  elements  necessary  for  the  Cypriot  program  was  reached  between  the 
Eurogroup and the Cypriot authorities on 16 March 2013.  
482  European  Commission  (2013),  The  economic  adjustment  programme  for  Cyprus,  Occasional  Papers, 
149.  Concerning  their  Greek  exposure,  Cypriot  banks  were  vulnerable  on  two  fronts.  First,  they 
considerably  expanded  their  loan  operations  in  Greece  from  2005  onwards.  The  second  channel  of 
exposure  consisted  of  investments  in  Greek  government  bonds.  With  respect  to  loan  quality  in  Cyprus, 
impaired  credits  for  real  estate  projects  in  particular  were  behind  the  deterioration  linked  to  the  high 
indebtedness  of  the  private  sector  and  the  worsening  macroeconomic  environment.  As  a  consequence, 
confidence in the banking sector waned and liquidity pressures mounted.  
483 World Bank, Bank resolution and “bail-in” in the EU: selected case studies pre and post BRRD.  

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In  2018,  Cyprus  Cooperative  Bank  (CCB)  –  by  then  the  second  largest  credit 
institution  in  Cyprus  –  witnessed  intense  liquidity  outflows484  as  press  rumours  spread 
suggesting  a  possible  depositor  haircut485,  which  echoed  the  2013  events  and  led  to  a 
depletion of EUR 3 bn (with EUR 300 m in a few days only) out of around EUR 11 bn of 
deposits486. The bank was entirely funded through deposits and it did not have any senior 
or subordinated debt.  In  2018, the bank was split into a good and a bad bank, with  the 
operating bank network sold to Hellenic Bank487. As the restructuring of CCB started on 
the basis of the national resolution law before the EU rules entered into force (namely the 
BRRD/SRMR), the process remained governed by Cypriot national law and managed by 
national authorities (see also Annex 9)488. 

The bail-in of depositors in Cyprus triggered certain cross-border spill-overs effects. For 
instance,  in  Romania  the  branch  of  BoC  experienced  intense  liquidity  outflows 
following  the  resolution  measures  implemented  by  the  Cypriot  authorities,  which 
included,  as  aforementioned,  a  bail-in  depositors  of  BoC  and  Laiki.  Indeed,  initially,  it 
was  envisaged  to  also  bail-in  the  depositors  of  that  branch,  but  the  plan  could  not  be 
implemented.  The  branch  ran  out  of  liquidity  and  eligible  collateral  for  the  refinancing 
operations with the Romanian National Bank which led to the temporary closure of the 
branch.  The  Romanian  authorities  tried  to  avoid  any  negative  financial  stability  impact 
and  hence,  to  bail-in  depositors.  After  almost  four  weeks  of  closure  and  intense 
cooperation  between  the  Romanian  and  Cypriot  bank  supervisors,  the  branch  was 
successfully  integrated  into  Marfin  Bank,  the  Romanian  subsidiary  of  Laiki  Bank.  The 
transfer concerned all local deposits, cash, liquid assets and a sufficient amount of loans. 
This  solution  satisfied  all  involved  parties  and  proved  to  be  a  good  example  of  cross 
border home-host supervisory cooperation in a crisis situation. Albeit, the percentage of 
total assets of Cypriot banks, in the Romanian banking sector were rather low, there was 
also  a  risk  of  contagion  to  the  Greek  banks.  The  Romanian  subsidiaries  of  the  Greek 
banks  were  confronted  with  deposit  outflows  since  the  start  of  the  Greek  crisis  and 
although their situation stabilised in the second half of 2012, their deposit base remained 
highly sensitive to any adverse developments in the euro area.  

In Greece, successive rounds of deposit outflows took place throughout the period 2010-
2012 due to a collapse in depositor confidence, caused by economic and political turmoil, 
coupled  with  speculations  about  a  disorderly  default,  an  exit  from  the  Eurozone  and  a 
forcible  currency  redenomination. Overall, during the period mid-January  2010 to  June 

484 According to the press (2009), Cyprus co-operative bank. 
485 European Commission (2018), Post-Programme Surveillance Report- Spring 2018, institutional papers, 
p.83. This coincided with the final steps in the restructuring process of the CCB, which was initiated by the 
Cypriot authorities in February 2014 and modified in December 2015. Contrary to initial expectations, the 
CCB was unable to return to viability: it failed to recover much money from its very significant portfolio of 
non-performing loans (NPLs), partly because of the CCB’s own governance failures and partly because of 
obstacles created by the Cypriot legal framework to work out NPLs. 
486 According to the press (2009), Cyprus co-operative bank. 
487  According  to  the  press,  the  operating  bank  network  sold  to  Hellenic  Bank:  EUR  9.7  bn  in  deposits, 
performing loans of EUR 4 bn, Cyprus government bonds of EUR 4bn and EUR 1bn in cash. Most of the 
non-performing  assets  (EUR  8.3  bn)  were  handed  over  to  Kedipes  (the  Cyprus  Asset  Management 
Company).  
488 European Commission (2018), State Aid SA.35334 (2018/N-2); OJ C 406, 9.11.2018, p. 1–12.  

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2012,  private  sector  deposits  plummeted  by  37%,  as  Greek  households  and  businesses 
withdrew  domestic  deposits  of  roughly  EUR  87  bn.  Deposits  stabilised  only  after  the 
parliamentary  elections  of  June  2012  as  the  new  coalition  government  declared  its 
intention  to  implement  the  terms  of  the  economic  adjustment  programme  agreement. 
However,  the  January  2015  elections  triggered  a  new  wave  of  “Grexit”  fears  and  a 
deposit  run.  The  liquidity  pressures  created  by  the  deposit  flight  amplified,  as  during 
December  2014  to  June  2015,  households  and  businesses  withdrew  EUR  43  bn  from 
banks (nearly a quarter  of the total  deposits).  In February 2015, the ECB withdrew the 
waiver  on  eligibility  of  Greek  government  bonds  as  acceptable  collateral  for  the 
Eurosystem  refinancing  operations  leading  to  the  reliance  of  Greek  banks  on  the  more 
costly  ELA  mechanism.  Nevertheless,  again  banks  runs  were  triggered  when  the  ECB 
Governing Council decided on 28 June 2015 not to increase the amount of ELA available 
to  Greek  banks  because  of  the  uncertainty  created  by  the  Greek  government’s  surprise 
decision  to  call  a  snap  referendum.  As  almost  all  banks  ran  out  of  cash,  the  Greek 
government imposed sweeping capital controls on 28 June 2015 and introduced a bank 
holiday  period  to  stem  deposit  outflows.  On  18  July  2015,  a  new  legislative  act  was 
passed,  with  which  the  bank  holiday  period  ended  and  banks  re-opened.  However, 
certain restrictions on cash withdrawals and transfers of funds remained. Capital controls 
were  gradually  relaxed  in  line  with  a  conditions-based  roadmap,  but  were  fully  lifted 
only on 1 September 2019. 

In November 2015 in Italy, the resolution of four small banks489 (combined market share 
of around only 1%), raised concerns how to maintain depositor confidence. The bank of 
Italy490  put  the  four  banks  under  special  administration  with  the  aim  to  apply  the  just 
transposed resolution tools introduced by the BRRD. However, the bail-in tool was only 
available as of 1 January 2016. Four temporary bridge banks were set up that took over 
the respective banks’ good assets and liabilities, while preserving their regular business 
and employment. In line with the applicable State aid rules491, part of the losses incurred 
were  borne  by  the  banks’  shareholders  and  subordinated  bondholders  (including  retail 
investors)492.  Since  some  of  the  bailed-in  retail  investors  were  also  depositors,  it  was 
required to limit the risk of deposit outflows and to stabilise the deposit base of the newly 
created  bridge  banks.  Therefore,  on  22  November  2015,  Italy  decided  to  set  up  a 
solidarity  fund  to  compensate  losses  and  restore  investor  confidence493.  The  solidarity 
fund  was  endowed  with  EUR 100 m  funded  by  contributions  of  Italian  banks  and 
managed  by  the  Italian  Deposit  Guarantee  Fund  (FITD)494.  In  addition,  an  arbitration 
mechanism  was  set  up  to  deal  with  the  damages  claimed  by  retail  subordinated 

489  Banca  delle  Marche,  Banca  Popolare  dell’Etruria  e  del  Lazio,  Cassa  di  Risparmio  della  Provincia  di 
Chieti, Cassa di Risparmio di Ferrara. 
490 Bank of Italy (2015), Information on resolution. 
491  European  Commission  (2016),  Commission  decision  of  29.04.2016  on  the  State  Aid  SA.39543 
(2015/N), SA.41134 (2015/N), SA.41925 (2015/N), SA.43547 (2015/N) implemented by Italy Amendment to 
the resolution of Banca Marche, Banca Etruria, Carife and Carichieti.  
492 According to the press (2015), Who paid for saving the four Italian banks. 
493 Bank of Italy (2016), Speech by the Governor of the Bank of Italy Ignazio Visco.  
494  Italian  Deposit  Guarantee  Fund  (FITD),  Solidarity  Fund  and  Official  Journal  of  the  Italian  Republic 
(2016), Law Decree 59, 3 May 2016.  

319 

 
                                                           
bondholders  from  banks  that  may  have  violated  rules  on  consumer  protection  in 
investment services. 

In 2016, the Danish case of Andelskassen JAK Slagelse495 was one of the first BRRD 
bail-in  cases including the write-down of unsecured depositors and contributions  of the 
DGS,  while  ensuring  uninterrupted  access  to  the  bank’s  deposits  and  critical  functions 
and hence without observed loss of depositor confidence. 

Recently,  cases  in  Spain  demonstrated  that  political  events  have  the  potential  to  cause 
bank runs. In particular, the cases of CaixaBank and Banco Sabadell have underlined the 
occasional  political  nature  of  bank  runs.  The  Catalan  crisis  significantly  impacted  the 
financial  sector  in  the  area,  with  clients  boycotting  the  independence  movement  and 
removing their savings from Catalan banks. It further prompted a general fear that, in the 
event of independence, clients would not be able to access their savings and that banks 
would not have access to the ECB refinancing operations. According to the information 
provided by both entities496, Caixabank experienced an outflow of EUR 7 bn of deposits 
and Sabadell of EUR 4.6 bn. Overall, more than 1300 companies – including CaixaBank 
and  Banco  Sabadell  –  decided  to  transfer  their  legal  headquarters  out  of  Catalonia  as 
result of the ongoing uncertainty. 

2. 

DEPOSITOR RANKING IN THE HIERARCHY OF CLAIMS 

Existing CMDI framework 

In terms of terminology, the existing framework distinguishes among four main types of 
deposits:  

(1) covered deposits (eligible deposits497 whose amounts are protected by DGS funds 

up to the coverage level set out by the DGSD (EUR 100 000)),  

(2) non-covered preferred deposits (eligible deposits from natural persons and SMEs 

exceeding the DGSD coverage level),  

(3) non-covered  non-preferred  deposits  (large  corporate  deposits  (non-SME) 

exceeding the DGSD coverage level), and  

(4) non-eligible  deposits  excluded  from  repayment  by  the  DGS  pursuant  to  Article 
5(1) DGSD, which currently include deposits held by public authorities, financial 
sector entities and pension funds. In the hierarchy of claims, non-eligible deposits 
rank the same as non-preferred non-covered deposits.  

Under  the  existing  CMDI  framework,  Article  108(1)  BRRD  creates  a  three-tier 
depositor  preference  in  the  hierarchy  of  claims.  It  provides  that  covered  deposits  and 
the  claims  of  DGSs  in  insolvency  (subrogating  to  the  right  and  obligations  of  covered 
deposits following a payout) must rank above non-covered preferred deposits ((deposits 

495 Finansiel Stabilitet Group, a public limited company owned by the Danish State through the Ministry of 
Business  and  Growth  (2016),  Annual  Report  2016.  The  lack  of  effective  corporate  governance  coupled 
with  prior  careless  lending  led  to  numerous  Danish  banks,  notably  small  and  medium-sized  financial 
institutions,  to  significant  distress.  By  December  2016,  the  portfolio  of  financial  assets  of  Andelskassen 
amounted to DKK 275 mn in comparison to DKK 1.3 bn in 2015.  
496 According to the press (2020), El Pais article.  
497 An ‘eligible deposit’ is a deposit that is eligible to be protected by a DGS. 

320 

 
                                                           
by  natural  persons  and  SMEs  exceeding  EUR  100  000).  In  turn,  the  latter  must  rank 
above the claims of ordinary unsecured creditors (senior debt). Therefore, the DGS has 
the  same  ranking  as  covered  deposits,  which  is  preferred  relative  to  all  other  types  of 
non-covered deposits. 

There are, however, two types of deposits whose ranking is not contemplated in Article 
108(1) BRRD: the non-covered non preferred deposits (e.g. corporate non-SME deposits 
exceeding  the  coverage  level  of  EUR  100  000)  and  the  non-eligible  deposits  excluded 
from repayment by the DGS. While Article 108(1) BRRD does not allow these deposits 
to  rank  alongside  the  preferred  deposits  mentioned  therein,  thus  setting  out  a  three-tier 
approach to the ranking of deposits, the directive is otherwise silent on what level of the 
insolvency  creditor hierarchy they should be placed, leaving that  choice to the national 
legislator.  In  most  Member  States,  the  deposits  not  covered  by  Article  108(1)  BRRD 
rank  in  insolvency  alongside  ordinary  unsecured  claims,  including  senior  debt 
instruments  eligible  for  MREL  (section  A  of  below  figure),  while  in  a  minority  of 
Member States, they already rank above ordinary unsecured claims (section B of below 
figure).  

Figure  28:  Stylised  view  of  the  three-tier  depositor  preference  in  the  current  creditor 
hierarchies in insolvency laws (baseline) 

Source: Commission services 

Nevertheless,  in  recent  years,  an  increasing  number  of  Member  States  have  granted  a 
legal  preference  in  insolvency  to  those  deposits  under  their  national  laws498.  In 
compliance  with  the  three-tier  approach  required  by  Article  108(1),  in  those  Member 
States,  the  deposits  of  large  corporates  and  the  excluded  deposits  rank  below  covered 

498 Other Member States may be considering similar amendments in their national insolvency legislation. 

321 

 
 
                                                           
deposits,  DGS  claims  and  eligible  deposits  of  natural  persons  and  SMEs,  but  above 
ordinary unsecured claims.  

Table 32: Forms of depositor preference in the EU under the existing hierarchies of 
claims 

Form of depositor preference 
Depositor preference compared to senior unsecured 
claims, under a three-tier approach 
No depositor preference, where non-preferred non-
covered deposits rank pari passu with other senior 
unsecured claims 
Source: Commission services 

Member States 
8 Member States (BG, CY, EL, 
HR, HU, IT, PT, SI)  
19 Member States (AT, BE, CZ, 
DE, DK, EE, ES, FI, FR, IE, LV, 
LT, LU, MT, NL, PL, RO, SE, SK) 

These relevant differences in the creditor hierarchy in insolvency among Member States 
lead  to  a  divergent  treatment  of  deposits  across  the  EU  and  pose  complications  when 
calculating  the  relevant  insolvency  counterfactual  for  the  purposes  of  the  NCWO 
assessment and the least cost test. 

The impact of DGS ranking in the hierarchy of claims on the least cost test (LCT) 

The  super-preference  of  the  DGS  in  the  current  framework,  i.e.  the  fact  that  it  ranks 
above other deposits, and its impact on the least cost test (LCT), is the main reason why 
the DGS funds can almost never be used outside a payout  event of covered deposits in 
insolvency.  

The  objective  of  the  LCT  safeguard  is  to  ensure  that  any  DGS  intervention  other  than 
paying out of covered deposits would not expose the DGS to losses greater than the ones 
it  would  incur  in  a  payout  of  covered  depositors  in  an  insolvency  counterfactual.  The 
DGS can only provide an amount up to the losses it would bear in case of a hypothetical 
payout  in  insolvency.  These  losses  are  given  by  the  difference  between  the  amount 
disbursed by the DGS in case of a payout and the proceeds the DGS would recover from 
the liquidation/sale of the bank’s assets in insolvency. Given the super-preferred ranking 
of  the  DGS  in  the  hierarchy  of  claims,  the  DGS  has  the  hypothetical  possibility  to 
recover  most  or  all  of  its  expenditure  in  insolvency.  Importantly,  with  such  a  super-
preference, the DGS would benefit from these recovered amounts before other creditors, 
including eligible uncovered depositors (preferred and non-preferred). However, in some 
Member  States,  the  recovery  rate  can  be  low,  mostly  depending  on  the  efficiency  and 
performance of judicial systems, the quality of assets to be liquidated, the time required 
to conduct the insolvency proceedings and other factors499.  

Under  the  existing  framework,  the  DGS  can  almost  never  be  used  for  measures  other 
than  the  payout  of  covered  deposits  in  insolvency,  such  as  use  in  resolution  provided 
under Article 109 BRRD. The high ranking of the DGS and consequently high likelihood 
to  get  its  claims  paid  from  the  insolvency  estate,  before  other  creditors,  make  the 
counterfactual  of  a  payout  in  insolvency  appear  artificially  less  costly,  despite  the  fact 
that  a  DGS  contribution  to  resolution  or  an  alternative  measure  could  be  more  cost 
efficient (involve a lower need for cash disbursement from the DGS to support a sale of 

499 Given the heterogeneity in recovery rates, Annex 7, which is based on the EBA’s reply to the call for 
advice,  takes  a  conservative  assumption  for  an  85%  recovery  rate.  It  also  shows  how  a  higher  or  lower 
recovery rate would impact the LCT.  

322 

 
                                                           
business  strategy,  compared  to  a  full  payout  of  all  covered  deposits),  better  preserve 
depositors’  confidence  and  facilitate  a  more  efficient  crisis  management.  On  one  hand, 
paying out covered deposits in insolvency is likely to require a  very significant upfront 
cash disbursement by the DGS (especially in cases of predominantly deposit-funded mid-
sized banks  with  significant  amounts of covered  deposits) (see reference  to  ECB paper 
below).  On  the  other  hand,  an  intervention  in  resolution  to  support  the  transfer  of  a 
failing  bank  to  a  buyer  may  require  only  a  portion  of  those  DGS  financial  means. 
Transfer  transactions  can  unfold  in  many  ways,  depending  on  the  quality  of  assets  and 
the funding/liabilities to match these, as well as the appetite of the buyer and the offered 
price. Considering the likely need to plug a gap between the value of assets and deposits 
to  be  transferred  to  a  buyer,  the  DGS/resolution  fund  contribution  to  support  such 
transfer may be much lower than the total value of covered deposits that would need to 
be  paid  out  in  insolvency.  Under  the  current  set-up,  the  DGS  super-priority  ends  up 
protecting  the  financial  means  of  the  DGS  and  of  the  banking  industry  from  possible 
replenishment  burden  by  hindering  any  DGS  intervention,  without  bringing  a  better 
protection for covered deposits. The protection of covered deposits does not depend on 
their ranking in the hierarchy of claims; rather, it is insured through the obligation to be 
paid  out  under  the  DGSD  when  accounts  become  unavailable  and  the  mandatory 
exclusion from bearing any losses in resolution.  

To overcome these limitations, certain Member States include indirect costs in the LCT 
in  order  to  facilitate  the  use  of  DGS  and  counteract  at  least  to  some  extent  the  super-
preference  of  the  DGS.  Other  Member  States  are  concerned  about  including  indirect 
costs as some of them may be difficult to quantify and have the potential to weaken the 
LCT safeguard.  

Regarding  the  argument  of  cost-efficiency  associated  with  the  use  of  DGS  funds  in 
resolution  or  alternative  measures  versus  the  cost  of  a  payout  of  covered  deposits  in 
insolvency,  an  ECB  paper  on  DGS  alternative  measures500  shows  that  261  banks, 
banking  groups  or  hosted  subsidiaries  in  the  Banking  Union  could  individually  deplete 
their fully-filled DGSs with a single payout of covered deposits in insolvency. While 129 
of  these  banks  are  significant  institutions  likely  to  involve  resolution  rather  than  a 
depositor payout in insolvency, the remaining 132 are less significant institutions, which 
also have covered deposits exceeding the target level of their DGSs and are spread across 
all Banking Union Member States. We can conclude for this reason that, it is appropriate 
to  allow  for  cheaper,  more  cost-efficient  alternative  uses  of  the  DGS  in  resolution,  to 
support a transfer of assets and liabilities (deposits) followed by market exit.  

Relevant policy options analysed in the context of the CMDI reform 

Withdrawing  the  super-preference  of  the  DGS  and  envisaging  a  more  harmonised 
depositor preference when compared to the current situation is instrumental in providing 
adequate funding in resolution and making resolution effective for smaller and medium-
sized banks that would involve the transfer of the business and market exit of the failed 
bank.  The  main  reasoning  behind  this  proposal  relies  on  the  notion  that  the  super-
preference  of  covered  deposits  and  DGS  claims  subrogating  to  covered  deposits  in  the 

500ECB (October 2022) Protecting depositors and saving money  - why DGS in the EU should be able to 
support transfers of assets and liabilities when a bank fails. 

323 

 
                                                           
current framework significantly reduces the likelihood that a DGS would be exposed to 
losses  in  a  hypothetical  insolvency  considered  as  the  counterfactual  for  DGS 
interventions  other than  payout.  As  a result, the  capacity of  a DGS to  contribute to  the 
alternative measures or in resolution is limited or null. 

Two changes to the BRRD rules on the ranking of deposits are key across all the option 
packages  considered  in  Chapter  6  of  this  impact  assessment  (except  the  baseline),  to 
make  the  framework  function  in  practice  and  make  the  access  to  funding  in  resolution 
truly credible.  

First, the legal preference at EU level would be extended to include all deposits (general 
depositor  preference).  This  entails  that  all  deposits,  including  eligible  deposits  of  large 
corporates and excluded deposits501, would rank above senior unsecured claims.  

Second, the different rankings of deposits (i.e. the three-tier approach) would be removed 
and replaced either with a two-tier depositor preference (option 2), whereby covered and 
preferred deposits rank pari passu and above non-preferred non-covered deposits or with 
a single ranking (options 3 and 4), whereby all deposits rank at the same level amongst 
themselves (single-tier depositor preference). The EBA’s reply to the call for advice and 
Annex  7  further  describe  the  different  depositor  preference  scenarios  assessed  (five 
scenarios)502,  varying  in  scope  and  relative  ranking  among  deposits  and  concluded  that 
only those without the super-preference of the DGS are worth considering for the CMDI 
review  (see  also  Box  3  in  Chapter  6).  They  also  describe  the  reasons  why  the  general 
depositor  preference  with  a  single-tier  ranking  best  addresses  the  objective  of  the 
framework,  largely  because  it:  (i)  protects  deposits  by  reducing  the  amount  of  deposits 
that would be otherwise bailed-in to reach 8% TLOF and access the RF/SRF and (ii) it 
unlocks  the  largest  amounts  of  funds  that  the  DGS  could  contribute  to  measures  other 
than  payout  under  the  least  cost  test,  which  is  critical  for  facilitating  the  use  of  DGS 
funds as proposed by the packages of options.  

501 As mentioned, under the policy option described in Annex 6, the deposits of public authorities would 
no longer be deemed as excluded deposits. 
502  The  five  possible  scenarios  of  harmonising  the  depositor  preference  in  the  hierarchy  of  claims  have 
been  tested  by  the  EBA  in  its  reply  to  the  call  for  advice:  (i)  baseline  or  current  framework  (three-tier 
depositor  preference  with  super-preference  for  DGS  and  covered  deposits);  (ii)  single-tier  depositor 
preference (all types of deposits rank pari passu among themselves and above ordinary unsecured claims); 
(iii)a three-tier depositor preference (covered deposits rank above preferred deposits in all Member States, 
which  rank  above  non-preferred  deposits,  the  latter  also  ranking  above  ordinary  unsecured  claims);  (iv) 
two-tier depositor preference (covered deposits and DGS are super-preferred to preferred deposits, which 
rank  pari passu  with non-preferred deposits, the latter ranking above ordinary  unsecured claims) and (v) 
two-tier depositor preference (covered deposits rank pari passu with preferred deposits, all of which rank 
above non-preferred deposits, the latter ranking above ordinary unsecured claims). 

324 

 
 
 
                                                           
Figure 29: Stylised view of creditor hierarchy in insolvency with a single-tier and two-
tier depositor preference without super-preference of DGS/covered deposits: 

Source: Commission services 

Impacts of generalising depositor preference versus ordinary unsecured claims 

Granting a stronger preference to all deposits503, compared to ordinary unsecured claims, 
would be beneficial for their protection in resolution and be  equally warranted from an 
insolvency  policy  perspective.  It  would  facilitate  the  bail-in  of  ordinary  unsecured 
claims,  which  could  contribute  to  market  discipline  and  potentially  decrease  the 
likelihood of inflicting losses on deposits. By preferring all deposits versus the ordinary 
unsecured category of claims, the repayment that the remaining senior creditors would be 
expected  to  receive  in  insolvency  decreases,  which  in  turn  would  mitigate  the  NCWO 
risks  arising  from  their  bail-in.  This  would  significantly  contribute  to  enhancing  the 
credibility  and  implementation  of  the  bail-in  tool  in  resolution,  as  the  bail-in  of  senior 
debt becomes more effective and credible. By mitigating the NCWO impediments to the 
bail-in  of  senior  debt,  the  general  depositor  preference  leads  to  an  increase  in  the  total 
amount  of  claims,  other  than  deposits,  that  can  contribute  to  loss  absorption  and 
recapitalisation  of  the  institution  under  resolution.  The  consequences  of  a  cleaner 
category of ordinary unsecured claims on the resolvability of institutions are twofold: the 
ability  to  comply  with  minimum  bail-in  of  8%  TLOF  rule  to  access  the  RF/SRF 
increases504, and the need for contributions from the RF/SRF (or the amount of funding 
needed from the RF/SRF) decreases. At the same time, such a change would improve the 
transparency  and  legal  certainty  of  the  resolution  framework.  It  moreover  results  in  an 
alignment with past experiences of handling banks’ failures, where State aid was granted 

503  In  the  US,  the  hierarchy  of  claims  also  foresees  a  general  depositor  preference  where  all  deposits, 
whether insured or not, rank pari passu. This facilitates the contributions of the deposit insurance fund to 
resolution action.  
504 As shown in Annex 7. 

325 

 
 
                                                           
inter alia with the aim of protecting depositors and where the use of those public funds 
did not require the burden sharing of any depositor505. 

A  move  towards  general  preference  for  all  depositors  would  also  be  beneficial  from  a 
cross-border and level playing field perspective. A more harmonised insolvency ranking 
across the EU would facilitate the resolution of cross-border groups, in particular when 
carrying out the NCWO assessment. Disparities in the treatment of depositors across the 
EU can be problematic, particularly where they lead to the perception that depositors that 
rank pari passu with unsecured creditors are more likely to be bailed-in. 

At the same time, the granting of a stronger preference to all deposits would be equally 
warranted from an insolvency policy perspective. An enhanced protection is aligned with 
the central role deposits play in the real economy, being the primary tool for savings and 
for payments, as well as in the banking activity, where they represent an important source 
of funding and are the  main pillar for the confidence that supports the banking system, 
which becomes of particular relevance in times of market stress.  

Impacts of a single-tier depositor preference without super-preference of DGS 

As shown in the EBA call for advice and Annex 7 section 4, placing all deposits in the 
same ranking in insolvency increases significantly the likelihood of a DGS being able to 
participate in resolution under the LCT, or to fund alternative measures in insolvency, as 
well as the amount of funds it can provide. 

It should be highlighted that such a change would not translate into a worse treatment for 
covered deposits as, in reality, their protection comes from the payout by the DGS up to 
the  EUR  100  000  level  and  not  from  their  preferred  ranking  in  insolvency  (covered 
deposits are paid within seven days from the moment their accounts become unavailable 
and they never rely on their ranking in the hierarchy of claims to receive  proceeds from 
the insolvency estate). Their mandatory exclusion from bail-in is likewise not affected in 
the options envisaged in this impact assessment. The single-tier ranking would have the 
merit  of  ensuring  that  the  banking  industry  does  not  receive  better  protection  in 
insolvency than depositors, even non-covered ones. Replacing the super-priority of DGS 
claims  with  a  single-tier  ranking  for  all  deposits  would  enable  the  use  of  DGS  funds 
under the LCT in resolution to resolve smaller and mid-sized banks via transfer strategies 
with market exit, without imposing losses on depositors. Such reform would contribute to 
reinforcing  depositor  confidence  and  safeguarding  financial  stability  by  preventing  the 
risk of bank runs.  

The  general  depositor  preference  with  a  single-tier  ranking  would  best  address  the 
objective of the revised framework, because it would: (i) protect deposits in resolution by 
reducing the amount that would be otherwise bailed-in506 to reach 8% TLOF and allow 
access  to  the  RF/SRF;  (ii)  maintain  intact  the  protection  enjoyed  by  covered  deposits 
which does not depend on their ranking and (iii) unlock the largest amounts of funds that 
the  DGS  could  contribute  to  measures  other  than  the  payout  of  covered  deposits  under 

505 Paragraph 42 of the 2013 Banking Communication explicitly sets out that contribution from deposits is 
not required as a mandatory component of burden sharing under State aid rules.  
506 For non-covered deposits because covered deposits are already excluded from bail-in. 

326 

 
                                                           
the least cost test, which is critical for facilitating more cost-efficient interventions by the 
DGS.  

While it may expose the DGS industry-funded safety nets to more frequent contributions 
by the banks, it would reduce the likelihood and extent of recourse to taxpayer money, 
improve financial stability and depositor protection and safeguard the financial means of 
the  DGS  to  a  greater  extent  than  a  payout  of  covered  deposits  in  insolvency.  This  is 
especially important for cases of a more systemic nature, i.e. going beyond the failure of 
a single institution. Under the current set-up there is a much higher risk that in a systemic 
crisis a single failure could deplete the available means of a DGS through the payout of 
covered deposits, and it would not be possible to replenish it in good time before it needs 
to  payout  again  in  a  subsequent  bank  failure.  This,  in  turn,  increases  the  risk  of  the 
sovereign  having  to  step  in  and  provide  necessary  funds  to  the  DGS  to  preserve  its 
payout function. Our proposed changes would allow the DGS to act in a cheaper, more 
cost-efficient  way  in  resolution,  thereby  better  preserving  its  financial  means  and 
liquidity position and possibly allowing it to be used in more than one case during a crisis 
of more systemic nature. 

Impact of a two-tier depositor preference without super-preference for DGS 

The  implementation  of  a  two-tier  depositor  preference  without  the  super-preference  of 
DGS  and  covered  deposits  would  entail  that  covered  and  preferred  deposits  rank  pari 
passu and above non-preferred non-covered deposits.  

The removal of the DGS super-preference would increase to a relative extent, compared 
to  the baseline, the amount  of funds the DGS could  contribute for measures other than 
payout under the LCT. However, because the DGS would still be a preferred creditor in 
relation  to  non-covered  non-preferred  deposits,  the  increase  in  DGS  funds  unlocked 
under  the  least  cost  test  for  these  measures  would  be  significantly  lower  than  under  a 
single-tier depositor preference where all deposits would rank pari passu in the hierarchy 
of claims (see  Box 3 in  Chapter 6).  Based on the sample analysed in  Annex 7, section 
4.1.3,  the  funding  unlocked  through  the  least  cost  test  under  a  single-tier  depositor 
preference would be 20 times higher than under the current framework, while it would be 
five  times  higher  than  under  a  two-tier  depositor  preference.  Such  a  change  in  the 
hierarchy  of  claims  would  not  deliver  on  all  objectives  of  the  CMDI  reform,  which 
would  remain  very  close  to  the  status  quo  (alternative  measures  including  bail-outs 
would continue to be used for small and mid-sized banks). 

Stakeholder views 

In  what  concerns  the  general  depositor  preference,  consultations  with  stakeholders 
revealed that the bail-in of any deposits is deemed to carry a significant contagion risk to 
the financial system and to entail political sensitivities (see also point 1 of Annex 8), so 
much  so  that,  despite  only  covered  deposits  being  in  the  list  of  mandatory  exclusions 
from  bail-in  in  Article  44(2)  BRRD,  resolution  authorities  generally  expect  to  have  to 
exclude  other  deposits  on  a  discretionary  basis  from  bearing  losses  in  resolution  under 
Article  44(3)  BRRD.  When  some  of  those  deposits  rank  pari  passu  with  senior  bail-
inable liabilities, their exclusion has the potential to create NCWO problems, particularly 
considering that they tend to represent a significant percentage of the total senior class.  

327 

 
The  stakeholders  against  the  general  depositor  preference  mostly  said  that  there  was  a 
lack  of  rationale  for  differentiating  the  treatment  of  non-covered  deposits  from  large 
corporates  and  from  financial  institutions  from  the  treatment  given  to  other  types  of 
senior claims, particularly for those instruments which are legally considered deposits but 
are  very  similar  to  bonds  or  other  securities.  It  should  be  noted,  however,  that  this 
differentiation  already  exists  in  the  current  framework,  considering  that  deposits  from 
large enterprises are covered by the protection granted by a DGS. It was also argued that 
such  a  change  could  have  an  impact  on  the  funding  costs  of  institutions,  although  it 
should  be  kept  in  mind  that  a  more  favourable  ranking  of  these  deposit  claims  under 
normal  insolvency  proceedings  would  become  a  more  accurate  indicator  of  their 
associated  risk  of  losses  in  resolution  and,  therefore,  could  lead  to  a  more  accurate 
pricing,  thus  offsetting  increases  in  the  cost  of  funding  of  senior  debt.  Similarly,  the 
pricing of senior debt would also become more indicative of the associated risk of losses 
in  resolution,  which  would  increase  transparency  and  legal  certainty  for  creditors.  The 
alleged  marginally  higher  issuance  costs  for  ordinary  unsecured  debt  (and  by  extent  to 
marginally  higher  funding  costs  for  banks)  raised  by  some  banks  is  not  supported  by 
empirical  evidence507.  Moreover,  any  potential  marginal  cost  impact  must  be  weighed 
against the added benefits that depositor preference brings in terms of enforcing market 
discipline  on  financial  investors  to  monitor  banks’  risks  more  closely,  once  their 
expectation that they will be bailed-in (instead of being bailed-out under a less effective 
CMDI framework) becomes more credible. 

Finally,  some  stakeholders  claims  that  general  depositor  preference  would  leave 
resolution  authorities  without  flexibility  in  determining  the  scope  of  the  bail-in  tool.  In 
this respect, it is important to note that it is not  being proposed to mandatorily exclude 
non-covered deposits from bail-in, which means that resolution authorities still maintain 
the  possibility  to  impose  losses  on  those  deposits  if  and  when  deemed  necessary  and 
appropriate.  

Regarding views on the single-tier depositor preference, some stakeholders (including 
a  few  Member  States  and  banks)  argue  that  preserving  a  super-priority  for  DGS  in  the 
hierarchy  of  claims  is  instrumental  in  ensuring  the  recovery  of  funds  used  to  payout 
covered deposits in insolvency, even if the creditor payout in insolvency can take many 
years  (depending  on  the  judicial  system  in  each  Member  State  and  the  approach  to 
liquidate assets508). These stakeholders claim that a single-tier depositor preference in the 
creditor  hierarchy  would  increase  the  costs  and  liquidity  needs  of  the  DGS  and  would 
deviate from the minimisation moral hazard and from the guiding resolution principle of 
ensuring  that  losses  are  borne  by  shareholders  and  creditors.  Other  Member  States  are 
fully  supportive  of  removing  the  super-preference  of  the  DGS  from  the  hierarchy  of 

507  See  for  example,  the  IMF  Working  Paper  13/172  (July  2013),  Bank  Resolution  Costs,  Depositor 
Preference,  and  Asset  Encumbrance,  from  a  review  of  previous  studies  it  concludes  that  introducing  a 
single-tier depositor preference in the US had “little “systemic effect” on overall bank funding costs. 
508 In some Member States and in specific cases, the approach to liquidate assets in insolvency is to sell 
those assets to buyers which may take several years to complete. In other cases, depending on the bank’s 
business,  a  solvent  wind-down  of  assets  may  be  pursued,  meaning  that  proceeds  are  recovered  by 
respecting the reimbursement schedule of assets, which for certain loan portfolios such as mortgages can 
take tens of years.  

328 

 
                                                           
claims  as  they  see  this  as  the  only  credible  alternative  to  make  funding  in  resolution 
available when needed. 

Importantly,  the  amount  of  cash  the  DGS  must  disburse  in  a  payout  in  insolvency 
corresponds to the total amount of covered deposits in the bank (plus other direct costs) 
and, as shown in the evaluation (sections 7.1.4.4. and 7.2.2.6 in Annex 5 of the IA), it is 
likely  to  be  significantly  higher  than  the  amount  the  DGS  would  need  to  contribute  to 
fund the gap between assets and liabilities for facilitating a transfer strategy in resolution 
or in the context of an alternative measure. Additionally, by facilitating transfer strategies 
in resolution, the franchise value of the failing bank’s assets is preserved as opposed to 
insolvency509 and so is the client relationship, which is transferred to a new bank rather 
than being interrupted, avoiding thus potential contagion effects, risks of bank runs and 
impacts  on  financial  stability.  Therefore,  the  difference  in  costs  for  the  DGS  between 
pursuing  more  resolution  versus  insolvency  lies  in  the  more  efficient  usage  of  funds, 
facilitated  by  removing  the  super-preference  of  DGS  in  the  hierarchy  of  claims. 
Facilitating  the  use  of  DGS  funds  through  changes  to  the  depositor  ranking  positively 
contributes  to  financial  stability  and  depositor  confidence,  while  also  better  preserving 
the DGSs’ available financial means in case other crises occur. The rationale for allowing 
a broader scope of DGS interventions is further explained in Annex 10. 

It should be highlighted that such a change would not translate into a worse treatment for 
covered deposits as, in reality, their protection comes from the payout by the DGS and 
not from their preferred ranking in insolvency. Their mandatory exclusion from bail-in is 
likewise  not  affected  in  the  options  envisaged  in  this  impact  assessment.  The  super-
priority ends up protecting the financial means of the DGS and the banking industry, who 
are called to replenish those funds through contributions. The single-tier ranking would 
have the merit of ensuring that the banking industry does not receive better protection in 
insolvency than depositors, even non-covered ones. Replacing the super-priority of DGS 
claims with a single-tier ranking for all deposits would contribute to reinforcing depositor 
confidence and safeguarding financial stability by preventing the risk of bank runs.  

3. 

MANDATORY EXCLUSIONS FROM BAIL-IN 

Another  aspect  regarding  the  harmonisation  of  the  hierarchy  of  claims  relates  to  the 
priority  ranking  under  national  insolvency  laws  of  liabilities  which  are  mandatorily 
excluded from bail-in under Article 44(2) BRRD (see Table 33 for a listing of excluded 
liabilities). The ranking  of these liabilities diverges  significantly across Member States, 
in  line  with  national  specificities  pertaining  to  areas  such  as  taxation,  employee 
protection, social security or civil law. In some Member States, some of these excluded 
liabilities rank above deposits, in others, some rank below or among deposits.  

The possibility to give a legal preference to these exclusions in the hierarchy of claims, 
combined with requiring that those preferred claims excluded from bail-in rank above the 
claims of the DGS subrogating to  covered deposits, so as to  reduce the  risk of NCWO 

509

 According to the valuation methodology, the haircut imposed on assets in a transfer transaction is lower 
than the haircut that could be imposed in some situations in insolvency. This may not be the case in a wind-
down liquidation which may take a very long time to complete.  

329 

 
                                                           
when  applying  the  bail-in  tool  was  discussed  with  Member  States.  However,  the  large 
majority of Member States did not favour the introduction of such changes in the national 
creditor rankings,  as this  would unduly interfere  with  other areas of their national  laws 
and  legal  traditions  that  are  not  harmonised  at  EU  level.  Member  States  noted  that 
liabilities  excluded  from  bail-in  do  not  form  a  homogenous  group  and  that  the  reasons 
justifying their protection in a resolution scenario where the bank is to remain in going 
concern, generally linked with the need to ensure the continuity of critical functions and 
to  reduce  the  risk  of  systemic  contagion,  may  not  be  present  in  a  liquidation  scenario, 
particularly in those Member States where the activity of the bank does not continue in 
insolvency.  Concerns  were  also  raised  regarding  the  compatibility  with  constitutional 
principles  of  providing  the  same  types  of  creditors  with  a  different  treatment  in 
insolvency depending on who the debtor is (i.e., a bank or a non-financial entity) and the 
operational difficulties in implementing these legal preferences.  

In  order  to  judge  the  relative  importance  of  each  type  of  excluded  liability,  Table  33 
shows  the  share  of  each  type  of  mandatorily  excluded  liabilities  out  of  the  total  of 
mandatory  exclusions,  depending  on  the  size  classification  and  strategy.  For  smaller 
banks,  covered  deposits  represent  the  bulk  of  excluded  liabilities  (80%),  while  for 
medium sized banks this share decreases (57.8%) and for large banks it is almost on a par 
(47.4%) with secured liabilities (43.5%) which are more material.  

Table 33: Share of each type of mandatory exclusions out of total excluded liabilities 
(resolution entities, %) 

(% of mandatory exclusions) 

Small 

Medium 

Large 

Resolution 

Liquidation 

Covered deposits 
Secured liabilities 
Liability to institutions <7 days 
Client liabilities 
Fiduciary liabilities 
System liabilities 
Employee liabilities 
Critical services liabilities 
Tax liabilities 
DGS liabilities 
Source: Commission services, based on EBA CfA report, data as of Q4 2019 

81.5% 
13.4% 
2.0% 
0.7% 
0.7% 
0.3% 
0.5% 
0.3% 
0.4% 
0.1% 

54.8% 
38.4% 
2.1% 
3.1% 
0.4% 
0.1% 
0.5% 
0.1% 
0.3% 
0.0% 

47.3% 
43.2% 
5.3% 
0.4% 
1.7% 
0.3% 
0.9% 
0.2% 
0.5% 
0.1% 

50.1% 
41.0% 
4.5% 
1.1% 
1.4% 
0.3% 
0.8% 
0.2% 
0.4% 
0.1% 

50.6% 
43.6% 
2.5% 
1.9% 
0.1% 
0.2% 
0.6% 
0.2% 
0.3% 
0.0% 

330 

 
 
 
 
 
 
 
 
 
 
 
 
Figure 30: Share of each type of mandatory exclusions out of total excluded  
liabilities (resolution entities, %) 

Source: Commission services, based on EBA CfA report, data as of Q4 2019 

Table 34 shows the amount of liabilities mandatorily excluded from bail-in, expressed in 
%  TLOF  per  size  category  and  strategy,  at  the  level  of  the  entire  sample.  Institutions’ 
liability  structure  is  composed  of  significant  amounts  of  liabilities  statutorily  excluded 
from  bail-in.  On  average,  these  represent  47.2%  of  TLOF  for  small  and  non-complex 
banks,  51.2%  for  medium  and  40.5%  for  large  institutions.  Covered  deposits  represent 
the highest share of excluded liabilities, followed by secured liabilities, significantly less 
prominent  for  the  smallest  institutions,  and  to  a  lesser  extent  liabilities  to  institutions 
below 7 days. Other forms of excluded liabilities represent much lower amounts, across 
all  types  of  institutions.  The  differences  are  not  material  when  breaking  down  the 
population by strategy. 

Table 34: Largest types of mandatory exclusions from bail-in (%TLOF) 

(%TLOF) 
Mandatory exclusions 
Of which: covered deposits 
Of which: secured liabilities 
Of which: liability to institutions <7 days 

Small 

Medium 

Large 

Resolution 

Liquidation 

47.2% 
38.5% 
6.3% 
0.9% 

51.2% 
28.1% 
19.7% 
1.1% 

40.5% 
19.2% 
17.5% 
2.1% 

43.5% 
21.8% 
17.8% 
2.0% 

38.2% 
19.3% 
16.7% 
1.0% 

Source: Commission services, based on EBA CfA report, data as of Q4 2019 

331 

 
 
 
 
 
 
 
 
Figure 31: Largest types of mandatory exclusions from bail-in (% TLOF) 

Source: Commission services, based on EBA CfA report, data as of Q4 2019 

On average for all entities in the sample, mandatory exclusions account for up to 50% of 
the  TLOF  at  national  level  in  eight  Member  States,  and  up  to  70%  in  14  additional 
Member States.  

Table 35: Mandatory exclusions from bail-in (%TLOF), Member State level 

(%TLOF) 

Count  Member States* 

Below 30% 
Between 30 and 50% 
Between 50 and 70% 
Above 70% 

* Figures for HU not available. 

IE, LU 

2 
8  AT, BE, DE, EE, FI, FR, NL, SE 
13  BG, CY, ES, EL, HR, IT, LT, LV, MT, PL, PT, RO, SI 
3 

CZ, DK, SK 

Source: Commission services, based on EBA CfA report, data as of Q4 2019 

Despite  the  large  amounts  of  mandatory  exclusions,  the  analysis  shows  that  the 
proportion of exclusions over their respective ranking in the applicable creditor hierarchy 
is  moderate.  For  the  purpose  of  this  analysis,  the  simplified  creditor  hierarchy  used  in 
Annex  7  has  been  used  to  ensure  comparability.  Table  36  shows  the  amount  of 
mandatory exclusions ranking senior to senior non-preferred and junior to non-preferred 
deposits  (or  preferred  deposits  in  jurisdictions  with  a  general  depositor  preference)  in 
percentage of the concerned ranks in insolvency pursuant to the applicable hierarchy in 
each Member State510. This perspective does not consider excluded liabilities ranking at 
the high end of the hierarchy of claims and focuses on those ranks that are  likely to be 
impacted by the bail-in. 

510  With  one  exception  covering  liabilities  pari  passu  with  senior  non-preferred  due  to  the  presence  of 
excluded liabilities at this level of the hierarchy of claims. 

332 

 
 
 
                                                           
Table 36: Mandatory exclusions from bail-in (exclusions ranking between senior non-
preferred and non-preferred or preferred deposits depending on the applicable 
depositor preference, % of liabilities with similar ranking) 

(% ordinary unsecured - hypothetical) 

Small  Medium  Large 

Resolution  Liquidation 

Mandatory exclusions (average) 
Mandatory exclusions (first quartile) 
Mandatory exclusions (third quartile) 

5.2% 
0.1% 
4.0% 

4.4% 
0.5% 
6.2% 

5.8% 
1.6% 
8.2% 

5.7% 
0.7% 
6.5% 

4.1% 
0.0% 
4.0% 

Source: Commission services, based on EBA CfA report, data as of Q4 2019 

On average, those mandatory exclusions represent less than 6% of the respective liability 
classes,  with  a  widely  spread  distribution  around  the  average,  as  25%  of  the  resolution 
entities  (first  quartile)  have  a  portion  of  excluded  liabilities  at  most  equal  to  0.1%  or 
1.6% for small and large institutions, respectively.  

These  results  are  not  indicative  of  actual  NCWO  risks,  which  remain  a  case-by-case 
assessment based on each bank’s liability structure. They provide, however, an overview 
of the magnitude of the exclusions in those layers more prone to generate NCWO risks.  

Having in mind the legal and operational difficulties presented above and the arguments 
put  forward  by  Member  States  during  the  consultation  stage,  together  with  the  limited 
impact on the reduction of NCWO risks, the possibility of introducing a legal preference 
for all liabilities mandatorily excluded from bail-in and ranking them above the claims of 
DGSs subrogating to covered deposits was discarded and was therefore not considered in 
any of the options described in this impact assessment. 

4. 

EARLY INTERVENTIONS MEASURES 

The  purpose  of  early  intervention  measures  is  to  allow  interventions  by  competent 
authorities at an earlier stage of financial deterioration of a bank with a view to limit or 
avoid  its  impact.  However,  these  measures  have  been  rarely  applied  so  far.  The  EBA 
indicated that, in most situations where the EIM triggers were met, competent authorities 
preferred to address the situation through other supervisory powers511. 

The early intervention powers conferred on competent authorities on the basis of national 
laws implementing the BRRD overlap to an extent with the supervisory powers, provided 
in  the  CRD  (and  also  mirrored  in  the  SSMR)512.  This  overlap  creates  legal  uncertainty 
and  procedural  challenges  for  competent  authorities  and  could  explain  to  some  extent 
their scarce application. Also, in the Banking Union, the provisions on early intervention 
powers  contained  in  the  BRRD  are  not  replicated  in  a  uniform  and  directly  applicable 
legal basis, meaning that their application by competent authorities, including the ECB, 
may hinge on potentially diverging national transposition measures.  

511 See EBA (27 May 2021), Report on the application of EIMs in the EU in accordance with Articles 27-
29 BRRD, EBA/REP/2021/12, p 17-19. 
512  More  specifically,  some  of  the  early  intervention  measures  listed  in  Article  27(1) BRRD  partially or 
fully overlap with other supervisory powers in Article 104(1) CRD and Article 16(2) SSMR. 

333 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
The EIMs available to  competent  authorities should  be revised to  improve legal  clarity 
and eliminate the overlaps with supervisory measures provided in CRD and SSMR513. A 
single  legal  basis  for  their  direct  application  in  the  Banking  Union  (i.e.  a  regulation) 
would  also  reduce  the  difficulties  caused  by  diverging  transpositions  of  the  current 
BRRD provisions in national laws. Moreover, the need for sufficiently early coordination 
between resolution and competent authorities should also be ensured in the EIM process.  

Based  on  the  observation  that,  so  far,  EIMs  have  been  used  rarely514,  the  Commission 
would  not  consider  the  possibility  of  simply  preserving  the  status  quo  as  appropriate. 
Instead, two options were considered:  

 

removing  these  measures  entirely  from  the  BRRD  and  allowing  their  use  as 
supervisory powers according to SSMR and CRD;  

  amending the provisions in BRRD only to the extent necessary to address the 
overlap between the EIMs and supervisory measures, and providing a single 
legal basis for their application by the ECB in SRMR.  

The first option would substantially increase the margin of manoeuvre and discretion of 
supervisors in applying EIMs. In particular, subsuming these measures under supervisory 
powers would entail that, rather than having to meet specific triggers (as is the case now) 
to  be  able  to  use  EIMs,  supervisors  would  be  able  to  use  them  based  on  their  general 
discretion and proportionality considerations, as it happens for all supervisory measures. 

This  option,  however,  has  several  substantial  drawbacks.  First, 
it  appears 
disproportionate  to  the  objectives  pursued.  The  complete  elimination  of  all  EIMs  from 
BRRD is not necessary to address the issue of overlaps, particularly considering that the 
overlap  is  only  partial515.  Also,  the  transfer  of  all  the  EIMs  into  supervisory  legislation 
entails  the  amendment  of  the  relevant  provisions  in  CRD  and  SSMR  so  as  to  include 
powers  currently  not  provided  therein.  This  would  be  an  additional  complication, 
particularly considering that the legal basis for changes to SSMR requires unanimity of 
Member States to implement legislative changes. Also, the first option would move EIMs 
entirely under the remit of the supervisory framework, which is regulated by the general 
principle  of  proportionality516,  leaving  supervisors  with  substantial  discretion  when 
choosing  whether  to  apply  supervisory  powers  and  which  one.  In  particular,  the 
supervisory  framework  does  not  provide  specific  triggers  to  assess  whether  the 
conditions to apply the powers overlapping with EIM are met. Also, it does not provide 
any “escalation ladder” between less invasive and more invasive powers. As a result, this 
approach  appears  disproportionate  also  with  respect  to  the  impact  of  the  different 
measures. While it may be not be appropriate to establish a strict escalation ladder with 
specific  hard  triggers  for  each  measure,  at  least  some  distinction  between  those  which 

513 See Annex 5 (Evaluation). 
514  See  EBA  (27  May  2021),  Report  on  the  application  of  early  intervention  measures  in  the  European 
Union in accordance with Articles 27-29 of the BRRD, EBA/REP/2021/12, p 17 to 19. 
515  In  particular,  an  overlap  exists  between  the  measures  in  Article  27(1)(b),  (d),  (f)  and  (g)  BRRD  and 
articles 104 CRD and article 16 SSMR.  
516 Connected to an actual or likely breach of the requirements in CRD or CRR. 

334 

 
                                                           
may have a limited impact on the bank and those which may be more disruptive seems 
desirable.  

This  is  in  turn  relevant  to  ensure  coordination  between  supervisors  and  resolution 
authorities.  In  the  absence  of  a  clear  demarcation  between  the  more  and  less  invasive 
measures available to the supervisor, the only options in this respect would be to either 
require the supervisor to coordinate with the resolution authority anytime it applies any 
supervisory measures (including less relevant supervisory powers which do not indicate a 
risk  of  important  deterioration  of  the  bank’s  financial  situation  and  have  no  clear  link 
with the initiation of resolution), or eliminate the need for coordination. Notwithstanding 
the  practical  arrangements  that  may  already  exist  between  the  relevant  competent  and 
resolution  authorities,  BRRD and SRMR should ensure that  cooperation between those 
authorities takes place in an appropriate and timely way, to ensure sufficient preparation 
for resolution and even a timely trigger of FOLF. 

Finally,  for  completeness,  it  should  be  clarified  that,  from  the  perspective  of  market 
reputation,  and  specifically  when  it  comes  to  the  application  of  the  Market  Abuse 
Regulation517,  there  is  no  difference  between  the  use  of  supervisory  powers  or  early 
intervention measures. In particular, this regulation qualifies as ‘insider information’ any 
information which, if disclosed, “would be likely to have a significant effect on the prices 
of  those financial instruments”518. Such qualification would lead to  the application of a 
set  of  obligations  and  safeguards  contained  in  the  Market  Abuse  Regulation.  However, 
for  the  purposes  of  its  application,  there  is  no  difference  between  the  application  of  a 
supervisory measure or an EIM.  In both cases, the information that such a measure has 
been  applied  may  be  qualified  as  insider  information  depending  on  the  specific 
circumstances of the case. From this perspective, therefore, there is  no reason to  prefer 
one of the mentioned approaches to the other. 

On this basis, the second and more targeted approach has been retained. In particular, it is 
sufficient to amend BRRD provisions only to the extent necessary to address issues with 
the EIMs, which directly overlap with supervisory measures. In this respect, there can be 
scope for further amendments on the requirements to activate these measures in BRRD 
with  a  view  to  ease  their  application  and  the  internal  sequencing  between  EIMs.  The 
reform could anyway maintain some form of a distinction between measures considered 
less invasive and those considered more invasive519.  

Moreover,  a  single  and  directly  applicable  legal  basis  for  the  use  of  EIMs  should  be 
introduced  in  SRMR  to  ensure  an  effective  and  consistent  application  by  the  ECB 
(without having to rely on potentially diverging transpositions of the BRRD provisions). 
Finally,  the  reform  should  ensure  efficient  and  swift  coordination  between  supervisors 
and resolution authorities in the context of EIMs. The proposed approach would also be 

517  Regulation  (EU)  No  596/2014  of  the  European  Parliament  and  of  the  Council  of  16  April  2014  on 
market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and 
of  the  Council  and  Commission  Directives  2003/124/EC,  2003/125/EC  and  2004/72/EC  (OJ  L  173, 
12.6.2014, p. 1–61). 
518 Article 7 of the Market Abuse Regulation. 
519 Several of the elements which form part of this option were discussed and supported by most Members 
in the context of the Commission expert group (EGBPI). 

335 

 
                                                           
consistent with the F4F Platform recommendations for eliminating the overlap between 
EIMs and supervisory powers520. 

5. 

TRIGGERING OF FOLF 

The  timing  of  the  FOLF  determination  is  crucial  with  respect  to  the  amount  of  private 
resources  left  in  the  bank  to  execute  the  resolution  strategy.  The  earlier  FOLF  is 
triggered, the more liquidity, capital  and other bail-inable resources are available in the 
bank.  Conversely,  a  tardive  FOLF  determination,  which  is  likely  to  be  related  to  the 
important implications of the decision (including in terms of legal risk), combined with 
the  discretion  granted  to  the  supervisors  in  this  respect,  often  leads  to  a  more  severe 
depletion  of  equity,  liquidity  and  potentially  other  instruments  than  under  a  timelier 
FOLF determination521, which as a result may endanger the effective application of the 
most appropriate resolution strategy. Since the FOLF assessment is under the discretion 
of the competent authority522, it is crucial to ensure a timely assessment of FOLF through 
adequate  governance,  cooperation  and  timely  exchange  of  information  between 
competent and resolution authorities, so as to support a smooth continuum between going 
and gone concern. 

Supervisory discretion is important to ensure that all the elements of a specific case are 
properly  taken  into  account,  in  particular  by  considering  the  likely  evolution  of  the 
financial distress  as  well as potential alternatives (i.e. such as the presence of available 
private  buyers).  Moreover,  the  discretion  is  needed  to  account  for  the  potential 
implications in  terms  of market  and reputational  impact,  which are naturally  associated 
with the determination of a bank’s failure. 

The Commission examined three options in view of addressing the identified problem:  

 

first,  preserving  full  supervisory  discretion,  to  ensure  that  the  specific 
circumstances  of  each  case  are  always  considered  with  the  maximum 
flexibility (status quo);  

  second, imposing stricter quantitative triggers for FOLF; and  
 

third, providing for framed supervisory discretion with focus on the degree of 
the bank’s financial deterioration. 

The  first  approach  was  discarded  because  it  would  not  address  the  problems  of 
insufficient legal certainty and would not contribute to the objective of activating crisis 
measures  earlier.  This  in  turn  affects  the  available  financial  resources  in  resolution  (or 
insolvency)  and  subsequently  the  capacity  to  access  additional  funding  sources.  In 
particular,  while  there  is  merit  in  considering  full  flexibility  in  the  run  up  to  a  bank’s 
failure,  the  risk  of  considerable  losses  and/or  liquidity  runs,  which  would  need  to  be 

520 See Annex 2. 
521 As the situation of the bank deteriorates further, short-term funding providers may refrain from rolling 
over their commitments and depositors may potentially run on the bank. 
522 Although the resolution framework also allows the resolution authority to initiate FOLF. In the Banking 
Union, all FOLF determinations of banks under the SRB’s direct remit were launched by the ECB and the 
timing of the relevant assessments varied depending on individual circumstances in each case. 

336 

 
                                                           
covered in resolution/insolvency proceedings in the event that a prospective buyer or any 
other private solution does not materialise, cannot be disregarded.  

A  second  possibility  would  be  to  provide  for  stricter  triggers  for  the  authorities  to 
determine  a  bank  as  being  FOLF.  In  particular,  the  current  provisions  in  Article  32 
BRRD  do  not  contain  any  hard  triggers  to  be  used  by  supervisors  (and,  eventually,  by 
resolution authorities) for this purpose. The requirement is rather to consider whether the 
conditions which would justify a withdrawal of the bank’s license (as per the applicable 
supervisory framework) are met or are likely to be met in the near future. Similarly, the 
supervisor  is  required  to  consider  if  a  situation  of  illiquidity  of  the  bank  (i.e.  the  bank 
cannot repay its obligations when due) or balance sheet insolvency (i.e., the assets of the 
bank  are  less  than  its  liabilities)  has  occurred  or  is  likely  to  occur  in  the  near  future. 
These rather general conditions could be articulated in a more specific and quantifiable 
manner within the legislative text.  

This  second  approach  would  improve  the  clarity  and  certainty  of  the  supervisor’s 
decisions and would in turn improve legal certainty and predictability for banks and for 
the markets. Also, if correctly set up, it would ensure that the bank’s failure is declared at 
a time when sufficient liquidity and loss absorption resources are retained, to be used for 
an effective restructuring of the bank in the event of resolution, and ensuring that more 
resources  are  available  to  repay  creditors  if  the  bank  is  instead  put  into  national 
insolvency.  At  the  same  time,  however,  this  approach  creates  a  substantial  risk  of 
arbitrary decisions, which may end up damaging banks and the markets. Considering the 
complexity  of  a  bank’s  business  and  the  many  circumstances,  which  may  contribute  to 
create a situation of failure or likely failure, it seems difficult for the legislator to set up 
strict hard triggers which can sufficiently encompass the various circumstances occurring 
at  the  time  of  the  bank’s  financial  deterioration.  This  creates,  for  example,  a  risk  of 
forcing supervisors to take decisions on banks which may actually still be sold to a buyer 
or managed through other tools than insolvency or resolution, or inversely the risk of not 
being able to declare FOLF sufficiently early because the strict legal conditions are not 
yet  met.  This  option  is  therefore  deemed  too  rigid  and  it  would  not  allow  sufficient 
margin  for  supervisors  to  assess  important  elements  at  the  time  of  a  bank’s  financial 
deterioration,  creating  a  substantial  risk  of  incorrect  (too  early  or  too  late)  decisions, 
which may end up damaging banks, their customers and the markets. 

Against  these  considerations,  the  retained  approach  (third  option)  would  be  to  instead 
frame  the  discretion  of  the  supervisor,  so  as  to  ensure  a  better  balance  between  clarity 
and predictability of their decisions and the need to account for flexible action. 

In particular, the reform should ensure that the current rules on the FOLF determination, 
while leaving room to still take into account the existence of private solutions to address 
the failure of the bank, do not risk excessively delaying the process for the preparation of 
a potential resolution or insolvency. To achieve this, the supervisor should be required to 
notify  sufficiently  early  the  resolution  authority  as  soon  as  it  considers  that  there  is  a 
material risk that an institution or entity meets the conditions for being assessed as failing 
or likely to fail. On this basis, the resolution authority should be empowered to assess, in 
close  cooperation  with  the  competent  authority,  what  it  considers  to  be  a  reasonable 
timeframe for the purposes of looking for solutions, of private or administrative nature, 

337 

 
able to  prevent the  failure.  The supervisor should maintain its discretion to  explore the 
possibility  of  private  solutions,  as  they  may  prevent  the  bank’s  failure..  Should  it  be 
concluded  that  the  deterioration  of  the  bank’s  financial  conditions  has  reached  such  a 
stage that its resolvability would be endangered, authorities should take this element into 
due account in their decision to declare the FOLF and in setting a timeline to take action. 
Where the competent authority concludes that the institution or entity is failing or likely 
to  fail,  it  should  formally  communicate  this  to  the  resolution  authority.  The  resolution 
authority should then determine whether the conditions for resolution are met. 

This option, which is common across all packages of policy options presented in Chapter 
6,  would  improve  legal  certainty  and  in  turn,  foster  the  use  of  crisis  measures  at  a 
sufficiently early time to ensure adequate financing resources and therefore the likelihood 
of meeting the requirements to access the resolution fund. 

6. 

INTERACTION BETWEEN FOLF TRIGGERS AND INSOLVENCY 

National insolvency proceedings are very heterogeneous across EU Member States. One 
difference  concerns  the  trigger  to  initiate  such  proceedings.  Only  few  Member  States 
aligned  the  triggers  for  commencing  national  insolvency  proceedings  with  the  FOLF 
triggers in the BRRD. In general, the trigger to initiate insolvency is only met later than 
FOLF  triggers,  when  the  bank  reaches  a  state  of  financial  insolvency  (which  generally 
entails the bank’s inability to repay its debts). This may give rise to a situation where a 
failing  bank  for  which  there  is  no  public  interest  in  using  resolution,  can  also  not  be 
placed in insolvency because the trigger to initiate the proceedings is not met. This can 
happen, for example, when a bank is declared FOLF based on a likelihood of breach of 
capital requirements, without the bank being in actual breach or insolvent yet.  

To  address  this  potential  “limbo”  situation,  the  2019  Banking  Package  introduced 
Article 32b BRRD,  requiring  Member  States  to  ensure  the  orderly  winding  up  in 
accordance with  the  applicable national  law of failing banks, which cannot  be resolved 
due  to  negative  PIA.  However,  the  implementation  of  this  article  in  the  national  legal 
framework in the current form seems insufficient to address all residual risks of standstill 
situations. In particular, there is still uncertainty as to what the concept of “winding up in 
accordance with national law” entails, and whether it requires the exit of the bank from 
the market and within which timeframe. Due to the variety of actions that can be  taken 
under national rules, the winding up of banks across the EU may lead to a long period of 
restructuring  during  which 
therefore, 
inconsistency and uncertainty across Member States regarding managing banks that are 
not resolved. 

the  bank  continues  operating.  There 

is, 

BRRD  II  partly  addressed  this  issue  by  introducing  a  provision  (Article  32b)  which 
requires that, in the event of FOLF with no public interest, a bank must be wound down 
according  to  the  procedure  available  under  national  laws.  This  provision  still  leaves  a 
margin of uncertainty as to which procedure should apply in these cases, and particularly 
whether  only  insolvency  laws  (or  at  least  and  namely  procedures  labelled  as  “national 
insolvency  proceedings”  under  BRRD)  should  apply  –  or  all  the  national  procedures 
available  are  acceptable  –  and  what  the  wording  “winding  up”  exactly  entails.  At  the 
same time, it should be observed that the choice to use the open language contained in 

338 

 
the  provision  was  the  result  of  a  specific  decision  in  the  course  of  the  negotiation 
between  co-legislators,  to  avoid  excessively  limiting  the  avenues  available  at  national 
level and avoid a harmonisation of the existing procedures. 

Three options were considered:  

 

the baseline option i.e. keeping the current legislative provision allowing for 
substantial margin for available solutions at national level; 

  Establishing an automatic correspondence in  the law between the  conditions 
which  can  justify  a  FOLF  determination  and  the  triggers  for  insolvency  in 
national law; 

  Providing  further  framing  to  the  existing  provisions,  and  particularly  to 
Article  32b,  while  maintaining  a  degree  of  diversification  in  the  procedures 
available at national level. 

A  first  available  solution  would  be  to  retain  the  legislative  text  in  its  current  form, 
leaving  substantial  margin  for  available  solutions  at  national  level.  This  would  avoid  a 
risk  of  unwanted  limitations,  and  would  in  particular  allow  solutions  at  national  level, 
which can be beneficial in preserving the bank’s value (e.g. through restructuring or sale 
measures),  as  well  as  avoid  a  disorderly  liquidation  procedure,  which  may  cause 
disruptions in the market or loss of value. At the same time, this avenue would do little in 
improving  clarity  and  would  still  maintain  uncertainty  as  to  the  outcome  of  such 
procedures. For example, it cannot be excluded that, in some cases, it would lead to very 
long periods of restructuring, which do not necessarily improve the viability of the bank, 
before  a  decision  is  taken  on  forcing  a  bank’s  exit  from  the  market.  This  option  was 
therefore discarded. 

A  second  possibility  would  be  to  establish  in  the  law  an  automatic  correspondence 
between FOLF triggers and insolvency triggers. This would ensure complete clarity and 
predictability and would guarantee that if, resolution does not follow a FOLF declaration, 
an  insolvency  proceeding  according  to  national  laws  would  instead  take  place  and  the 
bank  would  exit  the  market.  However,  this  option  has  the  disadvantage  of  limiting 
substantially the available measures under national law. A number of viable procedures 
are not qualified as insolvency in the narrow sense, as they do not entail the immediate 
closure  of  the  bank’s  business  and  its  liquidation  or  sale,  but  allow  other  intermediate 
steps to be taken, for example a period of restructuring to avoid insolvency or to look for 
potential  buyers.  Also,  this  option  would  require  some  relevant  changes  to  national 
insolvency  laws,  particularly  with  respect  to  the  triggers  to  initiate  the  insolvency 
procedures. This is challenging in practice and in some cases not possible under national 
laws, as it would require the competent insolvency authority (in many cases a court) to 
act  on  the  basis  of  prospective  assessments  of  the  bank’s  situation  carried  out  by  a 
supervisor.  This  is  not  legally  or  constitutionally  feasible  in  many  Member  States.  The 
non-desirability of this solution was also confirmed in the context of the discussion in the 
CWP under the German Presidency523. As such, this option was discarded. 

523  European  Council  (November  2020),  German  Presidency  progress  report  on  strengthening  the 
Banking Union. 

339 

 
                                                           
The  third  and  retained  option524  in  this  respect  is  to  provide  further  framing  and 
clarifications as to the functioning and consequences of Article 32b BRRD. This would 
entail,  in  particular,  a  set  of  clarifications  and  additional  elements  on  the  concept  of 
“winding up under the applicable national law” contained in this provision. The objective 
of  these  clarifications  is  to  ensure  that  such  procedures  lead  to  the  market  exit  of  the 
bank. It is acceptable to leave a margin at national level as to how this market exit should 
occur (i.e., whether through a sale or otherwise). However, clarity on the need to produce 
this outcome, and possibly a clearer reference to a time frame for the exit, would improve 
clarity and certainty and reduce the possibility of standstill situations. In this context, it is 
also appropriate to further enhance the role of the withdrawal of the bank’s license when 
FOLF  is  declared  and  no  resolution  ensues.  Further  clarity  on  the  interactions  between 
the FOLF determination and the withdrawal of the license by the supervisor, and, to the 
extent possible, a better framing of how this power should be exercised, would improve 
the functioning of the framework in this respect. It is important, in particular, to ensure 
that  the  supervisor  can  withdraw  the  license  in  all  cases  in  which  a  bank  has  been 
declared FOLF. 

7. 

DGS BRIDGE TO 8% TOLF FOR TRANSFER STRATEGIES 

The  policy  options  described  in  Chapter  6  of  the  impact  assessment  allow  the  DGS  to 
facilitate  the  transfer  of  deposits,  including  by  providing  a  bridge  to  meet  the  access 
conditions  for  the  RF/SRF.  Figure  32  illustrates  different  stylised  scenarios525  to 
visualise  who  would  pay  and  who  would  be  protected.  The  limit  to  the  amount  of  the 
intervention  of  the  DGS  and  the  conditions  for  the  SRF  to  cover  depositors  vary 
depending on the option in the IA. 

Under scenario 1, the bank’s internal loss absorption capacity would suffice to reach the 
8%  TLOF  threshold  and  access  the  RF/SRF.  In  this  case,  the  SRF  is  available  and  the 
DGS may also be potentially available.  

Scenarios  2-5  show  different  cases,  where  the  internal  loss  absorption  capacity  of  the 
bank is not sufficient to reach the 8% TLOF threshold. In those scenarios, depositors may 
need to suffer losses in order to access financing by the RF/SRF under the current rules. 
This could be avoided by allowing the DGS to shield depositors (not only covered) from 
such losses.  

Under  scenario  2,  the  LCT  would  allow  the  DGS  to  contribute  exactly  the  amount 
sufficient to reach the access conditions for the SRF. Once the DGS has contributed such 
an amount, the SRF intervenes in addition to the DGS, given that the DGS contribution 
alone is still not sufficient to cover all the losses accumulated.  

Under  scenario  3,  DGS  would  only  cover  part  of  the  gap  between  the  assets  and  the 
deposits  transferred,  as  the  LCT  would  not  allow  for  more.  The  other  part  of  the  gap 
would have to be covered by the resolution fund.  

524 This option was supported by the majority of member in the Commission expert group (EGBPI). 
525 A variety of other scenarios are possible.  

340 

 
                                                           
Under scenario 4, the amount provided by the DGS would be lower than what the LCT 
would allow for, however this would be sufficient to reach 8% TLOF.  

Under scenario 5, to protect deposits from bearing losses, the DGS would intervene but 
with an amount lower than the one allowed under a positive LCT (no need to get as high 
as 8% TLOF and access the fund).  

Figure 32: Visual on who pays and who is protected 

Scenario  1:  SRF  funding  only  accessible  when 
loss absorbing capacity reaches 8% TLOF 

  Scenario 2: If losses exceed 8% TLOF and loss 
absorbing  capacity  is  below  8%  TLOF,  DGS 
could fill the gap if LCT allows 

341 

 
 
 
 
 
 
 
Scenario 3: If losses exceed 8% TLOF and loss 
absorbing  capacity  is  below  8%  TLOF,  DGS 
could fill the gap if LCT allows (LCT <8%) 

  Scenario 4: If losses exceed 8% TLOF and loss 
absorbing  capacity  is  below  8%  TLOF,  DGS 
could fill the gap if LCT allows (LCT >8%) 

Scenario  5:  If  losses  are  below  8%  TLOF  and 
loss  absorbing  capacity  is  below  8%  TLOF, 
DGS could fill the gap to loss coverage if LCT 
allows. No SRF intervention needed. 

Notes:  *  The  amount  of  deposits  which  may  be  exposed  to  losses  to  reach  8%  TLOF  depends  on  the  specific 
situation at hand, and particularly on the amount of assets that are transferred to a buyer; **In scenario 4, SRF 
is used to shield deposits from losses only if they meet specific requirements; *** The amount of DGS funding 
depends on the scenario. In scenario 2 the whole amount given by the LCT is used (even beyond 8%), in scenario 
4 the lower between the LCT and 8%. 
Source: Commission Services 

8. 

TREATMENT OF LIQUIDATION ENTITIES IN THE MREL FRAMEWORK 

Under  the  MREL  framework,  resolution  authorities  are  required  to  adopt  a  MREL 
decision  for  all  banks  under  their  remit,  regardless  of  the  strategy  chosen  during 
resolution planning in case of their failure526. This includes the banks likely to be wound 
up  under  normal  insolvency  proceedings  or  other  equivalent  national  procedures 
according  to  the  resolution  plan  (the  so-called  “liquidation  entities”).  As  a  rule,  the 

526  See  the  reply  to  question  38  in  Commission  Notice  relating  to  the  interpretation  of  certain  legal 
provisions  of  the  revised  bank  resolution  framework  in  reply  to  questions  raised  by  Member  States’ 
authorities (2020/C 321/01). 

342 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
MREL  set  for  liquidation  entities  does  not  exceed  the  loss  absorption  amount  as 
determined  by  the  applicable  minimum  capital  requirements.  There  is  no  additional 
requirement in terms of the liquidation entities’ liability structure nor any increased loss 
absorption capacity in comparison to the prudential requirements. 

While  there  is  no  publicly  available  data  on  the  number  of  liquidation  entities  in  each 
Member  State  in  the  Banking  Union,  it  can  be  reasonably  expected  that  a  majority  of 
institutions that are not in the direct remit of the SRB would be liquidation entities – even 
more  so  in  domestic  markets  characterised  by  a  large  number  of  institutions  (often 
relatively smaller)527.  

This represents a non-negligible administrative burden not just for resolution authorities, 
who have to issue MREL decisions at least on an annual basis, but also for the affected 
liquidation  entities.  While  the  latter  are  already  excluded  from  the  MREL  reporting 
provided under Article 45i BRRD, they are still expected to monitor compliance with the 
MREL  decision.  In  terms  of  distribution  of  impact,  the  requirement  to  adopt  MREL 
decisions  and  communicate  them  to  banks  under  liquidation  strategies  impacts  the 
administrative burden on banks and resolution authorities asymmetrically across Member 
States, i.e. to a greater extent in Member States with less concentrated banking markets 
than in Member States with few banks under liquidation strategies. The existence of such 
a  decision  also  means  that  liquidation  entities  are  required  to  obtain  prior  permission 
from  resolution  authorities  before  calling,  redeeming,  repaying  or  repurchasing  their 
eligible  liabilities528  and,  if  they  are  part  of  a  daisy  chain,  their  own  funds  and  eligible 
liabilities held by other entities in that daisy chain need to be deducted529.  

Based on the above considerations, the Commission considered the following options: 

  Maintaining the status quo; 
  Waiving  the  obligation  to  adopt  a  MREL  decision  in  relation  to  liquidation 

entities whose MREL would not exceed the loss absorption amount; 

  Continue  to  require  the  adoption  of  a  MREL  decision  for  these  liquidation 

entities but waiving the need to update them on an annual basis. 

The  first  option  was  discarded  as  the  current  MREL  framework  for  liquidation  entities 
does not add value from a resolvability perspective. The third option would alleviate the 
administrative  burden  for  resolution  authorities  but  only  marginally,  but  not  for  the 
institutions  themselves,  which  would  still  be  captured  by  the  rules  concerning  prior 
permission and daisy chain deductions and was therefore also discarded.  

Ultimately, the second option was retained, as it was the one most conducive to reducing 
the  regulatory  burden  for  both  the  concerned  entities  and  the  resolution  authorities, 
without  affecting  the  prudential  soundness  of  the  framework  or  the  resolvability  of  the 
entities  or  groups.  It  is  also  in  line  with  existing  provisions  of  the  MREL  framework, 

527 According to the  SRB's 2020 Annual Report, the five Member States in the Banking Union  with the 
highest number of LSIs expected to be covered by resolution planning as of 1 January 2020 were: Germany 
(1 336), Austria (413), Italy (128), France (71) and Spain (55). 
528
529 See the Commission’s ‘quick-fix’ legislative proposal addressing the operationalisation of the indirect 
issuance of internal MREL instruments within a resolution group (the so-called ‘daisy chain’ deductions). 

 As per Article 78a CRR. 

343 

 
                                                           
namely  the  exclusion  of  liquidation  entities  from  the  MREL  reporting  and  from  the 
obligation to include contractual clauses recognising the effects of the bail-in powers in 
contracts governed by third country laws.  

The obligation on resolution authorities to adopt a decision for those liquidation entities 
whose MREL exceeds the loss absorption amount is not affected, nor is the requirement 
to draw up and review resolution plans for all liquidation entities.  

Finally,  targeted  adjustments  are  implemented  in  MREL  reporting,  introducing  a 
statutory  simplified  reporting  regime  for  those  liquidation  entities  for  whom  MREL 
exceeds the loss absorption amount. This obligation on the concerned liquidation entities 
is  necessary  to  ensure  that  resolution  authorities  are  able  to  monitor  compliance  with 
MREL. It is also understood that resolution authorities already envisage ad hoc reporting 
requests  in  these  situations.  Therefore,  this  change  will  not  represent  much  additional 
burden on the sector, also  considering that only  a few liquidation  entities actually have 
MREL set at a level above the loss absorption amount, while at the same time ensuring a 
harmonised and coherent treatment of liquidation entities across the EU. 

9. 

OTHER POTENTIAL TOPICS TO BE ADDRESSED IN THE REVIEW 

In the following, some additional amendments of technical nature which are expected to 
require  a  reflection  as  part  of  the  potential  changes  in  the  CMDI  reform  are  briefly 
presented. 

Precautionary measures under BRRD 

BRRD  provides  for  a  set  of  precautionary  measures  (in  the  form  of  recapitalisation  or 
guarantees/liquidity) which can be granted to solvent banks to address issues identified in 
a stress test or equivalent exercise. BRRD provides for strict conditions and safeguards to 
grant support in this form, to ensure that the support does not benefit a bank that is too 
close to failure and to avoid (for precautionary recapitalisation) that the support is used to 
cover losses that were already incurred by the bank or are likely to be incurred. 

Past  practice  in  the  application  of  these  measures  has  provided  the  opportunity  for  the 
Commission  to  identify  issues  which  may  require  an  interpretive  effort  and  to  clarify 
them as part of its practice530. In order to ensure further clarity of the legislative text and 
improve  the  legislation,  there  is  scope  to  integrate  some  of  the  lessons  learnt  in  the 
relevant provisions. 

Potential  clarifications  in  this  respect  can  include  considerations  on  the  concept  of 
solvency,  as  well  as  the  determination  of  the  amount  of  support  allowed,  particularly 
with respect to the distinction between incurred, likely and unlikely losses. Furthermore, 
the  legislative  text  could  benefit  from  additional  clarity  as  to  the  use  of  precautionary 
recapitalisation  to  support  impaired  asset  measures  (such  as  the  transfer  of  impaired 
assets to an Asset Management Company). This possibility was already confirmed by the 

530 See also Chapter 2, section 2.1.1 for a problem analysis. 

344 

 
                                                           
Commission, subject to strict conditions, in the AMC blueprint531 but a specific reference 
in the legislative text could provide further certainty in this respect. 

Access condition to RF/SRF for liquidity provision 

The framework is currently ambiguous regarding the condition to access the RF/SRF for 
providing liquidity to  a  bank in  resolution,  creating legal  uncertainty. The current  legal 
interpretation stemming from past cases is that the RF/SRF could be tapped for liquidity 
provision without the 8% TLOF minimum bail-in condition. The current initiative aims 
to  clarify  that  in  the  legal  text,  which  would  improve  the  legal  certainty  of  the 
framework.  

Treatment of contingent liabilities in bail-in 

In general terms, liabilities are considered as contingent when they are recorded against 
an  event  which  is  not  certain  and  may  occur  at  some  point  in  the  future.  There  can  be 
several  instances  which  generate  a  contingent  liability,  ranging  from  guarantees  (only 
activated if the underlying event occurs) to liabilities connected to potential legal claims 
(which  come  into  existence  and  are  quantified  only  once  a  judgement  confirms  an 
underlying obligation). 

From  a  resolution  perspective,  contingent  liabilities  become  relevant  when  it  comes  to 
their  bail-inability.  The  BRRD  currently  does  not  provide  specific  rules  to  address 
contingent  liabilities  in  this  context.  This  circumstance  had  the  potential  of  creating 
uncertainty as the treatment of such liabilities, which in turn may affect consideration on 
other related issues, such as resolvability and the implementation of a resolution strategy. 

In light of this, it is appropriate to consider this issue as part of the review and reflect on 
whether  there  is  scope  to  further  clarify  the  legislative  provisions  in  BRRD  to  address 
some of the identified uncertainties. 

Operationalisation of transfer strategies 

Transfer strategies, such as the sale of (all or part of the) business to an acquirer, the use 
of bridge bank and transferring bad assets to an asset management vehicle, are provided 
in the current framework, alongside the open-bank bail-in strategy (absorption of losses 
and recapitalisation of the bank through conversion of creditors into new shareholders). 
However, so far open bank bail-in strategies have been predominant in resolution plans 
as standalone tool.  

On  this  basis,  there  is  scope  to  consider,  as  part  of  the  reform,  potential  avenues  to 
further  clarify  the  legislative  text  to  provide  additional  incentives  for  resolution 
authorities  to  consider  transfer  strategies  in  their  resolution  planning,  for  instance  by 
ensuring a more proportionate calibration of MREL requirements. 

531 See Commission Staff Working Document (March 2018), AMC Blueprint, SWD(2018)72 final, p.35. 

345 

 
 
                                                           
10. 

BUSINESS MODEL SPECIFICITIES OF SMALL AND MEDIUM-SIZED BANKS 

This section aims to provide additional information on the business model of smaller and 
medium-sized  banks,  also  called  less  significant  institutions  (LSIs)  which  are  at  the 
centre of the CMDI reform. More specifically, it looks at the types of depositors served 
by  small  and  medium-sized  banks  across  the  EU,  considering  the  policy  options 
described in Chapter 6 aiming to shield more depositors from bearing losses by making 
more use of industry-funded safety nets, such as the DGS funds and/or and RF/SRF.  

According to the ECB’s 2019 report on LSIs532, the LSI sector represents a relevant share 
of  the  wider  European  banking  industry,  representing  roughly  19%  of  total  banking 
assets in the euro area. The geographical distribution of LSIs varies. In certain Member 
States (Luxembourg, Germany, Austria,  Ireland), the importance of  LSIs  is  particularly 
high, as they account  for one third of the domestic banking sector.  In contrast,  the  LSI 
sector  is  relatively  small  in  Member  States  where  the  banking  sector  is  more 
concentrated (France, Spain, Greece). In absolute value, the LSI sector in Germany is by 
far the largest, hosting over 1,400 institutions which together represented 55% of the LSI 
assets at EU level as of 2019533.  

Most  smaller  and  medium-sized  banks  still  follow  the  traditional  business  model  (i.e. 
collection  of  deposits  and  granting  of  loans)  and  are  predominantly  financed  by  equity 
and deposits. The LSI sector is dominated by retail banks and diversified banks (the latter 
have a higher percentage of exposures to corporate clients, including SMEs). These LSIs 
belong  mainly  to  the  cooperative  and  savings  bank  sectors.  They  are  typically  active 
locally,  being  fully  anchored  in  the  “local  economic  fabric”  of  their  home  regions  and 
service  local  customers.  In  terms  of  balance  sheet  structure,  on  the  liability  side, 
customer  deposits  represent  by  far  the  largest  source  of  funding,  while  the  issuance  of 
debt securities as well as the trading of derivatives remains only of minor importance for 
these banks. Overall, retail deposits remain a main source of funding of LSIs, making up 
for 67.7% of total funding on average, against 36.9% for significant institutions. 

This information is very relevant in view of certain stakeholder views that only covered 
deposits  as  well  as  retail  and  SME  deposits  (above  the  coverage  level)  should  be 
protected  from  losses,  while  “wholesale”  deposits  held  by  corporates  or  more 
sophisticated  counterparties  should  not  benefit  from  additional  protection  from  losses, 
especially by using DGS funds. These stakeholders argue that shielding all deposits from 
losses  by  making  more  use  of  safety  nets  in  resolution  or  alternative  measures  in 
insolvency  could  lead  to  moral  hazard.  However,  data  as  quoted  above  shows  that  the 
overwhelming majority of deposits held by smaller and medium-sized banks are retail or 
corporate/SME deposits held by local clients. Typically, these deposits tend to be sticky 
in  a  crisis,  meaning  they  tend  to  be  left  with  the  bank  until  its  failure,  while  deposits 
made by large firms or more sophisticated investors tend to run at first signs of distress. 
Given the preponderance of such sticky deposits in smaller and medium-sized banks, it is 
important to have the tools and the funding to enable a deposit book transfer as part of a 

532 ECB (2019), Risk report on less significant institutions.  
533 See part 1.1 of the ECB’s 2019 Risk report on LSIs.  

346 

 
                                                           
sale of business transaction in case of failure (in or outside resolution). The alternative is 
to  handle  the  failure  of  such  banks  by  making  recourse  to  public  support  or  inflicting 
losses on retail and SME deposits in resolution in order to reach the 8% access condition 
to the resolution fund. 

11.  HIGHLIGHTS OF THE US FRAMEWORK (FDIC APPROACH) 

Since its creation in 1933 in the aftermath of the Great Depression, the Federal Deposit 
Insurance  Corporation  (FDIC)  has  developed  a  crisis  management  framework  for  most 
deposit-taking  institutions  combining  resolution,  liquidation  and  deposit  insurance  (as 
well  as  supervisory)  functions  in  a  single  federal  authority  based  on  a  single  legal 
framework. This enables the FDIC to act decisively and apply the most fitting (and least 
costly) solution in each particular crisis case. In contrast, in the EU, those competencies 
are split across different authorities and legal frameworks at European and national level. 

In the US, the distinction between “resolution” and “insolvency” does not exist, unlike in 
the  EU:  the  failure  of  banks  is  handled  by  the  FDIC  using  the  tools  and  powers  at  its 
disposal.  In  case  of  failure,  the  FDIC  is  appointed  as  a  receiver  (i.e.  liquidator)  of  the 
failed institution. The preferred tool of the FDIC is the purchase and assumption (P&A) 
transaction,  whereby  the  FDIC  transfers  assets  and  deposits  (and  possibly  other 
liabilities)  of  the  failed  bank  to  a  purchaser,  or  even  sells  the  whole  bank.  It  may  also 
organise  a  bridge  bank  to  continue  the  operations  of  the  failed  bank  until  it  is  sold  or 
liquidated. Although the FDIC does not have a statutory bail-in tool (one of the four tools 
in the EU framework), the FDIC powers can achieve a comparable outcome as part of a 
liquidation process of the residual failed bank.  

The  FDIC  has  to  select  the  least  costly  way  forward  for  dealing  with  any  bank, 
encouraging  interested  purchasers  to  bid  for  the  failing  bank.  Based  on  its  experience, 
transfer  strategies  proved  to  be  less  costly  than  pay-out  in  most  cases.  The  FDIC  may 
also payout insured depositors (up to USD 250 000) when this is less costly than a P&A 
transaction.  There  are  no  hard  limits  for  support  from  the  Deposit  Insurance  Fund, 
financed by the industry, as long as the ‘least cost principle’ is respected – in particular, 
there are no minimum bail-in conditions to access that Fund, unlike in the EU.  

In terms of creditor hierarchy, the US system includes a single-tier depositor preference 
where all deposits (including insured ones) rank pari passu and which greatly facilitates 
the  use  of  the  Deposit  Insurance  Fund  to  support  such  transfer  transactions  under  the 
least cost test.  

The  FDIC  may  use  their  fund  for  many  purposes  other  than  payout:  support  a  merger 
with  another  bank,  support  transfers  of  assets  and  liabilities,  fund  a  bridge  bank  and 
provide liquidity in resolution. The US framework also provides for an exception to the 
least  cost  requirement  when  a  “systemic  risk  determination”  is  made  to  the  effect  that 
compliance  with  that  requirement  would  have  serious  adverse  effects  on  economic 

347 

 
conditions or financial stability, and the provision of assistance would avoid or mitigate 
such adverse effects534. 

Between 2000 and 2020, 95% of the FDIC’s interventions to preserve access to deposits 
in  a  failed  bank  were  P&As  (US  equivalent  of  a  transfer  tool)  with  deposit  insurance 
fund  support,  and  only  5%  were  payouts  of  covered  deposits.  The  FDIC  estimates  that 
between  2008  and  2013,  the  use  of  transfer  tools  saved  USD  42  billion,  or  43%, 
compared with the estimated cost of using payouts.  

Similarly,  the  Deposit  Insurance  Corporation  of  Japan  (DICJ)  notes  that  “The  pay-out 
method should [therefore] be avoided as far as possible.” (DICJ, 2005)” 535. 

For  these  reasons  (no  distinction  between  resolution  and  insolvency,  one  centralised 
authority for dealing with failing banks, one centralised fund, one approach to assessing 
the  least  cost  principle  and  extensive  experience  with  marketing/sale  of  failing  banks), 
the US regime is often, also in the EU discussions, raised as an example to follow. 

The  extensive  experience  and  excellent  track  record  of  the  US  FDIC,  spanning  over 
many  decades,  where 
routinely 
restructured/transferred  to  a  buyer  with  the  support  of  a  common  fund  financed  by  the 
contributions  of  the  industry,  can  reveal  how  some  features  of  the  CMDI  framework 
could be improved.  

smaller  and  mid-sized  banks  are 

failing 

534 Financial Stability Institute, (July 2022),  Counting the cost of payout: constraints for deposit insurers 
in funding bank failure management. See Table 3 on p. 15 and p.19.  
535 ECB (October 2022) Protecting depositors and saving money - why DGS in the EU should be able to 
support transfers of assets and liabilities when a bank fails 

348 

 
 
                                                           
ANNEX 9: SELECTED CASES OF APPLICATION OF THE CMDI FRAMEWORK SINCE 2015 

This annex provides an overview of selected cases when the CMDI framework was applied since 2015. The cut-off date is 18 November 2022.  

1.  PREVENTIVE PRIVATE OR MARKET-CONFORM PUBLIC MEASURES536 

Bank 

NORD/LB537 

Balance sheet size 
at time of 
intervention 

EUR 146.9 bn 
(2019) 

Home 
jurisdiction 

Date measure 
taken 

DE 

December 2019 

Description of measure taken 

and 
for 
Received  public 
restructuring,  which  the  Commission  has  assessed  as  market-
conform.  

strengthening 

support, 

capital 

Banca 
Carige(*)538 

EUR 23 bn  
(Jan 2020) 

Banca  
Carige 

EUR 23 bn  
(Jan 2020) 

IT 

IT 

December 2019 

April 2022 

The  voluntary  arm  of  the  IT  DGS  (private  measure)  and,  in 
accordance with Article 11(3) DGSD, the IT DGS (private measure 
in  accordance  with  Tercas  case  law)  provided  contributed  to  the 
capital increase of the bank.   
The IT DGS (private measure in accordance with Tercas case law) 
provided a further capital contribution of EUR 530 m to facilitate 
the sale of the bank to BPER. 

536 In the market-conform public measures the State invested in a market-conform manner together with the DGS. 
537 Case SA.49094 (2019/N)  
538 Cases marked with (*): no (individual) SA decision exists. 

349 

Amount / Source of 
assistance (if 
applicable) 

EUR 2.8 bn 
investment, 
EUR 0.8 bn capital 
relief 
(of which 
EUR 0.8 bn 
provided by the IPS 
and EUR 2.8 bn was 
a public market 
conform measure)  
EUR 318.2 m and 
EUR 301 m  

Current 
status of bank 

In operation 

Acquired 

EUR 530 m 

Acquired 

 
 
                                                           
Bank 

Banca 
Popolare di 
Bari (*) 

Balance sheet size 
at time of 
intervention 

EUR 13.6 bn 
(Jun 2019) 

Home 
jurisdiction 

Date measure 
taken 

Description of measure taken 

IT 

May 2020 

The  voluntary  arm  of  the  IT  DGS  provided  capital  (private 
measure). 

Amount / Source of 
assistance (if 
applicable) 

Current 
status of bank 

EUR 1.2 bn 

In operation 

2.  PRECAUTIONARY PUBLIC MEASURES 

Balance sheet size 
of 
time 
at 
intervention 

Home 
jurisdiction 

Date  measure 
taken 

Description of measure taken 

Amount  /  Source  of 
(if 
assistance 
applicable) 

Current  status 
of bank 

EUR 143.5 bn 
(2017) 

IT 

December  2016; 
July 2017 

Received  precautionary  liquidity  support  (state  guarantee)  and 
recapitalisation. 

EUR 22 bn  
(2018) 
EUR 34.4 bn  
(2016) 

EUR 28 bn  
(2016) 

IT 

IT 

IT 

EL 

January 2019 

January,  April 
2017 

Received  precautionary 
remunerated guarantees that are restricted to solvent banks. 
Received precautionary liquidity support in the form of guarantees.  EUR 3 bn, 

liquidity  support 

form  of 

the 

in 

January,  April 
2017 
December 2015 

Received precautionary liquidity support in the form of guarantees.  EUR 3.5 bn, 
EUR 1.4 bn 
EUR 2.7 bn  

Received precautionary recapitalisation 

Acquired 

In operation 

EUR 15 bn 
(liquidity 
guarantee), 
EUR 5.4 bn 
(recapitalisation) 
Up to EUR 3 bn  

EUR 2.2 bn 

operation, 

In 
restructuring 

operation, 

In 
restructuring 
Acquired 

Bank 

Banca Monte 
dei Paschi di 
Siena539 

Banca 
Carige540 
Banca 
Popolare di 
Vicenza541 
Veneto 
Banca542 
National 
Bank543 of 
Greece 

539 Case SA.47081 (2016/N) & Case SA.47677 (2017/N)  
540 Case SA.52917 (2019/N) 
541 Case SA.47149 (2016/N) & Case SA.47940 (2017/N) 
542 Case SA.47150 (2016/N) & Case SA.47941 (2017/N)  

350 

 
 
 
 
                                                           
Bank 

Piraeus 
Bank544 

Balance sheet size 
at 
of 
time 
intervention 

Home 
jurisdiction 

Date  measure 
taken 

Description of measure taken 

EL 

November 2015  Received precautionary recapitalisation 

Amount  /  Source  of 
assistance 
(if 
applicable) 

Current  status 
of bank 

EUR 2.7 bn 

In operation 

3.  FAILING OR LIKELY TO FAIL BANKS: NATIONAL INSOLVENCY PROCEEDINGS (NEGATIVE PIA)  

Bank 

Balance sheet size 
at time of 
intervention 

Home 
jurisdiction 

Date  

Description of measure taken 

measure taken 

EUR 34.4 bn  
(2016) 

Banca 
Popolare 
Vicenza545 
Veneto Banca  EUR 28 bn  

di 

IT 

IT 

June 2017 

June 2017 

Declared  FOLF  by  ECB;  negative  PIA  by  SRB;  entered 
compulsory administrative liquidation under  management of Bank 
of  Italy  and  granted  cash  injection  and  guarantees  by  the  State  in 
order to facilitate the transfer to Intesa Bank. 

(2016) 

Banca 
Sviluppo 

N.A. 

IT 

July 2018 

ABLV Bank 

EUR 3.6 bn  (Q3 
2017)  

February 2018 

LV (and 
subsidiary in 
LU) 

Declared FOLF with subsequent negative PIA by the Bank of Italy; 
entered  into  compulsory  administrative  liquidation  under  the 
management  of  Bank  of  Italy,  while  assets  and  liabilities  were 
transferred to Banca Agricola Popolare di Ragusa.  
Declared  FOLF  by  ECB;  negative  PIA  by  SRB;  ABLV  entered 
into  self-liquidation.  ABVL  LU  entered  into  normal  insolvency 
proceedings  under  LU  law,  following  an  extended  period under  a 
moratorium regime. 

543 Case State Aid SA.43365 (2015/N) 
544 Case SA.43464 (2015/N) 
545 Case SA.45664 (2017/N) 

351 

Amount / Source of 
assistance (if applicable) 

Current status 
of bank 

EUR 4.8 bn cash 
injection and up to 
EUR 12.7 bn guarantees 
for the combined sale of 
Banca Popolare di 
Vicenza and Veneto 
Banca. 

The  Italian  DGS  (FITD) 
provided contribution for 
the transfer of assets and 
liabilities to the acquirer. 
No  funds  from  the  State 
budget. 

Acquired 

Acquired 

Acquired 

In liquidation 

 
 
 
                                                                                                                                                                                                                                                                                                       
Bank 

Balance sheet size 
at time of 
intervention 

Home 
jurisdiction 

PNB Banka 

EUR 0.6 bn  (Q1 
2019) 

LV 

measure taken 

August 2019 

Date  

Description of measure taken 

Amount / Source of 
assistance (if applicable) 

Current status 
of bank 

Declared  FOLF  by  ECB;  negative  PIA  by  SRB;  entered  normal 
insolvency proceedings under LV law. 

No  funds  from  the  State 
budget. 

In liquidation 

Aigis  
Banca 546 

 N.A. 

IT 

May 2021 

 Declared  FOLF  with  subsequent  negative  PIA  by  the  Bank  of 
Italy; entered into compulsory administrative liquidation under the 
management  of  Bank  of  Italy,  while  assets  and  liabilities  were 
transferred to Banca Ifis. 

 The Italian DGS (FITD) 
provided contribution for 
the transfer of assets and 
liabilities to the acquirer. 

Acquired 

546 Source : EBA Notification on the use of available financial means of Italian DGS FITD - Article 11(6) of Directive 2014/49/EU 

352 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
4.  FAILING OR LIKELY TO FAIL BANKS: RESOLUTION (POSITIVE PIA)  

Bank 

Balance sheet size 
of 
time 
at 
intervention 

Home 
jurisdiction 

Date  measure 
taken 

Description of measure taken 

Amount 
assistance (if applicable) 

/  Source  of 

Current status 
of bank 

IT 

delle 

Banca 
Marche, 
Banca Etruria, 
Cassa 
di 
risparmio  di 
Ferrra,  Cassa 
di 
risparmio 
di Chieti547 

EUR 22.7 bn, 
EUR 12.3 bn, 
EUR 6.9 bn, 
EUR 4.7 bn 
(latest published 
the 
figures  at 
time 
the 
of 
measures) 

November 2015;   The four banks were put in resolution with the use of four bridge 
banks  and  an  asset  management  vehicle  (AMV).  The  Italian 
resolution fund provided support to the bridge banks to cover the 
difference between assets and liabilities and to capitalise them. It 
also  provided  guarantees  for  the  transfer  of  assets  to  the  AMV. 
The  decision  pre-dates  the  entry  into  force  of  the  BRRD 
provisions  on  bail-in.  Therefore  only  the  burden  sharing 
requirements  under  State  aid  rules  (requiring  shareholders  and 
subordinated debt holders to be written down) were applied.  

Banco 
Popular 
Español548  
KØBENHAV
NS 
ANDELSKA
SSE(*)549 

EUR 147 bn  
(2017) 

ES  

June 2017 

Determined  as  failing  or  likely  to  fail  (FOLF)  by  ECB;  placed 
into  resolution  by  the  SRB;  losses  absorbed  by  equity  and 
subordinated debt; sale to Banco Santander S.A. for EUR 1 

DKK 370 m 

DK 

September 2018  Was  declared  FOLF  and  put  in  resolution  by  the  Danish 
authorities.  All  creditors,  with  the  exclusion  only  of  covered 
deposits and non-bailinable liabilities, were bailed-in in full. The 
DGS  contributed  to  support  cover  depositors.  New  capital 
provided  by  a  bridge  bank  (which  became  the  owner  of  the 
bank). 

Acquired 

Acquired 

In  operation, 
restructuring. 

the 

No  funds  from  the  State 
budget.  The  national 
fund 
resolution 
contributed  EUR 3.6 bn 
to  absorb 
(EUR 1.7 bn 
losses,  EUR 1.8 bn 
to 
capitalise 
bridge 
banks and EUR 0.1 bn to 
capitalise 
the  AMV), 
EUR 0.4 bn  (guarantees 
on the AMV’s liabilities) 
No  public  funds  used 
and  no  funds  used  from 
the resolution fund. 
No  funds  from  the  State 
DGS 
The 
budget. 
absorbed losses in lieu of 
covered  deposits.  The 
national  resolution  fund 
capitalised 
the  bridge 
institution. 

547 Case SA.39543 (2015/N) & Case SA.43547 (2015/N) 
548 Commission Decision of 7 June 2017 endorsing the resolution scheme for Banco Popular. 
549 Source: EBA (2018), EBA acknowledges notifications from Finansiel Stabilitet 

353 

 
                                                           
Bank 

Balance sheet size 
at 
of 
time 
intervention 

Home 
jurisdiction 

Date  measure 
taken 

Description of measure taken 

Amount 
assistance (if applicable) 

/  Source  of 

Current status 
of bank 

Andelskassen 
J.A.K. 
Slagelse(*)550 

N.A. 

DK 

October 2015 

Write-down  and  conversion  of  capital  instruments,  bail-in  tool 
and bridge institution tool. 

Idea Bank(*) 

PLN 15 000 bn 
(approx.-Aug. 
2020) 

PL 

December 2020 

Sale of business tool 

Cooperative 
Bank 
Peloponnese
551 

of 

MKB552 

EUR 97 m 

EL 

December 2015 

Sale of business tool 

HUF 1 944 bn 
(end-2014, 
consolidated) 

HU 

December 2015  Asset separation tool and sale of business tool. 

Acquired 

Acquired 

Acquired 

Acquired 

No  funds  from  the  State 
budget.  The  national 
fund 
resolution 
capitalised 
the  bridge 
institution.  The  DGS 
absorbed losses in lieu of 
covered deposits. 
No  funds  from  the  State 
budget.  The  national 
resolution  fund  covered 
the 
funding  gap  and 
provided guarantees. 

No  funds  from  the  State 
budget.  The  national 
resolution  fund  covered 
the  funding  gap  (up  to 
EUR 99.6 m). 

MKB  was  a  fully  state 
owned  Bank  at  the  time 
of 
State 
resolution. 
shares  were  fully  bailed-
in. 
national 
resolution  fund  financed 
the transfer of bad loans. 

The 

550 Source: EBA  
551 Case SA.43886 (2015/N) 
552 Case SA.40441 (2015/N) 

354 

 
                                                           
Bank 

Balance sheet size 
at 
of 
time 
intervention 

Jadranska 
banka 
Šibenik.(*) 

d.d. 

Around 
EUR 300 m 

Home 
jurisdiction 

Date  measure 
taken 

Description of measure taken 

Amount 
assistance (if applicable) 

/  Source  of 

Current status 
of bank 

HR 

October 2015 

Bail-in tool, asset separation tool and sale of business tool. 

Acquired 

Acquired 

In operation as 
a bridge bank, 
until its 
eventual sale to 
a suitable 
buyer. 

No  funds  from  the  State 
budget. 
DGS 
The 
absorbed losses in lieu of 
covered deposits. 
The  national  resolution 
the 
covered 
fund 
remaining  funding  gap 
and 
the 
recapitalised 
transferred  activities  and 
supported  a  transfer  of 
part  of  NPL 
to  an 
AMV553 
No  funds  from  the  State 
budget.  The  national 
resolution  fund  covered 
the funding gap. 

The bridge bank was 
supported with cash 
injections of around 
EUR 1.4 bn (PLN 6.9 
bn), which were 
provided by the 
resolution fund and the 
deposit guarantee 
scheme. In addition, the 
Polish Commercial 

Panellinia 
Bank554 

N.A. 

EL 

April 2015 

Sale of business tool. 

Getin  
Noble Bank 
SA555 

PLN 44 bn 
(around EUR 
9.2 bn) 

PL 

October 2022 

Bail-in tool, bridge bank tool.  

553 Source: Croatian Deposit Insurance Agency (2017).   
554 Case SA.41503 (2015/N) 
555 Case SA. 100687 (2022/N)  

355 

 
 
                                                           
Bank 

Balance sheet size 
at 
of 
time 
intervention 

Home 
jurisdiction 

Date  measure 
taken 

Description of measure taken 

Amount 
assistance (if applicable) 

/  Source  of 

Current status 
of bank 

Banks’ Protection 
System (SOBK) 
comprising the 8 largest 
commercial banks in the 
PL market, voluntarily 
decided to support the 
operation (i) with around 
EUR 735 m (PLN 3.5 
bn) to absorb further 
losses and (ii) 
temporarily purchase a 
49% share in the bridge 
bank, which did not 
constitute State aid. 
The  sale  of  business 
operation 
received 
support to the amount of 
EUR 2.255 bn,  of  which 
the 
by 
EUR 489 m 
Portuguese 
resolution 
fund  and  EUR 1.766 bn 
by  the  Portuguese  State. 
The  bonds  issued  by  the 
AMV,  in  an  amount  of 
were 
EUR 746 m, 
guaranteed 
the 
by 
and 
Resolution  Fund 
counter-guaranteed 
by 
the Portuguese State. 

Acquired 

EUR 12.8 bn 

PT 

December 2015 

Banco 
Internacional 
do  Funchal, 
S.A. 
(BANIF)556 

The business of BANIF and most of its assets and liabilities were 
transferred to Banco Santander Totta for EUR 150 m, under the 
sale  of  business  tool.  The  Portuguese  resolution  fund  and  the 
Portuguese  State  provided  support  intended  to  cover  future 
contingencies.  Additionally,  some  of  BANIF’s  assets  were 
transferred to an AMV. The transfer of those assets was paid by 
the  AMV  through  the  issuance  of  bonds  (included  in  the  assets 
transferred to Banco Santander Totta), which were guaranteed by 
the resolution fund and counter-guaranteed by the State. BANIF 
kept  a  very  limited  set  of  assets  that  were  included  in  its 
insolvency  estate  once  it  entered  into  liquidation  procedures,  as 
well  as  the  liabilities  from  shareholders,  subordinated  creditors 
and related entities.  

556 Case SA.43977 (2015/N) 

356 

 
                                                           
5.  THE SBERBANK RESOLUTION CASE  

Sberbank Europe AG was a universal bank, owned by a Russian parent entity, operating in Austria, with a branch in Germany, subsidiaries in Croatia, 
Slovenia, Czech Republic and Hungary and outside the EU, in Bosnia and Herzegovina and the Republic of Serbia. It operated 185 branches and had 
more than 3,933 employees. Sberbank Europe AG reported EUR 13.64bn total assets at consolidated level and EUR 6.82bn in the Banking Union entities 
in Austria, Croatia, and Slovenia (aggregated)557. On 28 February 2022, the ECB declared Sberbank Europe AG and its two subsidiaries in the Banking 
Union, Sberbank d.d. in Croatia and Sberbank banka d.d. in Slovenia, failing or likely to fail, owing to a deterioration of their liquidity situation from 
significant deposit outflows558, which resulted from the reputational impact  of geopolitical tensions. The SRB adopted resolution schemes for the two 
Banking Union subsidiaries in Croatia  and Slovenia, however,  for the parent  entity in  Austria, the SRB  assessed that  there was no public interest  for 
resolution559. Consequently, the Croatian and Slovenian subsidiaries were placed in resolution and sold to the Croatian PostBank and NLB, respectively, 
without any support from the resolution fund or public fund support. The Austrian parent Sberbank Europe AG was prohibited from continuing business 
operations  and  the  bank  has  voluntarily  initiated  self-liquidation,  while  the  Austrian  DGS  has  paid  out  the  covered  depositors560.  The  Czech  and 
Hungarian  authorities  also  decided  to  close  and  wind  down  the  Czech  and  Hungarian  subsidiaries  and  pay  out  the  covered  depositors  through  the 
Czech561 and Hungarian562 DGS respectively563. 

557 Source: SRB. 
558 Source: ECB 
559 Source: SRB 
560 Source: FMA  
561 Source: EBA 
562 Source: EBA 
563 See section 7.1.4.4 of the Annex 5 (evaluation) for more information on the impact of the payouts on the national DGSs in the case of the Austrian parent. 

357 

 
 
 
                                                           
ANNEX 10: RATIONALE AND DESIGN FEATURES FOR A COMMON 
DEPOSITOR PROTECTION IN THE BANKING UNION 

The  Commission’s  legislative  proposal  on  EDIS  of  24  November  2015  has  been 
contentious  since  its  adoption.  While  political  negotiations  in  the  European  Parliament 
and the Council stalled, technical discussions in Council Working Party (CWP) and High 
Level  Working  Group  (HLWG)  elaborated  other  models  such  as  liquidity  support  in 
reinsurance,  mandatory  lending  and  a  hybrid  option  combining  the  two.  The  so-called 
hybrid model emerged as a possible compromise between the Member States supporting 
the  2015  proposal,  and  those  underlining  the  pre-condition  of  risk  reduction  before 
agreeing to share the banking sector risks564. 

However, the rationale for a common depositor protection in the Banking Union is still 
valid and arguably reinforced by the Covid-19 outbreak and the challenging geopolitical 
situation.  Depositor  protection  in  the  EU  is  a  national  responsibility  and  liability. 
However,  this  results  in  a  misalignment  of  liability  and  control  within  the  Banking 
Union.  Because  supervision  and  resolution  have  been  centralised  with  respectively  the 
European  Central  Bank  (Single  Supervisory  Mechanism)  and  the  Single  Resolution 
Board  (Single  Resolution  Mechanism)  being  the  responsible  central  bodies,  their 
decisions  have  the  potential  to  create  liabilities  for  the  DGSs  at  national  level  with 
respect  to  depositor  protection.  Moreover,  a  common  scheme  for  depositor  protection 
would benefit from an increased firepower and would reduce the vulnerability of national 
DGSs  to  large  asymmetric  local  shocks.  It  is  key  for  financial  stability  and  depositor 
confidence  in  the  Banking  Union.  It  could  also  unlock  further  market  integration  and 
cross-border  consolidation.  Last  but  not  the  least,  it  would  reduce  the  bank-sovereign 
nexus. 

EDIS  would  be  a  natural  complement  of  the  CMDI  framework  because  of  the  role  of 
national DGSs in the crisis management to protect depositors, prevent bank runs and so 
preserve  financial  stability.  The  CMDI  review  seeks  to  reinforce  the  prominence  of 
national DGSs in the continuum of crisis management. It would address the hurdles that 
so far hindered the DGSs and authorities when using the existing tools at their disposal. 
The  proposed  policy  options  would  facilitate  the  interventions  by  DGSs  to  finance  the 
sale of medium-size and smaller deposit-based banks, in particular bridging the access to 
the  resolution  fund  for  banks  unable  to  reach  the  8%  TLOF  requirement  without 
necessarily bailing in deposits. The benefits of this policy avenue would be undermined 
if  EDIS  were  not  in  place  to  address  the  risks  of  liquidity  shortfalls  in  the  available 
financial  means  of  national  DGSs,  which  in  the  past  was  conducive  to  the  recourse  to 
additional public financing. 

564 See Annex 5, Evaluation – Chapter Error! Reference source not found. – Section “State of play of 
the common deposit guarantee scheme in the Banking Union”. 

358 

 
 
 
 
                                                           
1.  COMMISSION’S PROPOSAL ON EDIS OF 24 NOVEMBER 2015  

The  2015  proposal  considered  the  establishment  of  EDIS  in  three  successive  stages:  a 
reinsurance scheme for participating national DGSs in a first period of three years, a co-
insurance scheme for participating national DGSs in a second period of four years, and 
full  insurance  for  participating  national  DGSs  in  the  steady  state.  EDIS  would  provide 
funds  for  payout  or  in  resolution.  In  all  three  stages,  EDIS  would  also  cover  ultimate 
losses  incurred  by  the  participating  DGS  following  depositors’  compensation  or 
contribution  to  resolution.  It  provided  for  a  progressive  transfer  of  funds  of  national 
DGSs  towards  a  deposit  central  fund  (so-called  DIF)  until  a  target  level  of  0.8%  of 
covered deposits was attained. A national DGS would only benefit from EDIS if its funds 
were  built  up  in  line  with  a  funding  path  and  upon  compliance  with  essential 
requirements under Union law. The SRB would be responsible for administering EDIS, 
releasing funds where clearly defined conditions are met. It would also monitor national 
DGSs that would remain responsible for handling depositor claims.  

During  the  initial  discussions  in  the  CWP,  a  significant  number  of  Member  States 
considered  the  implementation  of  a  third  pillar  of  the  Banking  Union  as  a  priority  and 
welcomed  the  proposal.  Some  of  them  supported  a  faster  mutualisation  process,  taking 
the view that the substance of the provisions and the timing of the entry into force should 
be even more ambitious. Some Member States strongly objected to the proposal and its 
timing,  contesting  the  necessity  and  appropriateness  of  the  proposal  and  the  lack  of 
impact  assessment.  Among  the  latter,  some  were  therefore  not  in  a  position  to  discuss 
details  of  the  proposal.  A  number  of  others,  while  generally  supporting  the  proposal, 
have raised concerns565. These positions have not materially changed over the years.  

The technical discussions in the CWP have been ongoing since 2016. These have built on 
the Commission services’ effects analysis carried out in 2016 to remedy the lack of the 
impact assessment566. These discussions focused on the general concepts of the roll out 
of  EDIS,  including  loss  coverage,  as  well  as  on  the  specific  elements  of  the  2015 
proposal,  sometimes  proposing  concrete  adjustments.  Overtime,  the  various  progress 
reports under successive Council Presidencies highlighted the emerging divergent views 
and tendency to depart from the 2015 proposal. In addition to the fundamental concerns 
regarding risk sharing and risk reduction, the main elements put forward as reasons for 
requiring a substantial departure from the 2015 proposal are described below. 

IPSs567 

The 2015 proposal was silent about the treatment of IPSs, which led to criticism that the 
specific  business  model  of  the  IPS  based  on  failure  prevention  measures  (beyond  the 
“paybox”  function)  and  its  stabilising  role  were  not  recognised.  IPSs  can  also  be 
recognised  as  a  DGS  within  the  scope  of  the  DGSD  and  are  subject  to  the  same 
requirements, including the target level of 0.8% of covered deposits.  

565 European Council (14 June 2016), Presidency Progress report - Strengthening of the Banking Union, 
p.3. 
566 European Commission (11 October 2016), Effect analysis on EDIS, p. 53-54.  
567 See glossary. 

359 

 
                                                           
The effects analysis on EDIS explored several policy options, including considering the 
IPS membership as a risk-mitigating factor leading to lower contributions to EDIS from 
IPS  members  that  finance  preventive  and/or  alternative  measures.  In  recent  CWP 
debates, some argued that IPSs and their failure prevention measures should be covered 
by EDIS and that their potential lower risk profile could be reflected via lower levels of 
EDIS contributions. Others supported covering them only from national funds (within or 
above  the  target  level).  Some  Member  States  suggested  excluding  IPSs  from  EDIS 
because  of  their  core  functions  as  framed  under  the  CRR  and  the  cost  neutrality 
principle568.  However,  others  considered  such  an  exclusion  as  suboptimal  from  the 
perspective  of  the  coherence  of  the  legal  framework  because  IPSs  are  integrated  in  the 
SSM and SRM. Other arguments put forward in favour of the integration of IPSs in EDIS 
were:  the  order  of  magnitude  of  covered  deposits  in  the  IPSs,  the  risks  in  terms  of 
financial stability if significant institutions were excluded from the common scheme, and 
the  level  playing  field569.  Overall,  a  majority  of  Member  States  seemed  to  support  the 
inclusion of IPSs and their members in the scope of EDIS.  

Box 19: IPS in the EU  

IPSs operate in seven Member States (AT, DE, ES, IT, LT, PL). In two Member States, 
the IPSs are recognised as DGSs.  

Divergences exist among the IPSs. While in some IPSs, members’ contributions are 
capped if own viability is at risk, other IPSs have an obligation to support their members 
(i.e. there is a legal claim to receive support). Approaches also vary with respect to 
funding, with specific rules on sequencing. Some IPSs have additional funds that cannot 
be commingled with the DGS funds and must first be exhausted before using the DGS. 
Other IPSs have only one fund fulfilling both the IPS and DGS function.  

In terms of the order of magnitude, they protect covered deposits amounting to 20.8% of 
total covered deposits in the Banking Union and 18.8% of total covered deposits in the 
EU (EUR 7.029 bn).  

Hybrid IPSs (currently three also recognised as DGSs) encompass both less significant 
and significant banks and, consequently, are subject to joint monitoring by the ECB and 
the national authorities.  

Cases where DGS funds were used in the early monitoring process to prevent banking 
failures are relatively rare (see for example the non-confidential decision 49094(2019/N). 

Non-CRR entities and third-country branches 

The 2015 proposal  covered  all credit institutions affiliated to  a DGS.  In  some Member 
States, this includes entities exempted from the scope of the CRD/CRR – so called non-
CRR entities – and third country branches.  

568 European Council (November 2020), Presidency progress report on the strengthening of the Banking 
Union.  
569 European Council (May 2020), Presidency progress report on the strengthening of the Banking Union, 
p. 4, n. 9, P. 1 Portuguese Presidency progress report. 

360 

 
 
 
 
 
 
 
                                                           
In the context  of the debates in  the CWP, several  policy options were discussed. Some 
preferred  including  non-CRD/CRR  entities  both  within  the  scope  of  EDIS  and 
CRD/CRR  to  ensure  the  alignment  of  the  three  pillars  of  the  Banking  Union.  Others 
supported either including these entities within the scope of EDIS, complemented by an 
adjustment  of  risked-based  contributions,  or  excluding  such  entities  from  the  scope  of 
EDIS  (and  covering  them  from  national  funds).  Another  option  entailed  introducing  a 
conformity test at European level encompassing the  regulation and supervision of these 
entities as a condition for their inclusion into the scope of EDIS.  

In this respect, some Member States expressed concerns regarding the integration within 
the scope of EDIS certain entities that are not subject to common supervision under the 
CRR/CRD  framework.  It  was  argued  that,  while  such  entities  are  regulated  at  national 
level, possibly comparatively lower regulatory and supervisory standards could increase 
the risk exposure of EDIS. To reduce such a risk, some suggested including such entities 
under  the  CRR/CDR  framework  with  either  a  preferential  or  more  proportionate 
treatment in terms of prudential requirements570. Nevertheless, Member States, in which 
non-CRR entities are a material part of the banking markets, reiterated their stance that 
the proportionality provisions in the CRD/CRR framework were not suitable for all such 
entities.  Similar  concerns  and  preferences  were  voiced  in  relation  to  the  third  country 
branches571. 

Box 20: Non-CRR entities  

Compared  to  the  situation  described  in  the  effects  analysis572,  the  following  updates  are 
available  for  Member  States  in  which  non-CRR  entities  play  the  most  important  role.  In 
most of these Member States, the numbers of entities and share of covered deposits have 
slightly declined.  

In  Ireland,  credit  unions  provide  deposits  to  3.45  million  consumers  subject  to  specific 
legislation  and  Fitness  and  Probity  Regime.  62  of  these  226  credit  unions  are  over 
EUR 100 million in assets, representing 64% of that sector’s assets. Conversely, there are 
164 credit unions below EUR 100 million in assets. The largest credit union in Ireland has 
less than EUR 400 million in deposits, amounting to approximately 0.3% of the DGS. It is 
worth  noting  that  there  is  a  Savings  Protection  Scheme  for  Credit  Unions  established  in 
1989.  The  latter  is  a  discretionary  scheme  funded  by  credit  unions  affiliated  to  the  Irish 
League  of  Credit  Unions.  Similar  to  IPSs,  the  scheme  operated  by  the  Irish  League  of 
Credit Unions may intervene to provide support to a credit union in difficulty. 

In Lithuania, a reform strengthening the credit union sector has been underway since 2018. 
Each credit union has to belong to a group led by a Central Credit Union (CCU). Currently 

570 In 2019, the proportionality embedded in the prudential requirements was reinforced for entities subject 
to CRR/CRD, relative to the type and size of banking activities conducted by an entity. In particular these 
revisions include: reduced requirements for reporting and disclosures, a simplified net stable funding ratio 
(NSFR)  for  small  and  non-complex  institutions  and  simplified  approaches  for  calculating  capital 
requirements for counterparty credit risk and for market risk. 
571 European Council (May 2020), Presidency progress report on strengthening the Banking Union, p. 4, 
and  European  Council  (2  June  2021),  Portuguese  Presidency  Progress  Report  on  strengthening  the 
Banking Union, p.7. 
572  European  Commission  (2016),  Effects  analysis,  p.45-50.  The  non-CRD/CRR  entities  are  often 
exempted  from  the  CRD/CRR  framework  based  on  the  principle  of  proportionality  as  their  business 
operations are often limited to certain business of relevance for local needs.  

361 

 
 
                                                           
there  are  two  CCU  groups  with  a  total  of  56  members  (not  counting  the  leading  CCUs 
themselves). CCUs as solo entities are subject to CRR requirements and are included in the 
SSM.  CCU  groups  are  treated  as  consolidated  financial  groups.  National  prudential 
requirements  applicable  to  CCU  groups  on  consolidated  level  are  de  facto  equivalent  to 
CRR  requirements.  Four  credit  unions  are  currently  independent.  The  CCUs  and  their 
members are jointly liable for mutual solvency safeguarding. Among others, the CCU has 
to  accumulate  and  hold  at  least  1%  of  its  total  assets  in  the  Stabilisation  Fund,  raised  by 
members’ contributions. 

Type 

DGS 
member-
ship 

SSM 

Nb. of 
entities 

Total 
assets held 
by entities 
(EUR) 

Total 
assets as 
share of 
MS’ 
banking 
sector 
TA (in 
%) 
2.6% 

Covered 
Deposits 
held by 
entities 
(EUR) 

Covered 
Deposits 
as share 
of total 
covered 
deposits 
(in %) 

16.5 bn 

14.00 

Yes  

Yes 

No 

Yes 

226 

19.623 bn 

2 

268.33 m 

0.69% 

0.20 m 

0.00 

Yes 

No 

56 

787.75 m 

2.02% 

632.20 m 

3.78 

Yes 

Yes 
Yes 

(Yes 
from 
2023) 
No 
No 

4 

23 
3 

177.18 m 

0.45% 

164.11 m 

0.98 

2.099 bn 
379 m 

0.49% 
0.09 % 

1.905 bn 
245 

0.90 
0.19  

IE  Credit unions 
LT  Central  credit 
unions (CCUs) 
Credit  unions 
under  either  of 
CCU 
Credit  Unions 
(under 
restructuring) 
PL  Credit unions 
PT   Savings banks 

ONDs  

The 2015 proposal opted for preserving a degree of discretion to accommodate national 
specificities.  The  treatment  of  ONDs  set  out  in  the  DGSD  also  gave  rise  to  numerous 
discussions,  analysing  their  interaction  with  the  2015  proposal  and  exploring  possible 
options573. 

The  possible  options  were  further  harmonisation  of  ONDs  in  the  DGSD,  their  general 
exclusion from EDIS or a two-tier system. Some Member States also supported covering 
some of the options from the mutualised funds during the reinsurance or liquidity support 
phase,  because  the  latter  would  be  repaid  to  the  DIF574.  In  the  recent  discussions,  the 
majority of members supported harmonising these options and discretions to  the extent 
possible  to  cover  them,  at  least  to  a  certain  degree,  by  EDIS.  Several  Member  States 
argued  in  favour  of  harmonising  substantive  regimes  on  the  use  of  preventive  and 
alternative measures in EDIS, in particular in what concerns the least cost test575. As for 
the  extent  of  coverage  by  EDIS,  the  views  were  split  between  allowing  coverage  by 
EDIS, in view of their enhanced efficiency with a positive financial impact on the funds, 

573 European Council (November 2019), Finnish Presidency Progress report of 25 November 2019, p. 4; 
Effect analysis on EDIS p. 5, 39-57.  
574  European  Council  (12  June  2018),  Bulgarian  Presidency  Progress  report  on  European  Deposit 
Insurance Scheme, p. 9. 
575 See Chapter 6, sections 6.1.3.3 and 6.1.4.3. 

362 

 
 
 
 
 
                                                           
and  maintaining  these  measures  at  national  level.  Some  were  of  the  view  that  the 
inclusion of these measures under EDIS would require a larger DIF576. 

2.  HYBRID EDIS577  

2.1. Key features, benefits and drawbacks 

The hybrid EDIS is built around the idea of a network of national DGSs coexisting with 
deposit insurance fund at central level while funds remain within the national DGSs578.  

The  setting  of  the  parameters  of  the  model  allows  for  an  array  of  options.  The  gradual 
rollout of hybrid model (starting from a liquidity phase) could be more palatable to the 
co-legislators  through  a  transition  to  a  loss-sharing  phase  and  thanks  to  a  multitude  of 
calibration  options  for  the  main  parameters.  The  Commission  services’  survey  on  the 
hybrid  model  collected  the  views  of  Member  States  on  individual  parameters, 
summarised in Box 21579. 

Box 21: Member States’ views on the hybrid model (CWP of November 2020)  

This table summarises the outcome of the responses from 24 Member States received to 
the Commission services’ survey on the hybrid model circulated in the context of CWP in 
July  2020.  This  summary  focuses  on  the  main  technical  views  and  points  raised  in  the 
responses, not necessarily reflecting all the nuances. The brackets reflect the number of 
respondents  supporting  a  particular  feature.  The  numbers  do  not  add  up  where 
respondents did not respond to every (sub-)question.  

It follows from this survey that, while 8 respondents favoured a fully-fledged EDIS as the 
final objective, 9 respondents considered the hybrid model as a compromise to bridge the 
divergent views on the transition towards a fully-fledged EDIS. 4 respondents stated the 
contingency of any decision on EDIS, including loss sharing on the risk reduction. 

Some  positions  on  the  below  features  might  have  been  refined  during  the  subsequent 
discussions on the hybrid model in the CWP. However, these discussions, as documented 
in  the  progress  reports,  appear  less  representative  absent  the  feedback  from  a  high 
number of Member States. 

Allocation of funds  

Caps on liquidity support 
on central fund 
Cap on mandatory lending 

in  favour  of  a  large 
central fund (5) 
in favour (8)  

in favour (17)  

in  favour  of  even 
allocation (5) 

in  favour  of  a  limited 
central fund (4) 

Against (6) 

Against (2) 

Build-up of the central 
fund and of the mandatory 

In favour of parallel 
build-up  of  the  two 

In  favour  of  build-
up  of  mandatory 

In  favour  of  prior 
build-up of the central 

576 European Council (2 June 2021), Portuguese Presidency Progress report on strengthening the Banking 
Union. 
577  This  section  aims  to  summarise  technical  discussions  that  took  place  in  Council  working  parties  on 
EDIS for the benefit of transparency to all stakeholders. It does not prejudge the Commission’s position as 
the 2015 EDIS proposal is still on the table. 
578  Whereas  the  available  financial  means  could  either  remain  in  the  national  DGSs  or  be  transferred to 
individual compartments associated to each Member State within the DIF (see further 2.3.1).  
579 European Council (23 November 2020), German Presidency progress report, p.18.  

363 

 
 
 
                                                           
lending component 

(8) 

lending  component 
before  the  central 
fund (3) 

fund (1)  

Should the loan be repaid 
with interest rates? 
What should be the 
duration of loan 
maturities? 

What is the sequence of 
repaying the loan to the 
hybrid EDIS (the DGS 
would be repaid the last)? 
When should the DGS in 
need raise ex post 
contributions? 
What crisis management 
tools should be included in 
the scope of intervention? 
Should non-CRR entities 
be included in the scope?  
Should ONDs be financed 
by the common schemes?  
Should IPSs be included 
in the scope?  

(3 flagged limited 
experience) 

Path to loss coverage 

In favour (16) 

Against (3) 

Majority of respondents were open to a compromise on the trade-
off  involving  financial  stability  in  the  banking  sector  of  the 
beneficiary  DGS  and  the  need  for  replenishment  of  the  central 
fund  or  the  lending  DGSs.  A  higher  number  of  respondents 
supported maturities longer than 5 years. 
In  favour  of  repaying  first  the 
mandatory  lending  component 
prior to the central fund (10) 

repaying 
In 
mandatory  lending  and  central 
fund in parallel (2) 

favour 

of 

Before the liquidity support (2)  After the liquidity support (17) 

Payout and 
resolution (9) 

In favour (8) 

In favour (9) 

Payout, resolution 
and alternative 
measures (4) 

All measures (7) 

Against (8)  

Against (6) 

Against (1)  

- in favour of financing 
preventive measures from the 
common scheme (2) 
- in favour of financing from 
national funds within or above 
the target level (5) 
- in favour of the same percentage of loss sharing for funds coming 
from  the  central  funds  and  for  funds  coming  from  mandatory 
lending: 8 
- against using the mandatory lending for loss sharing: 2 
-  loss  sharing  could  start  once  the  liquidity  scheme  is  fully  built-
up: 5 

In a first phase, the hybrid EDIS would provide liquidity in case of shortfall in a national 
DGS. The DIF would provide liquidity support to a beneficiary DGS, once the latter has 
exhausted its funds (or the mandatory share thereof, if the DGS funds were in excess of 
the required minimum target level). If the DIF were depleted at the time an intervention 
is needed, the SRB, on behalf of the DIF, would be able to borrow from national DGSs 
through a mandatory lending mechanism.  

As  one  of  the  main  benefits,  the  pooling  of  resources  would  increase  the  firepower  of 
national  DGSs,  as  compared  to  the  status  quo,  reduce  the  likelihood  of  shortfall  and 
subsequently possible recourse to public funds. Depositors would benefit because of their 
continued  access  to  deposits  and  enhanced  confidence  in  the  robustness  of  the  safety 
nets.  It  would also  allow lowering bank contributions  while maintaining an appropriate 
firepower  and  ensuring  a  more  sustainable  replenishment.  Hence,  the  banking  sector 
would  be  in  a  better  position  to  face  structural  challenges  (transition  to  digital, 
consolidation, low interest rate environment, etc.) and international competition.  

364 

 
 
 
The  concept  of  the  hybrid  EDIS  mitigates  moral  hazard  concerns  as  national  funds  are 
used before requesting support from the pooled resources. The co-existence of the DIF at 
central level and national DGSs allows for a modulation of the interventions between the 
two levels to reassure the concerns raised by Member States that want to keep national 
sovereignty  and/or  discretion  but  also  accountability  (moral  hazard  argument). 
Accordingly, the hybrid EDIS would also facilitate the integration of the IPSs, in view of 
their concerns about the compatibility of the 2015 proposal with their prevailing business 
model based on failure prevention. Similarly, the concept would also provide a solution 
for  the  debate  on  the  national  options  and  discretions  set  out  in  the  DGSD.  The  latter 
raised  concerns  that  pooled  resources  should  not  finance  the  claims  that  accommodate 
national specificities across Member States, sometimes leading to a higher protection of 
some  depositors.  The  hybrid  model  creates  an  environment  where,  after  further 
harmonisation, some aspects could benefit from the coverage by EDIS and other kept as 
an option for the national level.  

Therefore,  this  concept  could  alleviate  the  main  concerns  that  emerged  during  the  past 
discussions  on  the  Commission  proposal  of  2015.  Unlike  the  latter,  the  hybrid  EDIS 
would as a first step provide liquidity support only whereby the ultimate loss are borne at 
the  national  level.  While  retaining  the  original  ambition  through  its  evolutive  nature,  it 
inspires an incremental approach to build trust between Member States while continuing 
to assess and tackle risks in the banking sector with the view to prepare the ground for 
loss coverage.  

The drawback would be an increased complexity of the hybrid EDIS as compared to the 
2015 proposal,  which  envisaged one  fund at  the  end of the third stage.  In addition,  the 
hybrid  EDIS,  restricted  to  liquidity  support  and  involving  no  loss  sharing,  would  not 
fully mitigate the bank-sovereign loop. Therefore, it would still maintain discrepancies in 
depositor protection and only partially address financial stability risks in case of strong 
financial  disturbance.  The  success  of  the  hybrid  model  would  be  reliant  on  a  seamless 
cooperation and robust governance set up between the involved authorities and DGSs. 

2.2. Overview of the main possible design features and parameters 

Taking into account the feedback from the CWP, a hybrid EDIS model could be based on 
different assumptions representing varying levels of ambition measured with the degree 
of allocation between the national funds and the DIF and the extent to which the national 
funds  can  be  mobilised  for  mandatory  lending.  Table  37  presents  the  overview  of  the 
main parameters in more detail. 

Table 37: Main parameters of possible designs of hybrid-EDIS 

Allocation of the 
funds 
(the numbers are 
based on the amount 
of covered deposits 
as of end 2020) 

Low-ambition hybrid 
EDIS 
(0.8% target level) 
The DIF is allocated 
with 25% of funds, 
while 75% of the funds 
remain at the national 
level.  

Medium-ambition 
hybrid EDIS 
(0.7% target level) 
The DIF is allocated 
with 50% of funds, 
while 50% of the funds 
remain at the national 
level.  

High-ambition 
hybrid EDIS 
(0.6% target level) 
The DIF is allocated 
with 75% of funds, 
while 25% of the 
funds remain at the 
national level.  

With a 0.8% target 

With a 0.7% target 

With a 0.6% target 

365 

 
  
 
 
 
Mandatory lending 
(In case the DIF is 
depleted, the DGS in 
need is allowed to 
solicit a loan from 
other DGSs. Its 
amount would be 
capped to protect 
the funds remaining 
in the DGSs). 
Scope of 
intervention 

level, EUR 55 bn 
allocated in: 
(i) DGSs: EUR 41 bn 
(0.6% covered 
deposits). 
(ii) DIF: EUR 14 bn 
(0.2 covered deposits). 

level: EUR 48 bn 
allocated in: 
(i) DGSs: EUR 24 bn 
(0.35% covered 
deposits). 
(ii) DIF: EUR 24 bn 
(0.35% covered 
deposits). 

level: EUR 41 bn 
allocated in 
(i) DGSs: EUR 10 bn 
(0.2% covered 
deposits). 
(ii) DIF: EUR 31 bn 
(0.4% covered 
deposits). 

Maximum  30%  of  the 
funds  remaining  in  the 
DGSs 
be 
mobilised for mandatory 
lending to the DIF. 

could 

Maximum  50%  of  the  funds  remaining  in  the 
DGSs  could  be  mobilised  for  mandatory 
lending to the DIF. 

The  support  from  the 
DIF 
and  mandatory 
lending  could  finance 
various  types  of  DGS 
interventions.  The  least 
cost 
test  would  be 
harmonised. 

From  an  economic  point  of  view,  it  would  be 
relevant  that  DGSs  would  be  entitled  to  a 
support  from  the  DIF  to  finance  all  types  of 
interventions  outside  the  payout  of  covered 
deposits.  Indeed,  the  least  cost  test  would  be 
harmonised,  ensuring  level  playing  field  and 
avoiding any excessive uses of DGS and EDIS 
funds.  Consequently,  the  least  costly  option 
would  always  be  applied,  ensuring  efficiency 
for the EDIS scheme. 

With  EDIS  in  place,  the  CMDI  review  could 
rely  on  important  funds  available  to  deal  with 
smaller and medium-sized banks failures.  

National options 
and discretions 

Maturity of the 
loans 
Interest rates 

Repayment 
sequencing 

Extraordinary 
contributions and 
alternative funding 
arrangements 
Governance  

If harmonised, national options and discretions would be financed by the 
DIF and mandatory lending. National options and discretions that are not 
harmonised could be financed at the national level, with funds above the 
target level. 
Maximum  6  years  from  loans  coming  from  the  DIF  and  from  the 
mandatory lending component. 
Interest rates would be equal to the ECB marginal facility rates, increased 
by 1% after 3 years in order to encourage fast repayment.  
The  payments  of  the  beneficiary  DGS  would  be  repaid  in  the  following 
sequence:  first  to  reimburse  the  mandatory  lending  component  and  then 
the  DIF.  After full repayment of  the  loans, the  DGS would start  its  own 
replenishment. 
Extraordinary contributions and alternative funding arrangements obtained 
by the beneficiary DGS would be used to reimburse the loan. These could 
be seen as an ultimate guarantee of reimbursement. 

The governance could follow the principle to align liability and control580 
and imply the following:  
-  A  more  decentralised  decision-making  under  a  low  ambition  hybrid 
EDIS. With the majority of funds remaining at the national level, the 
national  authorities  would  have  a  greater  role,  in  particular  in  case 

580 See also European Council (2 June 2021), Portuguese Presidency Progress Report on strengthening the 
Banking Union in which some Member States supported the alignment of liability and control.  

366 

 
 
 
 
                                                           
only national funds are used, subject to appropriate involvement of the 
central authority as a safeguard.  

-  A  more  centralised  decision-making  under  a  medium  and  high-
ambition hybrid EDIS. The role of the central authority (SRB) would 
increase with the ambition of EDIS.  

the 

liquidity  support  and 

-  The  activation  of 

its  subsequent 
replenishment would require involvement of the central authority for 
assessing compliance of the measure decided at the national level. 
-  The  concrete  application  and  implementation  of  measures  and 
conditions under all options would require the involvement at central 
level in the context of the hybrid EDIS, entailing a network of national 
DGSs  and  a  central  fund.  The  type  of  the  involvement  would  range 
from  the  monitoring,  consultation  and  approvals  depending  on  the 
option  to  ensure  a  harmonised  application  of  the  measures  and 
sufficient safeguards across the Member States. 

2.3. Effectiveness and efficiency of the hybrid EDIS 

Effectiveness 

The  Commission  services  performed  various  simulations  to  test  the  robustness  of  the 
hybrid  EDIS  in  reimbursing  depositors  in  case  of  payout,  under  various  scenarios  of 
financial  crisis  of  different  severity581.  It  demonstrated  the  effectiveness  of  various 
designs of the hybrid EDIS compared to the status quo (i.e. national DGSs only). Pooling 
resources has a strong positive impact on depositor confidence and financial stability.  

This  analysis  compares  (i)  the  different  designs  of  hybrid  EDIS  and  (ii)  the  status  quo 
where  19  national  DGSs  guarantee  deposit  protection  in  the  Banking  Union.  The 
following assumptions apply:  

  Only liquidity support in the payout scenario is analysed under various designs of 
hybrid EDIS, i.e. hybrid EDIS with different degree of pooled resources and a so 
called ‘full liquidity pooling’ which corresponds to the pooling of all DGS funds 
in  line  with  the  Commission  2015  proposal  for  liquidity  support  only  (first 
phase). Loss coverage (genuine mutualisation of the risks) is not analysed.  

  The pooled funds include the financial means in the DIF and the part of funds in 
national DGSs that could be mobilised for mandatory lending. In this analysis, a 
hybrid  EDIS  with  a  large  DIF  and  a  high  share  of  national  funds  that  can  be 
mobilised for mandatory lending represents a high degree of pooling.  

  The  analysis  evaluates  the  effectiveness  of  various  hybrid  models  based  on  the 
following  two  criteria:  (i)  the  presence  of  a  DGS  liquidity  shortfall  (i.e.  the 
inability  of  one  DGS  to  fully  reimburse  the  depositors),  and  (ii)  the  amount  of 
these  liquidity  shortfalls.  It  uses  the  SYMBOL  model  to  simulate  a  very  high 
number  of  financial  crisis  leading  to  banks’  failures  and  payout  of  covered 
depositors.  

581 See JRC report (Annex 12). 

367 

 
 
                                                           
It  concludes  that  all  variants  of  hybrid  EDIS  are  able  to  protect  a  higher  amount  of 
covered deposits than under the status quo.  

  All designs of the hybrid EDIS and the full liquidity pooling significantly reduce 
the  likelihood  and  the  sizes  of  liquidity  shortfalls,  even  under  a  systemic  event. 
The  more  resources  are  pooled,  the  more  effective  and  robust  the  depositor 
protection is.  

 

It presented the results based on three crisis scenarios of different intensity: (i) a 
comparable  to  the  financial  crisis  in  2008,  (ii)  less  serious  and  (iii)  more 
serious582. 

  For instance, under a financial crisis as severe as in 2008583: 

-  The  hybrid  EDIS  would  reduce  the  probability  of  a  liquidity  shortfall  from 
87%  (i.e.  probability  of  liquidity  shortfall  under  the  current  framework)  to 
47%-56% (depending on the degree of pooling of funds584). 

- 

In extreme cases where a liquidity shortfall would occur both under the status 
quo and under a hybrid EDIS, the amount of shortfall would be significantly 
lower  under  the  hybrid  EDIS.  The  hybrid  EDIS  would  cover  from  60%  to 
68% (depending on the degree of pooling of funds) of liquidity shortfalls that 
would otherwise be unprotected under the current framework.  

-  The  hybrid  EDIS  would  have  the  capacity  to  reimburse  larger  amounts  of 
covered  deposits.  On  average,  under  the  current  framework,  EUR  22 bn  of 
covered deposits would be reimbursed to depositors and EUR 31-36 bn under 
the hybrid/EDIS (depending on the degree of pooling of funds). 

  Even in case of a systemic crisis, the hybrid EDIS outperforms the status quo. The 
probability of liquidity shortfall and the amount of covered deposits that would not 
be protected are lower:  

-  The probability of a liquidity shortfall is 87% under the status quo, 46%-56% 

under the hybrid EDIS (depending on the parameter settings). 

-  The  hybrid  EDIS  covers  60%-68%  of  liquidity  shortfalls  that  otherwise 

remain unprotected under the status quo.  

-  Under the status quo, all national DGS protect EUR 22 bn on average, while 
the  hybrid  EDIS  allow  covering  EUR  31-36 bn  of  covered  deposits  on 
average. 

582 See JRC analysis on “Measuring the effectiveness and the pooling effect of EDIS” p.21. 
583 The relative effectiveness of the status quo and the hybrid EDIS does not change under other severities 
of crisis. 
584 Hybrid models with a low degree of pooling of funds are close to 56% and hybrid models with a high 
degree of pooling are close to 47%. 

368 

 
 
                                                           
Efficiency, pooling effect and target levels 

Pooling of resources increases the probability of full protection of the covered deposits 
without  liquidity  shortfall.  Therefore,  it  delivers  a  higher  efficiency  for  various  hybrid 
EDIS designs creating room for lowering the target level and, consequently, reducing the 
cost for the banking sectors across Member States.  

The  possibility  to  collect  lower  amount  of  ex  ante  funding  by  the  industry  without 
jeopardising the current level of depositors’ protection was also explored. This analysis 
compared the performance of the hybrid EDIS under various shares of pooled resources 
and reduced target levels with the status quo. The main results point to the possibility to 
maintain  or  even  increase  the  current  level  of  depositor  protection  with  a  lower  target 
level.  The  more  resources  are  pooled,  the  lower  the  target  level  could  be.  As  a  result, 
depending on the design of the hybrid model, the target level could be set between 0.5% 
and 0.8%, without lowering depositor protection.  

For  instance,  under  a  target  level  of  0.7%  of  covered  deposits,  the  probability  that  a 
hybrid  EDIS  would  allow  a  better  depositor  protection  than  under  the  status  quo  is 
around  99.8%585.  Under  a  significantly  reduced  target  level  (0.5-0.6%),  there  is  a  95% 
probability that a hybrid model586 provides a better protection than under the status quo. 

This quantitative analysis supports the potential reduced target level under an ambitious 
EDIS.  However,  this  quantitative  work  only  considers  the  hybrid  models  for  payout, 
under  the  current  creditor  hierarchy.  A  single  category  of  claims  for  all  deposits  and  a 
more frequent  use of measures like transfer strategies was also  taken into account.  The 
impact of two latter create upward or downward pressure on the amount of funds used by 
the DGS and hybrid EDIS that are hard to precisely calculate. The net impact is likely to 
be positive for the DGS and hybrid EDIS funds and is explained in more details below 
(see Error! Reference source not found.: Implications of the scope on the uses of DGS 
and hybrid EDIS funds). 

2.3.1.  How  do  the  main  parameters  of  the  different  hybrid  EDIS  designs 

compare? 

The  possible  designs  of  hybrid  EDIS  vary  in  the  degree  of  allocation  between  the 
national funds and the DIF and the extent to which the national funds can be mobilised 
for  mandatory  lending.  The  likelihood  of  the  recourse  to  the  mandatory  lending  is 
directly proportional to the amount of available funds in the DIF. The other parameters 
are common to the various designs and relate to  the modalities of the repayment of the 
liquidity  support,  i.e.  maturity  of  loans,  interest  rates,  repayment  sequencing  and 
replenishment, and the scope of coverage.  

2.3.1.1. Low-ambition hybrid EDIS 

585 99.8% for hybrid EDIS with reduced shared of pooled resources and 99.9% for hybrid EDIS with high 
shares of pooled resources. 
586  95%  for  hybrid  EDIS  with  reduced  shares  of  pooled  resources  and  98%  for  hybrid  EDIS  with  high 
shares of pooled resources. 

369 

 
                                                           
In  this  scenario,  hybrid  EDIS  would  imply  a  larger  role  for  national  solutions  and 
resources and a smaller role for central funding.  

Allocation of the funds and mandatory lending 

The allocation of funds would maintain 75% of the funds at national level. Accordingly, 
25% of DGS funds would be transferred to the DIF, while 30% of the funds remaining in 
the national DGS could be mobilised for mandatory lending (i.e. cap amounting to 30%). 
Unlike in the case of mandatory lending, there is no cap on the DIF. Indeed, while setting 
such a cap would arguably protect the funds in the DIF, it would increase the complexity 
of the hybrid EDIS and lower the capacity of an effective crisis response. Moreover, the 
probability  of  recourse  to  the  mandatory  lending  would  be  higher,  more  prone  to 
operational challenges than accessing the resources in the DIF and less effective in terms 
of crisis response due to the limited amount in national DGSs.587  

This  scenario  would  be  more  efficient  than  the  status  quo  for  the  banking  industry 
because it would address more effectively the risk of shortfalls. However, the relatively 
lower pooling effect leads to a higher risk of DGS liquidity shortfall than under a high-
ambition  model  (as  well  as  the  middle-way  option).  Therefore,  by  providing  limited 
scope for synergies it would maintain the target level (i.e. 0.8% of the covered deposits).  

Scope of intervention  

In line with the limited share of funds transferred to the DIF and the cap on mandatory 
lending,  the  available  firepower  in  hybrid  EDIS  would  only  allow  to  finance  DGS 
interventions  for  payout  and  in  resolution.  The  preventive  and  alternative  measures 
would be financed at the national level.  

Under this  scenario, members  of  IPSs would be required to  transfer 25% of their DGS 
financial  means  to  the  DIF  (corresponding  to  the  25%  earmarked  for  payouts).  This 
would also imply that IPSs would finance preventive measures with the funds remaining 
at  national  level,  in  line  with  their  business  model.  Compared  to  the  baseline  scenario, 
the change would imply a transfer of a certain portion of their DGS funds at central level, 
combined  with  the  changes  affecting  the  revised  conditions  of  application  (Annex  6). 
This would, however, not affect the amount available for preventive measures because, 
under  the  current  framework,  if  the  available  financial  means  fall  below  25%,  the 
affiliated institutions must immediately provide the means used for preventive measures, 
e.g. in the form of extraordinary contributions. 

2.3.1.2. High-ambition hybrid EDIS 

In  this  scenario,  hybrid  EDIS  would  have  a  strong  centralised  component,  ensuring  a 
large firepower conducive to synergies to reduce the costs to the industry. 

Allocation of the funds and mandatory lending 

A  combination  of  a  large  DIF  and  a  significant  part  of  funds  remaining  at  the  national 
level available for mandatory lending would imply a large firepower. To this end, a large 

587 The mandatory lending would require prior collection of funds from all national DGSs.  

370 

 
                                                           
share  of  the  national  funds  (i.e.  75%)  is  transferred  to  the  DIF.  In  case  the  DIF  is 
depleted,  50%  of  the  funds  remaining  in  national  DGSs  could  be  mobilised  for 
mandatory lending. The cap on the amount potentially mobilised for mandatory lending 
would be set at 50% of the funds remaining in the national DGS. Like under option 3, no 
cap would be applied on the DIF. 

Compared  to  a  low-ambition  model,  the  larger  firepower  would  allow  to  exploit 
maximum  synergies  as  a  result  of  the  pooling  effect  and  would  reduce  the  cost  of 
funding, putting the banking sector in a better position to face the current challenges and 
contribute  in  the  ongoing  economic  recovery.  According  to  the  quantitative  analysis 
performed by the JRC, the combined target level for the Banking Union Member States 
would  be  reduced  from  the  current  0.8%  to  0.6%.  Such  a  lower  target  level  would 
correspond to a 25.5% cost reduction (around EUR 14 bn) for the banking sectors in the 
Banking Union. 

Scope of intervention 

The economic rationale for allowing support from the DIF to national DGSs to finance 
preventive  and  alternative  measures  is  clear.  Indeed,  the  least  cost  test  would  be 
harmonised,  ensuring  level  playing  field  and  avoiding  any  excessive  uses  of  DGS  and 
EDIS  funds.  Consequently,  the  least  costly  option  would  always  be  applied,  ensuring 
efficiency for the EDIS scheme. 

This approach would provide incentives to integrate the members of IPSs (recognised as 
DGS)  within  the  European  system  of  safety  nets.  Similar  to  other  banks,  members  of 
IPSs would be included in the scope of the hybrid EDIS and eligible for liquidity support 
for  all  EDIS  interventions.  Through  the  funds  remaining  at  the  national  level  and  the 
target  level  reduction,  they  would  also  have  large  amount  of  funds  at  the  IPS  level  to 
finance the preventive measures. Consequently, IPSs would retain their current business 
model  based  on  the  failure  prevention  using  preventive  measures,  subject  to  the 
modifications  proposed  in  Annex  6.  In  particular,  like  any  other  DGS,  IPSs  would  be 
subject  to  a  least  cost  test  and  more  harmonised  conditions  when  financing  preventive 
measures.  In  addition,  a  specific  mechanism  could  determine  an  appropriate  reduction 
from  the  contribution  to  the DIF to reflect  a lower risk profile  and  effectiveness  of the 
monitoring  functions.  For  the  sake  of  completeness,  an  alternative  approach  would  be 
required in case preventive measures were subject to a tailored least cost  test reflecting 
the features of IPS, e.g. the presence of a legal commitment to intervene. 

2.3.1.3. Medium-ambition hybrid EDIS 

In this  scenario, hybrid  EDIS would  have a medium centralised component,  ensuring a 
medium firepower conducive to certain synergies to reduce the costs to the industry. 

Allocation of the funds and mandatory lending 

Under this scenario, the allocation of funds would maintain 50% of the funds at national 
level and 50% of DGS funds transferred to the DIF. In case the DIF is depleted, 50% of 
the funds remaining in the national DGS would be mobilised for mandatory lending. The 

371 

 
cap on the amount potentially mobilised for mandatory lending would be set at 50% of 
the funds remaining in the national DGS, while no cap would be applied to the DIF. 

Compared to a low-ambition model, a larger firepower would generate certain synergies 
because of the pooling effect and reduce the cost of funding, putting the banking sector in 
a better position to  face  the current  challenges  and contribute in  the ongoing economic 
recovery. According to  quantitative analysis, the combined target  level  for the Banking 
Union Member States would be reduced from the 0.8% of covered deposit to 0.7%. On 
average,  it  would  lead  to  a  12.7%  cost  reduction  for  the  banking  sector  (contributions 
corresponding to the target level would decrease from EUR 55 bn to EUR 48 bn). 

Scope of intervention  

Like  in  a  high-ambition  model,  it  would  be  economically  efficient  to  include  all  DGS 
interventions in the scope of EDIS. 

This  approach  would  provide  the  same  incentives  to  integrate  the  IPSs  within  the 
European  system  of  safety  nets,  while  preserving  their  business  model,  as  described 
above for a high-ambition model. 

2.3.2.  Focus on the remaining parameters 

Features of the loans from the DIF and mandatory lending 

The  liquidity  support  would  take  the  form  of  a  loan  from  the  DIF,  including  resources 
from  paid-in  means  and/or  those  mobilised  via  the  mandatory  lending  mechanism. 
Taking  into  account  the  discussions  in  the  CWP,  the  best  policy  option  would  be  to 
provide  for  high-level  features  of  the  loan,  such  as  loans  and  interests,  set  out  in  a 
repayment  plan  to  be  agreed  in  advance  between  a  national  DGS  and  the  SRB  as  the 
central  authority.  This  approach  would  also  be  broadly  in  line  with  the  feedback  of 
members  in  the  CWP  where  a  higher  number  of  members  supported  a  maturity  longer 
than five years as well as the interest rates. Nevertheless, also in line with this feedback, 
these  rules  would  also  require  a  specified  degree  of  embedded  flexibility  to  reflect  the 
effect on financial stability on a case by case basis.  

When  setting  the  loan  maturities,  the  main  trade-offs  involve  an  incentive  for  the 
beneficiary DGS to reimburse the loan within a short period and, thereby, ensuring a fast 
replenishment of the DIF (including the national DGSs involved in mandatory lending) 
balanced against the financial stability objectives in the beneficiary DGS’ banking sector. 

While  a  short  maturity  is  susceptible  to  put  a  national  DGS  under  pressure,  a  long 
maturity  would  limit  the  funding  capacity  of  the  DIF  for  years.  Accordingly,  the  best 
option  would  be  to  set  a  maximum  threshold  of  up  to  6  years  for  the  loans  to  a 
beneficiary  DGS.  This  approach  would  be  consistent  with  Article  10(2)  DGSD  on  the 
replenishment of the available financial means to ensure a level playing field in the single 

372 

 
market.588  Hence,  the  same  replenishment  rules  should  apply  in  the  Member  States 
within and outside the Banking Union.  

The loans would be subject to interest rates. When determining the level of interest rates, 
the  interest  rates  should  compensate  the  opportunity  cost  of  the  DIF  and  the  national 
DGSs as they have to lend to a beneficiary DGS instead of investing their funds in low-
risk  assets,  while  encouraging  a  fast  repayment  of  the  liquidity  support.  Consequently, 
the  best  option  would  be  to  set  the  interest  rates  at  the  ECB  marginal  lending  facility 
rate589, plus 1% for years 3 to 6.  

In this  respect,  the discussions in  the CWP highlighted the importance of avoiding any 
first  mover advantage, i.e. where the first  mover gains  access  to  the central  fund under 
better conditions than a second beneficiary DGS. For this reason, the same maturity and 
interest  rates  from  loans  coming  from  the  DIF  and  from  the  mandatory  lending 
component  would  appear  the  most  suitable  means  to  avoid  any  first  mover  advantage. 
The alternative option would be to  subject  the loans to  different  conditions,  e.g. higher 
interest rates if they come from mandatory lending. This would imply that, depending on 
the  actual  funding  capacity  of  the  DIF,  the  second  beneficiary  DGS  would  have  no 
choice than to request support from the DIF relying on mandatory lending of the hybrid 
EDIS.  

Sequencing of the repayment  

In line with the feedback received in the CWP, a specific sequencing mechanism would 
be appropriate to prioritise the replenishment of the loans provided by other DGSs over 
the  loan  from  the  paid-in  means  in  the  DIF.  Accordingly,  the  beneficiary  DGS  would 
repay the liquidity  support in  instalments,  to  be  specified in the  repayment  plan, to  the 
DIF.  The  latter  would  repay  first  the  other  national  DGSs  involved  in  the  mandatory 
lending and, second, would replenish the amount due to the DIF itself. Consequently, the 
loans from mandatory lending component is likely to be subject to a maturity shorter than 
six years. The national DGS would replenish their own funds as a last resort.  

Replenishment by extraordinary contributions and alternative funding arrangements 

Beneficiary  DGSs  would  repay  the  liquidity  support  in  line  with  the  rules  set  out  in 
Article 10(8) DGSD. According to this provision, in case  the available financial means 
are  insufficient,  DGS  members  shall  pay  extraordinary  contributions,  and  the  ex  post 
contributions  should  not  exceed  0.5%  of  the  covered  deposits  of  DGS  members  per 
calendar year. Among the policy options discussed, extraordinary contributions would be 
raised either before requesting support from the hybrid EDIS or subsequently. The trade-
off  to  consider  would  be  between  financial  stability  in  the  concerned  banking  sector 
versus the protection of the means of the DIF and incentive compatibility. 

588  Article  10(2)  DGSD  provides:  “If,  after  the  target  level  has  been  reached  for  the  first  time,  the 
available  financial  means  have  been  reduced  to  less  than  two-thirds  of  the  target  level,  the  regular 
contribution shall be set at a level allowing the target level to be reached within six years.” 
589 Potentially with a floor at 0%.  

373 

 
                                                           
In  line  with  the  feedback  received,  the  best  policy  option  would  be  to  raise  ex  post 
contributions after receiving liquidity support in order to repay the loan. In this scenario, 
the  DGS  would  receive  fast  liquidity  support,  facilitating  the  DGS’  intervention  and 
strengthening 
the  confidence  of  depositors.  Together  with  alternative  funding 
arrangements  under  Article  10(9)  DGSD,  to  be  reinforced  as  proposed  in  Annex  6, 
extraordinary  contributions  may  be  seen  as  a  reliable  ultimate  guarantee  of 
reimbursement, contributing to build trust among the participants in the hybrid EDIS.  

Governance 

The discussions in the CWP on governance highlighted the importance of the alignment 
of liability and  control.  There  was a  general  support for the SRB as a central  authority 
administering EDIS. A number of members also acknowledged that, whilst dependent on 
the design of EDIS, the governance arrangements should not be overly complex to ensure 
effective decision-making. For several members, it would be important to envisage a role 
for  national  DGSs  in  the  decision-making  process  and  allow  access  to  the  national 
resources in  the central  fund (in the individual compartment) irrespective of the central 
authority’s authorisation.  

The  low-  and  high-ambition  models  would  each  involve  either  a  more  decentralised  or 
more  centralised  approach,  subject  to  appropriate  safeguards  and  in  line  with  the 
principle  of  subsidiarity.  A  possible  alternative  middle-way  option  involving  an  equal 
split of resources at national and central level would require a more balanced approach 
between the two options conducive to a system of shared governance. All options should 
result  in  a  balanced  combination  of  a  centralised,  involving  a  participation  by  national 
authorities  and  where  appropriate,  national  DGSs,  and  a  decentralised  approach,  where 
national  authorities  take  the  lead  under  consultation  mechanism  involving  the  central 
authority.  

Non-CRR entities and third country branches 

In  view  of  the  importance  of  such  non-CRR  entities  in  a  small  number  of  banking 
markets,  the non-CRR entities could  be covered  by EDIS because the liquidity support 
would be repaid in any case. Taking into account the feedback received, the best option 
to address the concerns regarding their supervision would be to provide for a transitional 
period  during  which  the  non-CRR  entities  could  be  repatriated  under  the  CRD/CRR 
framework’s  provisions  that  have  recently  reinforced  the  embedded  proportionality. 
Depending  on  the  developments  around  the  common  authorisation  requirements  in  the 
ongoing  review  of  the  CRD/CRR  framework,  the  third  country  branches  could  be 
included in the scope of EDIS. Alternatively, they should be protected by national funds 
above the target level. 

ONDs 

The revised framework should provide incentives to finance as many ONDs as possible. 
Moreover,  given  any  liquidity  support  provided  would  be  entirely  repaid,  it  would  be 
sensible  for  the  hybrid  EDIS  to  finance  at  least  the  major  ONDs.  This  would  also  be 
beneficial in terms of administrative burden for the DGS that would otherwise have been 
required  to  distinguish  the  OND-related  claims,  not  eligible  for  EDIS  coverage,  from 

374 

 
other  depositor  claims.  Moreover,  this  would  also  be  in  line  with  the  rationale  and 
analysis  substantiating  further  harmonisation  of  several  ONDs  explained  in  the  EBA 
opinions and in Annex 6.  

During the last CWP discussion on the treatment  of ONDs in  the context  of EDIS, the 
feedback received supported a creation of as harmonised system as possible to preserve 
level  playing  field.  The  majority  of  Member  States  considered  that  ONDs  should  be 
harmonised,  where  possible,  and  covered  at  least  to  a  certain  degree  by  EDIS.  Some 
Member  States  nevertheless  underlined  the  need  for  flexibility  to  preserve  national 
specificities. Others mentioned their preference to keep the ONDs in the current form and 
cover  them  by  national  DGS  only,  possibly  with  funds  above  the  target  level.  Others 
were willing to consider eliminating some of the ONDs.  

The following table provides an overview of ONDs, based on the findings of the CEPS 
study as concerns their estimated impact in terms of either covered deposits or available 
financial means and the number of Member States in which each OND was transposed. 
The ONDs were distinguished according to their impact which is either financial for the 
DGS, with effects on depositor confidence, or other impact that would represent a higher 
exposure for EDIS.  

Table 38: Other ONDs and the corresponding provision under the DGSD (*590) 

Proposed for 
further 
harmonisation 
1.  ONDs  THAT  MAY  HAVE  AN  UPWARD  FINANCIAL  IMPACT  ON  EDIS  (I.E.  THEY  IMPACT  THE 
AMOUNT, AND THUS THE RISK PROFILE OF NATIONAL DGS/EDIS) AND POSSIBLE  IMPACT ON 
DEPOSITOR CONFIDENCE AND/OR THE LEVEL PLAYING FIELD 
Coverage level and payout procedure 

Covered by EDIS 

Rele-
vance* 

Impact* 

1. 

  Coverage of Pension Schemes (Article 5(2)a)  

No  

No  

Up to 1.4% 

2. 

  Deposits  held  by  small 

local  authorities 

(Article 5(2)b) 

3. 

  Temporary  high  balances  relating  to  certain 

transactions (Article 6(2)) 

Yes (to be 
removed)** 

Yes** 

It is proposed to 
cover public 
authorities 
Yes  

Up to 0.1%  

Up to 10%  

27 

4. 

  Old-age  provision  products  and  pensions 

No 

No 

Up to 22%  

2  

(Article 6(3)) 

  Contributions and available financial means  
  Payment commitments  

5. 

6. 

  Participations by branches from outside the EU 

(Article 15(1) 2nd subpara) 

Yes** 

Yes**  

7. 

  Lower  contributions  for  members  of  IPSs 

Yes  

(Article 13(1) 3rd subpara) 

Yes  

Yes  

Yes  

4 

6  

24 

27 

5  

Up to 63%  

n/a 

(to be 
addressed in 
risk-based 
contributions)   
not used in 
practice  

8. 

  Lower  contributions 

Yes (to be 
for 
(Article 13(1) 2nd subpara) 
removed) 
 2. ONDs THAT MAY HAVE AN IMPACT ON THE DEPOSITOR CONFIDENCE  AND/OR THE LEVEL 
PLAYING FIELD BUT NO UPWARD FINANCIAL IMPACT ON EDIS 

low-risk  sectors 

No  

4  

590 The  impact of each OND is  measured either  in terms of covered deposits or, in the case of payment 
commitments, in terms of available financial means. The relevance sets out the number of Member States 
that transposed the respective ONDs.  

375 

 
 
 
 
 
 
 
 
 
 
 
                                                           
 Coverage level and payout procedure 
  Treated as single depositor (Article 7(2)) 

9. 

10.    Set-off of depositor liabilities (Article 7(5)) 

11.    Longer  repayment  period  for  certain  deposits 

(Article 8(3)) 

12.    Deadline  on  validity  of  repayment  claims 

(Article 9(3)) 
 Contributions 

No  

Yes (to be 
removed)** 
Yes** 

Yes**  

Yes  

No 

Up to 9%  

13  

Up to 5.9%  

No impact 

Up to 2%  

No impact 

Up to 0.2%  

13.    Minimum  contribution  (Article  13(1)  5th 

Yes 

Yes  

subpara DGSD) 

 3. ONDs THAT DO NOT HAVE ANY IMPACT ON EDIS 
 Coverage level and payout procedure  

14.    Exclusion  of  deposits  to  pay  off  a  loan  on 
private immovable property (Article 5(3)) 
15.    Exclusion  of  deposits  fulfilling  a  social 

purpose (Article 7(8)) 
 Contributions and available financial means  

16.    Contribution  to  existing  mandatory  schemes 

(Article 10(4)) 

17.    Voluntary  lending  between  DGSs  (Article 

12(1)) 

18.    Use  of  a  uniform  risk-weight  affiliates  of 
central bodies (Article 13(1) 4th subpara) 

** See Annex 6 

No  

No 

Yes (to be 
removed) 

No  

No  

No  

No  

No  

No  

No impact591   

(to be 
addressed in 
risk-based 
contributions)   

Up to 22%  

Up to 25%  

n/a 

n/a 

n/a  

17 

21 

20 

8 

3 

1 

0 

14 

6 

The above table indicates the ONDs for which further harmonisation would be proposed, 
as set out in Annex 6, so that they can be covered by the DIF (at least to a certain extent). 
For  example,  the  temporary  high  balances  are  one  of  the  options  that  could  have  an 
upward  financial  impact  on  EDIS,  although  they  appear  to  be  rare.  In  line  with  EBA’s 
recommendations,  the  option  would  be  harmonised  by  setting  a  minimum  harmonised 
threshold.  Consequently,  while  some  Member  States  would  be  required  to  increase  the 
current threshold, others that already have a higher threshold would be entitled to retain 
it.  While  the  latter  would  benefit  from  a  guaranteed  coverage  by  EDIS  of  up  to 
EUR 500 000,  they  would  be  required  to  cover  any  amount  in  excess  of  the  minimum 
harmonised  threshold  from  the  funds  above  the  target  level.  Under  a  high-ambition 
model envisaging a lower target level than the current 0.8%, this approach would be cost-
neutral.  The  same  would  apply  to  the  alternative  middle-way  option.  Under  a  low-
ambition  model,  the  limited  risk  that  a  DGS  would  cover  a  portion  of  such  temporary 
high  balances  from  national  funds  above  the  target  level  would  mitigate  the  impact  on 
cost  neutrality  because  the  increased  coverage  level  should  cover  the  majority  of 
estimated temporary high balances.  

Conversely,  ONDs,  for  which  no  harmonisation  is  proposed,  would  not  be  eligible  for 
liquidity  support  from  EDIS  and  would  remain  covered  by  national  funds  above  the 
target  level  (still  cost  neutral  as  the  result  of  the  reduced  target  level  under  a  high-
ambition  model  and  a  possible  middle-way  option).  This  approach  appears  as  the  most 

591  The  amount  of  contributions  would  be  re-distributed  among  the  different  entities  within  the  same 
group, without affecting the total amount of contributions to be paid to EDIS.  

376 

 
 
 
 
 
 
 
 
                                                           
suitable because these ONDs are applicable in very few Member States (some outside the 
Banking Union). Other ONDs would not have impact in terms of coverage by EDIS and 
could be retained in the current form or subject to more harmonisation when reflected in 
the risk-based contributions592. 

2.3.3.  Implications of the scope on the uses of DGS and hybrid EDIS funds 

The financing of resolution measures could have positive implications for the resources 
available in the DGS and in the hybrid EDIS. As explained above in the case of ONDs 
and  compared  to  the  status  quo,  there  could  be  elements  under  the  revised  rules  that 
could create upward or downward pressure on amount of funds used by the network of 
DGSs  and  the  hybrid  EDIS.  Nevertheless,  the  net  impact  is  impossible  to  assess 
accurately, given a number of variables. 

On  the  one  hand,  whilst  not  altering  the  depositor  protection  up  to  EUR 100 000,  the 
change to the creditor hierarchy would significantly affect the outcomes of the least cost 
test,  increasing  the  frequency  of  DGS  uses  due  to  higher  financial  cap  for  any  DGS 
intervention.  In  the  calculation  of  the  revised  least  cost  test,  the  likelihood  of  DGS’ 
ultimate  losses  in  case  of  payout  would  be  higher  compared  to  the  current  preferential 
ranking of covered depositors.593 

On the other hand, facilitating the use of other measures like transfer strategies, whether 
in resolution594 or in insolvency, would be more efficient. It would lower the costs for the 
DGS and hybrid EDIS and better preserve its funding capacities. It would also release the 
pressure  on  emergency  of  replenishment  and  reduce  pro-cyclicality.  Moreover,  this 
positive  effect  would  be  reinforced  by  the  pooling  of  resources,  also  incrementally 
increasing  the  effectiveness  and  efficiency  of  the  hybrid  EDIS  compared  to  the  status 
quo.  The  rationale  of  the  advantages  of  DGS  interventions  alternative  to  depositor 
payouts is explained in Error! Reference source not found. 

Box 22: Rationale for the broad scope of interventions by DGS and EDIS  

Considerations concerning the cost of payout versus cost of other DGS interventions 

The cost of DGS interventions includes two dimensions: i) the immediate disbursement 
need and ii) the potential ultimate loss.  

In terms of immediate disbursement need, payout is very expensive, as the DGS has to 
immediately  pay  the  whole  amount  of  covered  deposits  to  depositors  and  wait  for 
recovery of its disbursement during lengthy insolvency proceedings.595 Consequently, a 
payout could deplete the financial means of the DGS for years, or lead to replenishments 
contributions  by  banks  potentially  putting  a  strong  financial  pressure  on  the  banking 
sector.  

592 This is the case of OND 9 and 15. See also section Error! Reference source not found.. 
593 The change in the creditor hierarchy would increase the likelihood of DGS losses in case of failure. 
594 Mostly in resolution due to the proposed changes to the PIA. 
595 See the EBA opinion on DGS funds, p. 23-24. Some Member States reported on payouts cases prior to 
2015  where  the  insolvency  proceedings  was  not  yet  completed.  Some  insolvency  proceeding  may  take 
around 10 years, e.g. decision regarding DSB Bank N.V. in the Netherlands (also here).  

377 

 
 
 
 
                                                           
In  the  long  term,  the  final  loss  for  the  DGS  would  depend  on  the  recovery  rate.  If  the 
latter is high, the ultimate loss would be relatively low and consequently impose a lower 
net  burden  on  the  DGS.  The  recovery  rates  in  insolvency  are  driven  not  only  by  the 
ranking of the covered deposits in the creditor hierarchy, but also the quality of assets of 
the  failed  bank,  the  national  insolvency  laws  and  the  efficiency  of  insolvency 
proceedings.596  

For DGS interventions other than payout, the costs and the immediate disbursement need 
for  the  DGS  are  dependent  on  the  tools  that  are  used.  Some  tools  can  be  highly  cash 
efficient, such as guarantees, in the sense that they preserve the DGS funding capacity. 
Other tools could strongly limit the potential final loss but be more cash consuming, such 
as loans. All tools entail a certain degree of uncertainty: a loan involves a credit risk, a 
guarantee may or may not be called, and a capital injection may be paid back but with a 
strong uncertainty as regards the selling price. Another variable that could lower the cost 
is the presence of a buyer. 

The transactions, similar to so-called purchase & assumptions agreements predominantly 
used  in  the  United  States,  are  likely  to  be  more  efficient  for  the  DGS  than  a  payout. 
Indeed, the transfer of the (whole or partial) business would preserve the franchise value 
to  a  greater  extent  than  under  a  piecemeal  liquidation  approach.  It  would  avoid  the 
destruction of the business brand and/or ensure preserving the commercial relationships 
of the exiting bank with the clients. Consequently, this approach would strive to maintain 
or improve the profitability of and the return on the assets, and thereby  minimising the 
cost for the DGS.  

Lastly, the least cost assessment would limit the cost of this type of DGS interventions 
(in  insolvency  and  in  resolution)  compared  to  the  cost  of  the  payout.  In  that  sense, 
developing  the  role  of  other  DGSs  interventions  in  the  CMDI  is  efficient  for  the  DGS 
(lowering  the  immediate  replenishment  needs)  and  for  the  economy  in  general  (with  a 
lower destruction of value).  

Use of DGS funds in the revised CMDI 

Currently, a DGS is unlikely to finance other measures than payout subject to the least 
cost test based on the preferential ranking of covered deposits (see section 4.1.1 in Annex 
7). Changes appear necessary to make such a least cost test more realistic and there are 
clear trade-offs to be made.  

The change in the creditor hierarchy would facilitate the uses of more efficient tools that 
preserve  the  liquidity  of  the  DGS  and/or  EDIS  and,  consequently,  also  the  financial 
stability. Moreover, this approach exploring more efficient tools than payout would bring 
about a number of positive effects on the depositor confidence: 
In  payout  events,  depositors  must  be  reimbursed  within  7  days.  However,  interrupted 
access  to  accounts,  social  benefits  and  credit  facilities  for  even  a  short  period  in 
prevalently  cashless  societies,  using  or  operating  with  credit  and  debit  cards  and 
electronic  systems,  could  impact  the  overall  economy.  Conversely,  under  other  DGS 
interventions, the depositor access to deposits would be unimpaired. 
Changing  the  creditor  hierarchy  would  increase  the  protection  of  a  wider  scope  of 

596 See the EBA opinion on DGS funds, p. 23-24. The empirical evidence suggests that the recovery rates 
can be very different, ranging from 1% to 100%.  

378 

 
 
 
 
 
 
 
 
                                                           
depositors by creating an environment where their deposits and commercial relationship 
are  transferred  to  another  bank.  Consequently,  this  would  minimise  the  occurrence  of 
depositor  payouts  and  the  likelihood  of  DGS’  subrogation  into  depositor  claims  under 
‘less preferential’ creditor hierarchy.  

Therefore,  the  revised  framework  should  improve  the  incentives  for  alternatives  to 
depositor payout, via a more realistic least cost test. Depositor payout would constitute a 
fallout option in case there is no potential buyer for a viable part of the bank. Last but not 
the least, in many cases, the counterfactual of the extensive use of DGS is ultimately the 
need  for  taxpayer  money  to  cover  the  shortfall,  which  is  more  likely  in  the  case  of 
payouts (high cost in the short term). 

2.3.4.  Build-up of the DIF and contributions 

Once the funding of all national DGSs has at least reached a pre-defined target level, the 
DIF managed by the SRB could be built up by raising subsequent bank contributions or 
by  transferring  already  collected  contributions  from  national  DGSs.  All  national  DGSs 
are underway to reach the target level of 0.8% of covered deposits by 2024 and most of 
them have already reached it.597  

Consequently,  the  policy  option  retained  in  the  2015  proposal  to  build  up  the  DIF 
directly  from  banks’  contributions  calculated  at  the  Banking  Union  level  would  not  be 
appropriate  as  it  would  impose  an  additional  cost  on  the  industry.  Among  the  policy 
options discussed, the paid-in resources transferred to the DIF could either be deposited 
in  individual  compartments  or  be  mutualised  in  one  fund.  Alternatively,  the  share  of 
funds  remaining  in  the  national  DGSs  to  be  mobilised  for  mandatory  lending  could  be 
placed  in  such  compartments  next  to  the  DIF  (one  compartment  per  Member  State) 
facilitating its operationalisation.598 

In line with the feedback received, the DIF would be built-up with a one-off transfer of a 
share  of  the  target  level  collected  at  national  level  already  based  on  a  percentage 
calculated according to risk-based methodology to be agreed in a delegated act599. This 
methodology  would  also  determine  the  approach  to  some  ONDs  related  to  risk-bank 
contributions  to  ensure  level  playing  field.  The  latter  option  would  be  sensible  under  a 
low-ambition  model.  In  view  of  the  higher  target  levels  of  the  DIF  envisaged  under  a 
high-ambition  model  (and  a  possible  middle-way  option),  the  best  option  would  be  to 
build up the DIF following a gradual funding path.  

Risk-based contributions  

597 See also Annex 5 (evaluation).  
598  This  option  was  supported  by  many  members  noting  the  lesser  complexity  who  noted  that  it  is 
administratively  less  complex  and  more  likely  to  ensure  a  timely  support  from  the  DIF.  Some  members 
expressed their preference to leave the funds in the national DGSs emphasising the importance of the funds 
being under direct national control. A few members proposed an alternative option where the central fund 
would be entirely composed of individual compartments, departing from the hybrid model (see European 
Council (2 June 2021), Portuguese Presidency Progress Report on strengthening the Banking Union, p. 6). 
599 For instance, under a low ambition hybrid EDIS, in order to transfer, in total, 75% of the DGS funds to 
the DIF, some DGSs would transfer 74% and others 76%. 

379 

 
 
 
 
                                                           
Under the status quo, each DGS has to reach a target level of 0.8% of covered deposits 
and the contributions take into account the amount of covered deposits and the degree of 
risk incurred by each credit institution relative to all other credit institutions affiliated to 
the same participating DGS. 

Under both options, it would be crucial to maintain a risk-based approach to maintain the 
DGS  target  level  and  to  build  up  the  DIF.  The  risk-based  method  is  an  important 
incentive  for  banks  to  reduce  their  risks  and  also  contribute  to  build  a  fair  deposit 
insurance scheme where the more risky banks pay higher contributions than the others. 
The impact of the different designs on the level of contributions would be twofold.  

First, the pooling of funds would create synergies that could be exploited to reduce the 
costs for the banking sectors in the Banking Union. Consequently, the target level would 
be reduced under more ambitious models susceptible to lower the level of contributions 
for the banking sectors (for simplification referred to as “national reference measure”). 
Conversely,  a  low-ambition  model  would  maintain  the  target  level  at  0.8%  of  covered 
deposits because of limited synergies.  

Second,  in  line  with  the  feedback  received,  the  build-up  of  the  DIF  would  imply  a 
calculation of contributions based on the amount of covered deposits and the degree of 
risk  of  each  credit  institution  relative  to  all  other  credit  institutions  covered  by  EDIS 
(referred  to  as  “Banking  Union  reference  measure”).  Accordingly,  in  the  EDIS,  the 
contributions  would  be  calculated  based  on  the  Banking  Union  reference  measures  for 
the share of the funds transferred to the DIF, while the contributions to the national DGSs 
would  continue  using  a  national  reference  measure.  The  other  policy  options  discussed 
were  that  the  contributions  to  the  DIF  could  be  built  up  using  the  national  reference 
measures  in  the  reinsurance  phase,  implying  liquidity  support  only,  or  a  hybrid  one, 
based on both a national and a Banking Union reference. 

An ambitious model would imply a redistribution effect due to changes in the basis for 
calculating a certain portion of the contributions. This would mean that, compared to the 
status quo, some banks would pay more and others less. Such redistribution effect would 
be more material for higher ambitious models because of the higher share of funds in the 
DIF, and, by contrast, would be limited under a low-ambition model, envisaging a lower 
share of funds in the DIF. 

Table  39  sets  out  the  anonymised  level  of  contributions  per  each  Member  State, 
calculated based on a database collected from Member States with data as of end 2018. 
100 represents the current level of contributions, calculated at the national level, with a 
0.8%  target  level.  The  impacts  of  reducing  the  target  level  and  calculating  part  of  the 
contributions  at  Banking  Union  level  are  presented  for  the  various  designs  of  hybrid 
EDIS.  The  methodology  for  calculating  the  contributions  follows  the  indicators  in  the 
EBA guidelines600.  

600 EBA Guidelines on methods for calculating contributions to deposit guarantee schemes. 

380 

 
 
                                                           
Table 39: Impact of the redistribution effect and reduced target level601 

Source: European Commission services estimations based on JRC quantitative analysis (see JRC report on 
EDIS risk-based contributions, Annex 12) 

This  table  shows  that,  under  the  medium-  and  high-ambition  models,  for  all  banking 
sectors,  the  combined  impact  of  the  redistribution  effect  and  the  reduced  target  level 
would lead to lower the contributions compared to the status quo602.  

Under  a  low-ambition  model,  as  there  is  no  target  level  reduction,  the  redistribution 
effect  would  lead  to  higher  contributions  for  10  national  banking  sectors  and  lower 
contributions for 11 banking sectors. The impacts on the contributions would range from 
a reduction of contributions of 3% to an increase of 7%. 

2.4. Transition towards loss coverage and review clause 

The 2015 proposal introduced a loss coverage since the start. The latter turned out to be 
the most contentious element, advocated by some and opposed by others. The position of 
certain Member States on the introduction of loss sharing was contingent on further risk 
reductions in the banks’ balance sheets, sometimes including amendments concerning the 
capital requirement on sovereign exposures. 

Box  23  illustrates  that  hybrid  EDIS  would  provide  sufficient  flexibility  for  a  gradual 
introduction of loss sharing. In view of the difficult political compromise on the steady-
state,  the  best  policy  option  would  be  to  start  with  a  hybrid  EDIS  focusing  only  on 
liquidity support as the reduction of risks in the banking sectors continues with the view 

601 This table is based on the JRC’s report included in Annex 12, p. 60. 
602  Under  a  high  ambition  hybrid  EDIS,  the  national  banking  sectors  would  pay  from  30%  to  12%  less 
compared to the status quo. For comparison, under the middle way option, the cost reduction would range 
from -17% to -1%.  

381 

 
 
                                                           
to  prepare  the  ground  for  loss  coverage.  During  the  liquidity  support  phase,  only  the 
member  institutions  of  the  beneficiary  DGS  would  pay  contributions  to  replenish  the 
DIF.  In  order  to  maintain  this  ambition  in  the  steady  state,  a  review  clause  would  be 
inserted to re-engage the discussions around the path towards EDIS with a loss-sharing 
component. 

Ultimately,  the  benefits  of  a  fully-fledged  EDIS,  with  loss  coverage,  would  imply  a 
harmonised  level  of  depositor  protection  for  all  depositors  in  the  Banking  Union, 
regardless  of  the  geographical  location  of  the  bank,  with  the  view  to  enhance  financial 
stability  and  break  the  bank-sovereign  nexus.  The  element  of  loss  sharing  would  make 
the third pillar of the Banking Union more robust as all the banks in the Banking Union 
would  contribute  to  the  replenishment  of  the  DIF,  ensuring  a  faster  replenishment 
capacity.  Similarly,  sharing  the  losses  at  the  Banking  Union  level  would  lower  the 
financial  strain  on  one  single  national  banking  sector,  significantly  mitigating  adverse 
effects  on  financial  stability  and  weakening  of  the  sovereign-banks  nexus.  Lastly,  the 
introduction of loss sharing would have positive benefits for the market integration in the 
Banking Union. 

There is a clear trade-off to be made between the policy options of a fully-fledged EDIS 
inherent in the 2015 proposal, subject to political stalemate and contingent on additional 
conditionality  to  be  agreed  at  political  level,  and  the  roll  out  of  liquidity  support  that 
could be achieved in the shorter term. According to this trade-off, the hybrid EDIS would 
be suboptimal compared to a fully-fledged EDIS (e.g. implying a slower replenishment, 
taking  into  account  the  financial  strain  on  the  beneficiary  DGS,  constituting  partial 
safeguards for host Member States). However, in the absence of political agreement on a 
fully-fledged  EDIS,  the  liquidity  support  would  better  address  the  financial  stability 
objectives  to  avoid  liquidity  shortfalls  when  dealing  with  bank  failures.  Therefore,  the 
hybrid EDIS would constitute a significant improvement of the status quo.  

382 

 
Box 23: Considerations on the transition to the steady state603  

From a long-term perspective, the introduction of loss coverage would entail significant 
changes  for  the  parameters  of  the  hybrid  EDIS.  Going  forward,  the  following  policy 
options would require further analysis and discussion:  
  The  introduction  of  the  loss-sharing  component  could  be  progressive  towards  the 
steady state according to a specified transition timeline from the liquidity phase to 
the  steady  state.  In  the  steady  state,  the  funds  of  the  national  DGSs  could  be 
progressively  transferred  to  the  DIF.  Alternatively,  a  certain  share  of  funds  could 
remain  at  national  level  to  mitigate  moral  hazard  and  potentially  finance  residual 
national options and discretions. Under both options, the national DGS would carry 
out their roles in the crisis management and handling of depositor claims.  

  The  concept  of  loss  sharing  could  be  subject  to  different  definitions.  Under  one 
definition, both the national DGS and the DIF would share a certain percentage of 
the losses with respect to each intervention. Under a second definition, the national 
DGSs  would  be  required  to  exhaust  their  funds  before  the  DIF  would  intervene, 
taking a share of losses.  

  Further  analysis  will  be  required  on  the  interaction  between  the  loss  coverage  and 
other parameters of the hybrid EDIS, such as the allocation of the funds between the 
national  and  the  DIF  levels.  The  build-up  of  the  loss-sharing  component  would 
require on a significant size of the DIF. For example, under a low ambition EDIS, 
the DIF would be too limited and would not be able to support a significant share of 
the  losses,  rendering  the  loss-sharing  component  rather  artificial.  Consequently, 
progressing from such a scenario to loss sharing would require a significant increase 
in the size of the DIF. 

603  See  European  Council  (2  June  2021),  Portuguese  Presidency  Progress  Report  on  strengthening  the 
Banking Union. 

383 

 
 
 
                                                           
ANNEX 11: EBA RESPONSE TO THE CALL FOR ADVICE 

We  refer  to  the  Call  for  Advice  report  by  the  EBA  entitled  “Call  for  advice  regarding 
funding in resolution and insolvency – part of the review of the crisis management and 
deposit insurance framework” and published on 22 October 2021604. With this report, and 
at  the  request  of  Commission  services,  the  EBA  provides  targeted  technical  advice  to 
assess the reported difficulty for some small and medium-sized banks to issue sufficient 
loss  absorbing  financial  instruments,  to  examine  the  current  requirements  to  access 
available sources of funding in the current framework, including in view of the funding 
structure of the above mentioned banks, and to assess the quantitative impacts of various 
possible policy options, as specified by the Commission services, in the area of funding 
in resolution and insolvency and their effectiveness in achieving the policy objectives. 

Summary 

The  EBA  response  to  the  Call  for  Advice  provides  a  quantitative  analysis  on  banks’ 
capacity to access available sources of funding under the current  framework and under 
various creditor hierarchies, and with regards to the minimum requirement for own funds 
and eligible liabilities (MREL). 

The EBA response provides a descriptive analysis on banks’ capacity to access resolution 
financing  arrangements  based  on  banks’  balance  sheets  and  their  business  models,  as 
well as an analysis based on a modelling approach to simulate crisis scenarios. 

The  descriptive  analysis  shows  the  change  to  banks’  internal  loss-absorption  capacity 
under four scenarios of depositor preferences compared to the current creditor hierarchy 
applicable  in  each  Member  State.  The  analysis,  whose  findings  are  presented  under 
several different  capital  depletion scenarios, draws two main conclusions: (i) preferring 
deposits to other ordinary unsecured claims increases the number of banks that are able 
to meet the requirements to access resolution financing arrangements without the bail-in 
of  any  type  of  depositors  and  (ii)  a  single-tier  depositor  preference  (i.e.  all  types  of 
depositors rank pari passu) comes with the highest impact on covered deposits  and the 
highest  contributions  from  deposit  guarantee  schemes  compared  to  the  other  policy 
options and the current situation. The modelling approach, which simulates an economic 
scenario similar to the global financial crisis confirms the findings. 

In  a  third  part,  the  report  also  investigates  the  issue  of  market  access  for  MREL 
instruments for small and medium-sized banks to. A limited number of these institutions 
had not yet issued senior MREL eligible instrument or AT1 and Tier 2 instruments as of 
end-2019. 

604 EBA (22 October 2021), Call for advice regarding funding in resolution and insolvency.  

384 

 
 
 
                                                           
ANNEX 12: ANALYTICAL WORK BY THE JOINT RESEARCH 
CENTRE 

We refer to the Joint Research Centre technical report entitled ‘Quantitative analysis on 
selected  deposits  insurance  issues  for  purposes  of  the  impact  assessment’  (JRC132364, 
available  on  the  EU  Science  Hub).  In  this  report,  and  at  the  request  of  Commission 
services, the Joint Research Centre assessed (i) temporary high balances and the impact 
of  harmonising  them,  (ii)  the  effectiveness  and  the  pooling  effect  of  a  central  deposit 
insurance scheme, and (iii) different approaches to risk-based contributions to EDIS. 

Review of temporary high balances 

The report assesses the financial impact of harmonising the coverage of temporary high 
balances  under  Article  6(2)  of  the  DGSD.  Building  on  past  exercises,  the  report 
quantifies the size of deposits generated from real estate transactions and insurance pay-
outs linked to life events and criminal injuries protected under the DGSD. It assesses the 
cost  for  the  DGS  and  banks  when  providing  extra  protection  to  these  deposits.  The 
analysis also introduces a novel angle to the problem. It looks at the impact on the wealth 
of households involved in real estate transaction absent the DGS protection. This double 
perspective  on  costs  and  benefits  enables  a  better  understanding  of  the  implication  of 
different policy options. 

Measuring the effectiveness and the pooling effect of EDIS 

The  report  addresses  how  DGS  pay-out  capacity  would  change  if  the  current  national 
DGS  system  is  replaced  or  complemented  by  EDIS  and  whether  synergies  arise  from 
pooling effects in the contributions. The analysis is based on the SYMBOL model, which 
simulates  bank  failures  and  the  corresponding  multiple  pay-outs  hitting  the  Deposits 
Guarantee Schemes and the common fund.  

The report finds that EDIS is more effective than the status quo. A system with common 
financial  means  is  able  to  protect  a  higher  amount  of  covered  deposits  than  under  the 
status  quo.  The  more  resources  are  mutualised,  the  more  effective  the  system  is.  All 
variant of EDIS considered in the analysis significantly reduce the likelihood and the size 
of liquidity shortfall  even under  a systemic event.  In addition,  the pooling of resources 
increases  the  probability  of  full  protection  of  the  covered  deposits  without  liquidity 
shortfall  and  delivers  a  higher  efficiency  for  various  EDIS  designs  creating  room  for 
lowering the target level and consequently the cost for the baking sector.  

Different approaches to risk-based contributions to EDIS 

The  technical  framework  for  determining  these  contributions  is  based  upon  EBA 
guidelines on methods for calculating contributions to deposits guarantee schemes. EBA 
developed such guidelines pursuant to Article 13(3) of the Directive 2014/49/EU of the 
European Parliament and of the Council and they set alternative methodologies and risk 
indicators to compute risk-based contributions.  

Starting from this report, the JRC developed and tested alternative scoring methods and 
presents the results of this analysis in the present report. 

385 

 
 
 
 
ANNEX 13: OTHER QUANTITATIVE ANALYSES 

1.  OBJECTIVE AND SCOPE 

The objective of this Annex is to provide detailed quantitative information to support the 
assessment of the policy options set out in Chapters 5, 6 and 7 as well as certain aspects 
of the evaluation (Annex 5). In terms of scope, this Annex covers: 

-  An overview of the methodology 
-  An overview of the application of the public interest assessment (PIA)  
-  An overview of the operationalisation of transfer strategies 
-  An overview of issues regarding MREL requirements 
-  Caveats and disclaimers  
-  Other methodological considerations  

2.  OVERVIEW OF THE METHODOLOGY 

Data sources and references 

Each area of analysis outlined in section 1 builds on the data provided by the SRB and 
the  data  used  in  the  EBA  response  to  the  Call  for  Advice  report  collected  by  the  EBA 
directly  from  resolution  authorities.  Table  40  provides  a  mapping  of  the  data  sources 
used in this Annex:  

Table 40: Mapping data sources and references 

Section # 

Data sources and references 

Application of the PIA 

Transfer strategies 

MREL 

-  MREL build-up 
- 

Issuances  of  own 
eligible liabilities 
-  Holdings  of  own 
eligible liabilities 

funds  and 

funds  and 

- EBA CfA report605 
- SRB data 
- EBA  quantitative  MREL  report  as  of  31  December 
2019 of June 2021606 and as of 31 December 2020 of 
April 2022607 

- SRB MREL Dashboards608 and Annual Reports609 
- European  Commission,  ECB  and  SRB  joint  Risk 
Reduction Monitoring Reports of November 2020610, 
May 2021611 and November 2021612 

- EBA quantitative MREL reports as of 31 December 
2019 of June 2021, as of 31 December 2020 of April 
2022  and  as  of  31  December  2021  of  January 
2023613 

605 EBA (October 2021), Call for advice regarding funding in resolution and insolvency 
606 EBA (June 2021), EBA Quantitative MREL report, as of 31 December 2019. 
607 EBA (April 2022), EBA Quantitative MREL report, as of 31 December 2020. 
608 SRB (Q2 2020 to Q3 2022), MREL Dashboards. 
609 SRB (2015 – 2020), SRB Annual reports. 
610 European Commission, ECB, SRB (November 2020), Monitoring report on risk reduction indicators.  
611 European Commission, ECB, SRB (May 2021), Monitoring report on risk reduction indicators.  
612 European Commission, ECB, SRB (November 2021), Monitoring report on risk reduction indicators. 
613 EBA (January 2023), EBA MREL quantitative monitoring report and impact assessment 

386 

 
 
 
                                                           
Section # 

Data sources and references 

- ECB data on MREL holdings 
- S&P data 

Detailed information  on methodological  assumptions is  available in  each section where 
these analyses are presented. 

3. 

PUBLIC INTEREST ASSESSMENT 

The objective of this section is to present descriptive statistics related to the outcome of 
the  implementation  of  the  PIA  for  resolution  planning  purposes  to  date614.  The 
information  is  based  on  the  application  of  the  PIA  under  the  existing  rules  (baseline). 
This section does not estimate the extension of the PIA application under the packages of 
options  described  in  Chapter  6  for  the  reasons  described  in  that  chapter  (i.e.  retained 
discretion  by  authorities,  PIA  decision  at  planning  phase  is  a  presumptive  path  which 
could  change  at  the  moment  of  failure  in  function  of  concrete  case  by  case 
circumstances).  

Table 41 provides an overview, per size classification and per funding structure, taking 
into account the prevalence of deposits in the banks’ liabilities615, of the implementation 
of the PIA.  

Based on data referred to in the EBA CfA report and SRB input, at the level of the EU, 
90%  of  the  large  banks,  including  all  G-SIIs  and  a  majority  of  O-SIIs  have  a  positive 
PIA, leading the vast majority of the systemically important banks to have resolution as 
presumptive path in case of failure. 

the  assessment  changes  significantly  depending  on 

The  outcome  of 
the  size 
classification, in particular when the size of the institution decreases. In particular, while 
few  of  the  largest  institutions  have  a  negative  PIA,  the  share  of  institutions  with  a 
positive PIA decreases to 70% for medium-sized institutions across the EU, and down to 
29% for small and non-complex institutions. In total, 187 banks out of 368 (51%) in the 
sample are earmarked for resolution. The proportion is similar in the Banking Union616 
(49%). 

When  considering  the  funding  structure,  banks  with  a  high  prevalence  of  deposits  (i.e. 
proportion  of  deposits  over  80%  of  TLOF)  tend  to  be  more  often  earmarked  for 
liquidation  (only  39%  of  cases  with  a  positive  PIA).  However,  the  lower  levels  of 
prevalence of deposits do not have a material effect on the distribution between negative 
and positive PIA, as the proportion of banks earmarked for resolution is generally stable 
between 57% and 62%. 

614  Irrespective  of  the  resolution  authorities’  decision  regarding  the  PIA  when  an  institution  is  at  the 
moment of failure or likely to fail (Article 32 BRRD). 
615 In accordance with the methodology used in the EBA CfA Report. 
616 Considering all banks in the Banking Union (significant and less significant institutions). 

387 

 
 
 
                                                           
Table 41: Outcome of the implementation of the PIA in the EU 

Institutions with 
positive PIA 

N. 

195 
124 
49 

107 
44 

63 
154 

Small 
Medium 
Large 

Low 
Mid 

Mid-High 
High 

Count 

56 
87 
44 

63 
25 

39 
60 

% 

29% 
70% 
90% 

59% 

57% 
62% 
39% 

51% 

Total 

368 

187 

Source: Commission services, based on EBA CfA report and SRB data, as of Q4 2019 

4. 

OPERATIONALISATION OF TRANSFER STRATEGIES 

In  case  of  positive  PIA,  the  choice  of  the  resolution  strategy  and  the  appropriate 
resolution  tools relies on resolution  authorities’ judgement  and discretion.  In particular, 
relying  on  the  use  of  a  transfer  tool  (e.g.  sale  of  business,  bridge  institution  or  asset 
separation) depends on several factors aimed at supporting the feasibility and credibility 
of  a  full  or  partial  transfer  of  activities  to  a  third  party  in  resolution.  So  far,  evidence 
shows that transfer strategies have been mostly used for small  or mid-sized institutions, 
for which the transferability is seen as more achievable compared to other, larger groups.  

According  to  the  EBA  2023  quantitative  report  on  MREL,  as  of  December  2021, 
approximately  81%  of  EU-27  banks’  domestic  assets  were  covered  by  a  strategy  other 
than  liquidation:  77.3%  of  assets  were  covered  by  a  bail-in  strategy  and  3.5%  by  a 
strategy  relying  on  the  use  of  a  transfer  tool.  Bail-in  strategies  continue  to  be  the  first-
choice approach for the largest banks, with a total of 144 MREL decisions covering EUR 
23.5 tn in assets. Instead, the use of transfer tools is the preferred strategy for 146 banks 
representing  approximately  EUR  1.1  tn  in  assets,  covering  mostly  resolution  groups  or 
stand-alone  resolution  entities  that  are  relatively  limited  in  size,  with  only  six  of  them 
classified as O-SIIs and 140 of them classified as other (non-systemic) banks.  

Table 42: Overview of resolution strategies (based on MREL decisions, as of December 
2021)617 

Resolution 
strategy 

Total assets 
(EUR bn) 

Bail-in 
Transfer 

23 537 
1 051 

% of 
assets 
95% 
5% 

Number of 
decisions 

144 
146 

% of 
decisions 
43% 
43% 

Source: EBA quantitative MREL report 2021. 

617 In addition, 47 decisions – not included in this table – have been taken for banks subject to liquidation, 
for which MREL has been set above own funds requirements in accordance with the BRRD. 

388 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Due to a lack of available and accurate information on the precise resolution strategy, a 
more detailed break-down based on the sample of banks used in the EBA CfA report was 
not possible.  

5.  MREL 

5.1. MREL build-up 

Overview of compliance with external MREL requirements 

According  to  the  EBA  2023  MREL  quantitative  report618  which  analysed  MREL 
compliance for a sample of 245 EU resolution  groups and individual resolution entities 
as of Q4 2021, the average MREL target (weighted by TREA) was 22.6% TREA, with a 
combined buffer requirement of 3.3% of  TREA. Subordination  requirements,  including 
CBR, were set at a level of 18.5% TREA. Out of the total sample of 245 banks subject to 
an external MREL, subordination requirements have been set for 169 resolution groups. 

As  of  Q4  2021,  70  resolution  groups  had  an  MREL  shortfall  estimated  at  EUR  33 bn, 
down  from  EUR  67.6  bn  for  110  resolution  groups  as  of  Q4  2020  and  102 bn  for  111 
resolution groups as of Q4 2019. The reduction in shortfalls should be considered against 
strong issuance levels over the period.  

-  G-SIIs:  The  average  MREL  target  for  G-SIIs  was  22.9%  TREA,  including  a 
subordination requirement of 17.6% TREA. On top of this requirement comes the 
combined buffer requirement of 3.6% on a weighted average basis to be met with 
CET1.  The  aggregate  MREL  shortfalls  for  G-SIIs  declined  most  significantly 
between  Q4  2019  and  Q4  2020,  from  EUR  19 bn  to  EUR  3.8 bn  attributable  to 
one G-SII. As of Q4 2021, all G-SIIs comply with their end-state MREL targets. 
-  O-SIIs: The average MREL target for O-SIIs was 22.8% TREA, plus an average 
combined  buffer  requirement  of  3.1%  TREA.  The  average  MREL  requirement 
are broadly similar  across O-SIIs irrespective of  their size. MREL shortfalls  for 
O-SIIs  also  declined  from  EUR  64 bn  as  of  Q4  2019  to  EUR  46.9  bn  as  of  Q4 
2020,  attributable  to  45  banks,  further  down  to  EUR  14.4  bn  as  of  Q4  2021, 
attributable  to  34  banks.  The  level  of  MREL  eligible  resources  was  higher  for 
larger O-SIIs, particularly top-tier O-SIIs, than for smaller banks. Apart from the 
overall level, there was a high divergence in the distribution of eligible resources. 
While larger O-SIIs exhibit a lower level of common equity Tier 1 compared to 
smaller banks, they hold a higher level of senior non-preferred instruments, which 
was scarcer in the group of O-SIIs with assets lower than EUR 50 bn. Contrary to 
previous periods, smaller O-SIIs held subordinated debt as of Q4 2021.  

-  Other  banks:  The  average  MREL  target  for  other  banks  was  20.8%  TREA  for 
banks not considered as G-SII nor O-SII, supplemented by an average combined 
buffer  requirement  of  2.5%  TREA.  Compared  to  systemic  entities,  other  banks 
were  set  a  lower  MREL  as  a  percentage  of  TREA,  reflecting  the  prevalence  of 
transfer  strategies  for  which  adjustment  to  MREL  calibration  are  introduced  by 

618  EBA  (January  2023),  EBA  MREL  quantitative  monitoring  report  and  impact  assessment,  as  of  31 
December 2021. 

389 

 
                                                           
resolution authorities. The aggregate MREL shortfalls for other banks reach 18.6 
bn,  attributable  to  36  banks,  down  by  27%  compared  to  end  2020  on  a 
comparable  basis.  Compared  to  systemic  institutions,  other  banks  held  a  higher 
level of common equity Tier 1 capital and senior liabilities. On the contrary, they 
exhibited lower levels of additional Tier 1 instruments, Tier 2 capital and senior 
non-preferred debt. 

In  terms  of  resources,  the  EBA  MREL  quantitative  reports  provide  an  overview  of  the 
structure  of  the  MREL  resources  for  G-SIIs,  O-SIIs  and  other  banks,  highlighting  the 
relative importance of AT1, Tier 2 and senior non-preferred liabilities across various size 
groups,  more  prone  to  be  part  of  the  funding  mix  of  larger  institutions  than  small  and 
mid-size banks, even when qualified as O-SIIs in their jurisdiction. 

This is also reflected in the composition of the liability structure of the resolution entities 
included  in  the  EBA  CfA  report.  As  highlighted  in  Table  43,  issuances  of  senior  non-
preferred liabilities, senior unsecured liabilities, but also AT1 and Tier 2 instruments are 
relatively  more  important  for  larger  institutions.  In  addition,  the  issuances  of  certain 
subordinated liabilities is concentrated in some Member States: no senior non-preferred 
liabilities  are  present  for  resolution  entities  in  12  Member  States,  other  subordinated 
liabilities are either not present or in very limited amount in five Member States, but with 
large shares in three other Member States (DE 1.28% TLOF, HR 1.12% or AT 0.95%), 
senior  unsecured  liabilities  represent  on  average  more  than  24%  of  TLOF  in  four 
Member  States  (FI,  FR,  NL  and  SE),  against  less  than  5%  TLOF  in  17  other  Member 
States. 

Table 43: Composition of liability structure (resolution entities, % TLOF) 

Small  Medium  Large 

Resolution  Liquidation 

Subordinated liabilities 
Senior non-preferred liabilities 
Senior unsecured liabilities 
Own funds 
 - Tier 2 
 - AT1 
 - CET1 
Other liabilities 
Total 

0.4% 
2.9% 
10.7% 
8.4% 
1.4% 
0.7% 
6.3% 
77.6% 
100.0% 
Source: Commission services, based on EBA CfA report, data as of Q4 2019. 

0.3% 
1.1% 
3.2% 
1.8% 
13.4% 
5.4% 
8.3% 
7.9% 
1.5% 
1.0% 
0.8% 
0.3% 
6.1% 
6.6% 
74.8% 
83.8% 
100.0%  100.0%  100.0% 

0.1% 
0.0% 
2.7% 
13.2% 
0.6% 
0.2% 
12.4% 
84.0% 

1.3% 
2.7% 
22.4% 
8.1% 
0.9% 
0.2% 
6.9% 
65.5% 
100.0% 

In  the  Banking  Union,  as  per  SRB’s  MREL  Dashboard  as  of  Q3  2022619,  the  average 
final  MREL  target  represented  23.3%  TREA,  and  26.4%  TREA  when  including  the 
combined  buffer  requirement.  The  average  MREL  subordination  target  including  the 
combined buffer requirement amounted to 19.3% TREA. In terms of build-up of eligible 
instruments, the average stock of MREL eligible liabilities and own funds reached 31.2% 
TREA.  In  absolute  terms,  the  stock  reached  EUR  2  353  bn,  increasing  by  6%  or  EUR 

619 SRB (February 2023), SRB MREL Dashboard Q3 2022 

390 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
134.2  bn  year-on-year.  This  trend  is  in  line  with  the  banks’  funding  plans  to  meet  the 
biding final MREL targets by 1 January 2024. The average MREL shortfalls against the 
final target (2024) amounted to 0.2% TREA (EUR 18.1 bn) in Q3 2022, and 0.4% TREA 
(EUR 30.5 bn) when including the combined buffer requirement. These levels represent a 
year-on-year decrease, despite the recent economic uncertainty,  showing the authority’s 
progress in delivering more MREL decisions despite the increase in the sample of banks.  

While compliance with MREL targets is a matter of transitional period and most banks 
are  expected  to  fulfil  their  requirements  once  the  transitional  period  expired,  certain 
banks may be facing more structural issues to comply with their requirement (see section 
5.2). 

MREL calibration for transfer strategies 

The SRB’s MREL policy620 describes the calibration of MREL for transfer strategies and 
for  open  bank  bail-in  strategies621.  Banks  with  transfer  strategy  as  the  preferred 
resolution  strategy  are required to  hold  MREL instruments to  cover for loss  absorption 
and  recapitalisation,  where  the  latter  is  adjusted  downwards  with  a  factor  between  15-
25%  of  the  recapitalisation  amount,  on  a  case  by  case  basis,  when  compared  to  open 
bank  bail-in  strategy.  This  adjustment  could  be  added  to  other  adjustment  factors 
applicable  to  the  recapitalisation  amount.  The  rationale  for  a  lower  recapitalisation 
amount for transfer strategies lies with the lack of need to recapitalise banks whose (part 
of  the)  business  would  be  transferred  to  a  buyer.  At  the  same  time,  under  the  current 
policy, the MREL calibration goes beyond own funds (loss absorption) for banks under 
transfer strategies in order to cater for certain situations (such as a negative transfer price, 
i.e. lower than the net asset value or if the transfer does not materialise at all).  

Overview of compliance with internal MREL requirements 

The requirement for subsidiaries, which are part of single point of entry (SPE) resolution 
groups and which are not resolution entities themselves, to issue internal MREL eligible 
instruments to the resolution entity entered into force with the BRRD II/SRMR II in June 
2020 and became applicable from 28 December 2020, upon transposition. Therefore, due 
to  the  relatively  recent  legal  basis,  calibrating  and  communicating  internal  MREL 
decisions to entities is still in progress. Moreover, given the large number of entities in 
scope of the internal MREL requirement, a prioritisation and sequencing of the work was 
necessary.  The  SRB  started  preparing  internal  MREL  decisions  for  entities  under  its 
remit  under  the  2020  MREL  policy  and  has  successively  expanded  the  scope  by 
prioritising entities representing at least 2% of the resolution group’s TREA, or leverage 
exposure, or total operating income or which provide critical functions or those with total 
assets exceeding EUR 5bn622.  

620 SRB (June 2022), SRB MREL policy, section 2.4.2. 
621  While  the  BRRD  requires  that  the  MREL  calibration  reflects  the  resolution  strategy  and  tools,  the 
level 1 text is not prescriptive in terms of quantifying the differences in calibration in function of strategy.  
622 SRB (June 2022), SRB MREL policy, section 4.1.  

391 

 
 
                                                           
5.2. Issuances of own funds and eligible liabilities 

The objective of this section is to provide quantitative elements related to the issuances 
of own funds and eligible liabilities to support the assessment of the ability of institutions 
to  meet  their  MREL  requirements.  A  specific  emphasis  is  put  on  small  and  mid-sized 
banks  in  view  of  any  challenges  experienced  in  reaching  the  required  levels  of  MREL 
buffers and the possible impact of the policy options related to an extension of the PIA. 

The section is based on data from the SRB (covering the Banking Union through regular 
monitoring  of  MREL  issuances),  EBA  (covering  specifically  small  and  medium-size 
banks  in  the  context  of  the  reply  to  the  CfA)  and  publicly  available  information  at  the 
level of the EU. 

MREL issuances in the Banking Union (SRB remit) 

Based on SRB data623 covering a sample of 75 to 82 groups, the stock of MREL eligible 
liabilities  at  the  level  of  the  Banking  Union  reached  as  of  Q3  2022  an  amount  of 
EUR 2 353 bn,  increasing  by  EUR  134.2 bn  year-on-year.  The  increase  was  also 
significant for own funds and subordinated liabilities, amounting to EUR 1 989 bn in Q3 
2022.  

In Q3 2022, MREL issuances amounted to EUR 75 bn, up by 11% compared to Q2 2022. 
Overall, year-to-date issuance volume remained rather elevated (equal to EUR 226.3 bn), 
increasing with respect to the same period of 2021 (up by around 20% or EUR 38.1 bn), 
while  remaining  broadly  in  line  with  the  same  period  of  2020.  Issuances  by  G-SIIs 
accounted for 37% of the total issuances in  Q3 2022. The SRB also noted that issuers’ 
preference  in  Q3  2022  was  towards  senior  bonds  (40%  of  total  issuances),  senior  non-
preferred liabilities (34%), AT1 (10%) and Tier 2 instruments (4%). 

623 SRB (Q2 2020 to Q3 2022), MREL Dashboards. 

392 

 
                                                           
Figure 33: MREL gross issuances by type of instrument, EUR bn 

Source: SRB MREL Dashboard – Q3 2022 

In  particular,  SRB  data  shows  that  MREL  gross  issuances  until  Q3  2022  took  place  in 
several Member States, despite the economic impact of the COVID-19 outbreak. In Q3 
2022, banks showed some heterogeneity in the volume of issuances, with Top Tier banks 
being particularly active. Banks with total assets below EUR 100 bn accounted for 11% 
of the total issuance amounts. 

Figure 34: MREL gross issuances by country, EUR bn and %TREA 

393 

 
 
 
 
 
Source: SRB MREL Dashboard – Q3 2022 

5.3. Focus on small and medium-sized banks 

5.3.1.  General considerations on issuance capacity 

Extending  the  PIA  will  impact  small  and  medium-sized  banks  for  which  resolution 
authorities  will  more  frequently  consider  resolution  strategies  at  the  time  of  resolution 
planning.  The  determination  of  the  relevant  resolution  strategies  will  remain  at  the 
discretion  of  the  resolution  authorities,  but  these  new  candidates  for  resolution  will 
likely,  at  least  partly,  be  subject  to  strategies  relying  on  transfer  tools  (such  as  sale  of 
business, bridge institution or asset separation tools) given their limited size and systemic 
importance compared to other, larger banks. As a result, these banks would be subject to 
appropriate  and  proportionate  levels  of  MREL  requirements,  in  line  with  BRRD  and 
SRMR. 

While  some  banks  may  have  sufficient  own  funds  and  other  eligible  instruments  to  be 
compliant with such requirements, for other banks, as MREL levels may exceed the loss 
absorption amount (own funds)624, additional funding needs may emerge. The net effect 
of MREL-related  additional costs on banks,  due to  the expansion of the PIA cannot  be 
estimated  because  it  would  depend  on  bank-specific  MREL  targets  set  by  authorities 
following  the  determination  of  a  positive  PIA  and  the  stock  of  outstanding  eligible 
instruments on these banks’ balance sheets.  

In  this  context,  a  study  based  on  publicly  available  information  extracted  from  S&P 
database,  summarised  in  section  5.3.3,  provides anecdotal  evidence  on  the  existence  of 
issuances of various forms of instruments, subordinated and senior unsecured liabilities, 
across all size of institutions, including for those with a balance sheet lower than EUR 10 
or 30 bn. This study shows that, while issuances are concentrated in a few Member States 
and that the largest institutions, as seen previously, represent the majority of the issuers 
in  number and volume,  some small  and mid-sized banks have  also  issued subordinated 
and senior  resources  likely to  support the compliance  with MREL requirements, where 
not already achieved.  

624 The MREL calibration for transfer strategies is smaller when compared to open bank-bail-in strategies 
due to the adjustments currently envisaged in various jurisdictions to cater for the banks’ business models 
and resolution strategies relying on transfer tools. 

394 

 
 
                                                           
This analysis has a number of important caveats, such as the absence of clear delineation 
between  MREL  eligible  instruments  and  the  concentration  of  observations  in  certain 
issuers or in certain Member States, de facto constraining the presentation of the results. 
The  moderate  number  of  issuances  for  these  specific  types  of  institutions  may  be 
explained by transitional or more structural difficulties to access capital markets.  

On  one  hand,  structural  challenges  are  mostly  linked  to:  (i)  the  general  features  of  the 
banks’  business  model  and  funding  structure,  in  particular  the  reliance  on  deposits  and 
CET1 to finance traditional lending activities, (ii) the absence of past issuance programs, 
ratings or listed shares (see Box 24) that may hamper the ability to access internationally 
active capital  markets,  (iii) the level  of development  and depth  of local  capital  markets 
and (iv) the implied costs linked to the issuance of debt securities and their impacts on 
profitability,  in  particular  in  jurisdictions  where  markets  are  less  liquid  and  where 
sovereigns have relatively lower credit ratings compared to other Member States. 

On  the  other  hand,  transitional  challenges  mostly  relate  to:  (i)  limited  issuance 
requirements due to high capital positions or the absence of MREL targets above capital 
requirements having regard to the applicable strategy in case of failure (i.e. liquidation), 
(ii)  timeframes  for  MREL  setting  by  resolution  authorities  based  on  which  certain 
institutions,  in  particular  the  least  systemic  ones,  may  have  only  been  notified  recently 
about  their requirements, (iii) transition  periods potentially beyond 2024 allowing for a 
delay  in  issuance  in  order  to  limit  impacts  on  profitability  (interest  margin)  and  (iv)  a 
logic  of  sequencing  with  the  AT1  and  Tier  2  layers  to  meet  prudential  capital 
requirements and to favour subsequent senior issuances insofar as they meet the MREL 
requirements. 

These  considerations  call  for  caution  when  drawing  general  conclusions  about  the 
explanatory factors linked to the issuances of own funds and eligible liabilities by small 
and mid-sized banks and the potential additional costs of such issuances.  

5.3.2.  EBA report on difficulties of certain banks to issue MREL eligible liabilities 

A  recent  EBA  report625  provided  an  analysis  of  possible  factors  that  may  explain  the 
issuance  activity  of  MREL  eligible  liabilities,  or  lack  thereof,  by  certain  small  banks. 
Based on data as of Q4 2021, the EBA highlighted the following aspects: 

-  The  impact  on  profitability  of  MREL  issuances,  estimated  via  the  cost  of  long-
term  unsecured debt.  The study shows that, while the overall situation appeared 
manageable at the time (notwithstanding the changes of economic conditions and 
the  recent  general  rise  of  interest  rates),  the  spreads  of  unsecured  funding  were 
significantly higher for smaller banks than for their larger peers. 

-  The ability of certain small banks to issue MREL over the period analysed in the 
report  seems  linked,  for  certain  issuers,  to  intrinsic  financial  health  issues 
(evidenced  by  low  credit  ratings),  but  it  is  also  constrained  by  external  factors 
such as  the sovereign rating or  the  apparent  lack of  deep  markets in  their home 
jurisdiction. 

625 EBA (January 2023), EBA MREL quantitative monitoring report and impact assessment 

395 

 
                                                           
The conclusions of the report must be assessed with caution, given the limited focus on 
certain groups of banks and the absence of a holistic assessment. Nevertheless, the study 
confirms the complexity of the issue and the need to recognise the heterogeneity of the 
situation of small banks, given that their ability to issue MREL eligible instruments may 
be  impacted  by  several  factors  that  goes  beyond  their  intrinsic  financial  position  or 
business model. 

Box 24: Small and medium-sized banks: ratings and listed entities 

Based on ECB data, 115 banks out of 1 978 operating in the Banking Union have a 
rating  at  entity  level.  The  presence  of  rating  strongly  decreases  in  conjunction  with 
the  size  of  the  bank:  while  41%  of  entities  with  a  balance  sheet  of  more  than 
EUR 100 bn  have  a  rating,  the  percentage  falls  to  6%  of  the  smallest  banks  with  a 
balance sheet below EUR 10 bn. At aggregated level, 6% of the entities have a rating 
(this figure takes into account all banks for which the total asset size is not available 
and that were not included in any other category). 

Table 44: Share of banks with a rating (entity level, % of total) 

Above EUR 100 bn 

EUR 100-50 bn 
EUR 50-30 bn 
EUR 30-10 bn 
Below EUR 10 bn 

Total 

Banks with a 
rating (%) 

41% 
18% 
23% 
14% 
6% 

6% 

Source: ECB computations, data as of Q4 2021 

The variation is  also  significant,  but  with  higher absolute levels,  with  respect  to  the 
share  of  banks  that  are  listed  in  the  Banking  Union.  While  almost  all  banks  with  a 
balance  sheet  higher  than  EUR  50  bn  are  listed,  the  share  decreases  progressively 
down  to  42%  for  banks  with  a  balance  sheet  size  lower  than  EUR  10 bn.  At 
aggregated level, 34% of the entities are listed (this figure takes into account all banks 
for which the total asset size is not available and that were not included in any other 
category). 

Table 45: Share of banks listed (% of total) 

Above EUR 100 bn 
EUR 100-50 bn 

EUR 50-30 bn 
EUR 30-10 bn 
Below EUR 10 bn 

Total 

Banks with a 
rating (%) 

98% 
96% 

81% 
78% 
42% 

34% 

Source: ECB computations, data as of Q4 2021 

Some  of  these  banks,  on  an  individual  level,  may  not  necessarily  be  standalone 
entities  and  may  be  part  of  larger  banking  groups  and,  therefore,  embedded  into 
group-wide funding structures. 

396 

 
 
 
 
 
 
 
 
5.3.3.  Evaluation of the funding capacity – Study of public issuances 

The  subsequent  study626  is  based  on  a  sample  covering  7  721  issuances  by  298  issuers 
with a balance sheet below EUR 100 bn627. Issuances take the form of subordinated and 
senior unsecured debt  securities with  a maturity  higher than one  year, with  a  minimum 
ticket of EUR 20 million, from January 2018 to January 2023, i.e. a time period which is 
consistent with the progressive path followed by resolution authorities in setting MREL 
requirements in the EU, including under the revised Banking Package adopted in 2019.  

The dataset does not include a clear delineation to single out MREL eligible instruments. 
As such, some liabilities included in the sample may be issued by institutions that are not 
resolution entities or may not comply with all the eligibility conditions set out in Article 
72b CRR for MREL eligible liabilities. 

Main takeaways: 

-  Overview of the issuers 

Over the last five years, 298 issuers located in the EU, with a balance sheet size below 
EUR  100 bn,  reported  a  total  of  7  721  issuances  of  subordinated  and  senior  debt 
instruments.  The  observations  show  that  issuers  are  concentrated  in  a  few  Member 
States: AT, DE, FR, IT, LU and SE represent more than 65% of the issuers and 89% of 
the number of issuances, while there are only a limited number of issuances reported in 
eight Member States, predominantly in Central and Eastern Europe.  

626 Source: S&P data as of 19 January 2023, Commission services computations.  
627  Data  quality  checks  led  to  the  exclusion  of  a  limited  amount  of  observations,  in  particular  when  the 
type of instrument or the size of the issuer were not available. 

397 

 
 
 
                                                           
Table 46: Number of issuers (per Member State* and balance sheet size) 

Size (EUR billion) 

<10 

[10-30[ 

[30-50[ 

[50-100[ 

Total 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

EL 

ES 

FI 

FR 

HR 

HU 

IE 

IT 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

RO 

SE 

SI 

SK 

15 

1 

2 

0 

2 

9 

8 

1 

2 

1 

3 

15 

1 

9 

2 

41 

0 

4 

1 

1 

4 

0 

0 

0 

14 

2 

2 

10 

1 

1 

1 

3 

11 

2 

0 

0 

2 

2 

17 

2 

2 

3 

14 

0 

2 

0 

1 

3 

1 

2 

4 

2 

1 

2 

2 

1 

0 

0 

0 

4 

1 

0 

0 

0 

1 

4 

0 

0 

0 

2 

0 

2 

0 

0 

0 

2 

2 

0 

1 

0 

0 

2 

1 

0 

0 

1 

8 

2 

0 

5 

4 

1 

7 

0 

1 

0 

6 

0 

2 

0 

0 

2 

3 

2 

0 

0 

0 

0 

Total 

140 

89 

22 

47 

* an issuing bank may be part of a group headed in another Member State 

29 

4 

3 

1 

6 

32 

13 

1 

7 

7 

7 

43 

3 

12 

5 

63 

0 

10 

1 

2 

9 

6 

6 

4 

17 

3 

4 

298 

Source: Commission services computations, based on S&P data as of 19 January 2023. 

The  number  of  issuers  should  be  viewed  in  perspective  of  the  total  number  of  banks 
operating in the EU. Based on ECB data as of Q4 2020, approximately 1 150 banks with 
total assets below EUR 100 bn628 are operating in the Banking Union Member States. As 
already noted, on an individual level, these banks are not necessarily standalone entities 
and  may  be  part  of  larger  banking  groups  and  therefore  embedded  into  group-wide 
funding  structures.  Similarly,  not  all  banks  would  in  any  case  be  subject  to  resolution 
strategies  and  may  not  have  to  issue  MREL  eligible  instruments  beyond  their  capital 
requirements. 

628 In addition to 803 banks for which the total assets size was not reported, for a total, including all asset 
size groups, of 1,998 banks. 

398 

 
 
 
 
 
                                                           
-  Overview of the issuances (types and amounts) 

Bearing  in  mind  the  caveats  on  the  limited  number  of  observations,  issuances  of 
subordinated instruments represent  no more than 5%  of the total  issuances  in  each size 
group.  Banks  with  smaller  balance  sheet  report  issuances  of  subordinated  instruments, 
but  in  limited  numbers  compared  to  the  number  of  issuers  in  most  jurisdictions.  Data 
shows  that  nine  Member  States  report  10  or  less  issuances  of  subordinated  and  senior 
unsecured debt instruments. Senior issuances represent the majority of instruments issued 
in all size groups. In total, senior instruments account for 98% of all issuances.  

Table 47: Number of issuances (per Member States* and balance sheet size) 

<10 

[10-30[ 

[30-50[ 

[50-100[ 

Sub 

Senior 

Sub 

Senior 

Sub 

Senior 

Sub 

Senior 

Total 

76 

10 

83 

1,291 

28 

955 

17 

122 

0 

1 

0 

1 

4 

3 

2 

1 

0 

0 

0 

0 

0 

0 

6 

0 

0 

1 

1 

0 

0 

0 

0 

0 

0 

0 

1 

1 

0 

3 

57 

24 

0 

9 

4 

26 

314 

3 

45 

55 

132 

0 

36 

0 

0 

80 

0 

0 

0 

134 

4 

2 

0 

0 

0 

0 

0 

2 

0 

0 

0 

0 

0 

0 

0 

2 

3 

0 

1 

0 

2 

1 

1 

2 

2 

0 

4 

0 

48 

1,885 

37 

1 

1 

1 

12 

190 

21 

0 

0 

4 

40 

112 

4 

7 

21 

82 

0 

16 

0 

0 

29 

1 

2 

16 

6 

2 

18 

708 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

EL 

ES 

FI 

FR 

HR 

HU 

IE 

IT 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

RO 

SE 

SI 

SK 

Total 

% per size 
group 

0 

2 

0 

0 

0 

4 

0 

0 

0 

0 

0 

0 

0 

0 

0 

1 

0 

5 

0 

0 

0 

0 

1 

0 

4 

0 

0 

2 

0 

0 

0 

973 

2 

0 

0 

0 

21 

8 

0 

0 

0 

2 

0 

2,825 

0 

0 

0 

31 

6 

0 

38 

0 

0 

1 

0 

0 

3 

7 

3 

1 

19 

195 

1,427 

0 

0 

0 

0 

4 

6 

0 

3 

3 

8 

0 

0 

1 

0 

28 

0 

11 

13 

60 

189 

0 

4 

0 

10 

125 

0 

0 

0 

0 

2 

2 

1 

0 

0 

0 

0 

0 

90 

0 

0 

166 

9 

15 

0 

0 

0 

0 

86 

2 

24 

24 

155 

623 

7 

57 

78 

361 

0 

2,973 

1 

3 

278 

44 

27 

18 

182 

10 

20 

2.5% 

97.5% 

5.0% 

95.0% 

0.4% 

99.6% 

4.8% 

95.2% 

17 

3,984 

50 

992 

7,721 

Source: Commission services computations, based on S&P data as of 19 January 2023. * An issuing bank 
may be part of a group headquartered in another Member State. 

The  7  721  issuances  represent  an  amount  of  EUR  1  236 bn,  of  which  EUR 1  209 bn 
senior  instruments.  In  general,  issuances  account  for  a  larger  percentage  of  the 
institutions’  total  assets  for  the  smallest  banks:  on  average,  senior  unsecured  debt 

399 

 
 
  
  
  
 
 
  
  
  
  
  
  
  
  
 
securities represent 5.98% of total assets for banks with a balance sheet size smaller than 
EUR 10 bn, with averages in certain Member States reaching up to 11% to 46% of total 
assets  respectively,  by  far  exceeding  average  levels  for  other  size  groups.  Issuances  of 
subordinated instruments represent on average 0.04% of the total assets for banks with a 
balance sheet size smaller than EUR 10 bn, generally higher than other size groups. 

In  general,  several  banks  may  be  willing  to  ensure  a  layer  of  subordinated  debt  in  the 
form  of  AT1  and  T2  above  what  is  required  to  be  held  as  CET1  before  issuing  other 
forms  of  liabilities,  such  as  senior  non-preferred  instruments.  This  progressive  path 
allows for prudential  capital  requirements to  be met at  a lower cost  than CET1 and for 
satisfactory capital ratios that enhance the rating of senior liabilities.  

In  total,  small  and  mid-sized  banks  issued  EUR  10.5 bn  of  subordinated  debt  (102 
issuances) over the period.  

Table 48: Issued amounts (per type of instrument and balance sheet size, EUR m) 

<10 

[10-30[ 

[30-50[ 

[50-100[    

Sub 

Senior 

Sub 

Senior 

Sub 

Senior 

Sub 

Senior 

Total 

2.560  340.982 

678 

8.134 

0 

25.173 

770 

4.711 

383,008 

0 

30 

0 

100 

145 

202 

200 

100 

0 

0 

0 

0 

0 

0 

264 

0 

0 

200 

55 

40 

120 

0 

300 

3,190 

1,051 

0 

1,158 

145 

1,463 

24,590 

393 

4,208 

9,411 

6,865 

0 

0 

0 

0 

0 

0 

650 

160 

100 

2.493 

22,565 

600 

2,822 

0 

0 

0 

0 

0 

0 

0 

470 

115 

0 

0 

0 

1,600 

1,622 

30,423 

636 

929 

6,142 

5,360 

0 

1.000 

1.000 

0 

0 

0 

0 

0 

0 

377 

35,246 

1,396 

0 

0 

0 

12,062 

426 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

300 

0 

300 

2,990 

0 

0 

310 

100 

1.246 

4,139 

66,474 

130,024 

6,034 

13,756 

0 

5,884 

5,575 

12,426 

88,777 

0 

987 

0 

200 

8,292 

8,420 

32,593 

144,217 

1,029 

6,774 

16,023 

35,516 

0 

0 

0 

0 

0 

2,028 

1,650 

0 

1,150 

1,100 

5,020 

0 

0 

650 

0 

0 

0 

0 

0 

600 

2,684 

19,329 

0 

0 

3,583 

125 

1,578 

577  122,802 

0 

0 

0  204,784 

0 

0 

0 

0 

0 

0 

0 

0 

0 

6,484 

665 

1,030 

0 

400 

250 

194 

100 

250 

0 

510 

0 

0 

4,453 

52 

400 

2,131 

362 

382 

0 

1,418 

0 

0 

0 

0 

0 

0 

0 

23,327 

425 

2,225 

0 

0 

288 

3,986 

0 

0 

0 

0 

10,250 

138,916 

0 

0 

200 

455 

1,000 

48,024 

258,510 

175 

134 

2,664 

3,670 

0 

0 

0 

0 

0 

0 

0 

0 

26,412 

6,954 

2,381 

11,120 

1,557 

2,448 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

EL 

ES 

FI 

FR 

HR 

HU 

IE 

IT 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

RO 

SE 

SI 

SK 

Total 

3,856  610,460 

3,692 

94,411 

2,967  228,244 

16,360  276,352  1,236,342 

Source: Commission services computations, based on S&P data as of 19 January 2023. 

400 

 
 
  
  
  
 
Table 49: Issued amounts (per type of instrument and balance sheet size, % total 
assets, average) 

<10 

[10-30[ 

[30-50[ 

[50-100[    

Sub 

Senior 

Sub 

Senior 

Sub 

Senior 

Sub 

Senior 

0.05% 

6.83% 

0.03% 

0.31% 

0.00% 

1.00% 

0.02% 

0.10% 

0.00% 

0.51% 

0.00% 

5.38% 

0.51% 

0.51% 

0.00% 

0.57% 

0.26% 

1.03% 

0.00% 

1.23%    

0.00% 

0.53%    

0.80% 

2.40% 

0.00% 

0.90%    

0.00% 

0.63% 

0.03% 

0.63% 

0.00% 

0.59% 

0.00% 

0.11% 

0.01% 

0.38% 

0.11% 

0.58% 

0.14% 

0.68% 

0.00% 

1.41% 

0.06% 

0.22% 

1.46% 

0.00% 

0.33% 

3.78% 

0.00%  11.96% 

0.00% 

1.65%    

0.10% 

0.53% 

0.10% 

0.51% 

0.00% 

1.95% 

0.00% 

0.31% 

0.00% 

1.53% 

0.08% 

0.19% 

0.00% 

1.19% 

0.00% 

1.18% 

0.00% 

0.15% 

0.00% 

0.71% 

0.00% 

2.46% 

0.00% 

1.10%    

0.00% 

2.18% 

0.00% 

1.26%    

0.00%  11.78% 

0.14% 

1.80%    

0.17% 

0.26% 

0.04% 

1.07% 

0.01% 

0.40% 

0.30% 

0.60% 

0.02% 

0.17% 

0.00% 

1.54% 

0.04% 

0.47% 

0.00% 

0.10% 

0.00% 

0.17% 

3.96% 

0.00% 

1.97% 

0.00% 

1.39% 

0.00%    

0.00%  46.10% 

0.04% 

0.68%    

0.01% 

0.30% 

0.43% 

0.11% 

0.00% 

1.75% 

0.03% 

0.42% 

0.12% 

0.47% 

0.14% 

0.74% 

0.01% 

0.26% 

0.09% 

0.76%    

0.00% 

0.98% 

0.00% 

0.56% 

0.02% 

0.22% 

0.00% 

2.60% 

0.39% 

0.30%    

0.00%  15.76% 

0.00% 

0.36%    

Average 

2.56% 

1.12% 

1.26% 

0.53% 

0.85% 

0.25% 

0.39% 

1.46% 

0.72% 

0.71% 

0.42% 

0.83% 

1.39% 

1.06% 

3.81% 

0.27% 

0.11% 

3.96% 

1.44% 

1.53% 

1.31% 

0.39% 

0.85% 

0.43% 

1.00% 

0.61% 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

EL 

ES 

FI 

FR 

HR 

HU 

IE 

IT 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

RO 

SE 

SI 

SK 

Average 

0.04% 

5.98% 

0.03% 

0.66% 

0.00% 

0.15% 

0.02% 

0.34% 

Source: Commission services computations, based on S&P data as of 19 January 2023. 

5.3.4.   Holdings of own funds and eligible liabilities 

The objective of this section is to provide quantitative elements related to the holdings of 
own funds and eligible liabilities to support the assessment of the ability of institutions to 
meet  their  MREL  requirements.  Beyond  the  capacity  to  issue  specific  types  of 
instruments,  that  may  partly  be  due  to  operational  or  structural  constraints,  a  key 
determinant  of the assessment remains the nature of the investors ready  to  subscribe to 
these instruments.  

This  analysis  is  particularly  relevant  to  single  out  certain  types  of  banks,  in  particular 
small and medium-sized institutions or certain jurisdictions where financial markets may 
have varying levels of developments.  

401 

 
 
  
  
  
 
  
 
 
  
  
  
 
 
  
   
  
  
 
 
   
  
  
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
   
  
  
 
 
  
 
 
  
  
  
  
  
  
  
  
 
 
   
  
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
Based on ECB data covering issuers in  the Banking Union and using a  combination of 
several datasets subject to specific confidentiality rules, this section provides information 
on the holdings of instruments as of Q4 2021 by certain types of holders, broken down 
by type of issuers according to their size and geographical location: 

-  Own funds and eligible instruments: 

o  CET1 and AT1 
o  Tier 2 
o  Other subordinated securities 
o  Senior non-preferred securities 
o  Senior unsecured securities 

-  Types of holders: 

o  Financial  institutions629,  of  which  banks,  insurance  companies  and 

pension funds 

o  Public authorities and central banks 
o  Households and non-profit institutions 
o  Other, non-financial institutions630 

-  Size of banks (total assets): 

o  Below EUR 10 bn 
o  EUR 30-10 bn 
o  EUR 50-30 bn 
o  EUR 100-50 bn 
o  EUR 300-100 bn 
o  Above EUR 300 bn 

-  Geographical location (clusters631): 

o  AT/FI/DE 
o  FR/IT 
o  BE/IE/LU/NL 
o  PT/ES 
o  CY/GR/MT 
o  BG/HR/SK/SI 
o  EE/LV/LT 

The data is based on specific methodological assumptions that are listed in section  6 of 
this Annex. 

5.3.4.1.Overview of the distribution of holdings for Banking Union issuers 

629  Category  comprising:  deposit  taking  corporations,  money  market  funds,  investment  funds,  other 
financial  corporations,  financial  vehicle  corporations,  insurance  corporations,  pension  funds,  monetary 
financial institutions and other insurance and pension funds. 
630  Category  comprising:  non-financial  corporations,  non-financial  investors  (third  party  holdings), 
investors from non-euro area countries other than central banks and general governments, and unallocated 
holders. 
631 Groupings were necessary to prevent confidentiality issues. 

402 

 
 
 
 
                                                           
On  aggregate,  financial  institutions  represent  the  majority  of  holders  for  all  forms  of 
instruments. In particular, 58% of the reported holdings of CET1 and AT1 and up to 71% 
of  senior  non-preferred  instruments  are  held  by  financial  institutions.  Banks,  insurance 
and  pension  funds  often  represent  a  large  proportion  of  this  category,  in  particular  for 
Tier  2  and  senior  instruments,  but  relatively  less  for  CET1  and  AT1  where  they  only 
account for 28%, the rest being held by other types of holders such as asset management 
funds.  

Other  non-financial  holders  also  represent  a  large  share  of  holders  for  all  categories  of 
instruments,  while  holdings  by  public  authorities  and  central  banks  mostly  relate  to 
senior instruments.  Importantly, households and non-profit institutions represent a large 
proportion  of  the  holders  of  CET1  and  AT1  instruments  (6%  of  the  holdings)  and 
particularly for other subordinated liabilities (18% of the holdings).  

Table 50: Holdings of instruments per type of holder (% of the instrument type)632 

Financial institutions 

Of which: 
banks 

Of which: 
insurance and 
pensions funds 

Public 
authorities 
and central 
banks 

Households 
and non-
profit 
institutions 

Other, non-
financial 
institutions 

CET1 and AT1 
Tier 2 
Subordinated debt 

58% 
66% 
55% 

Senior non-preferred 
Senior 
Source: ECB data as of Q4 2021. 

71% 
59% 

19% 
13% 
31% 
25% 

47% 

9% 
38% 
27% 
33% 

17% 

1% 
2% 
1% 

2% 
13% 

6% 
3% 
18% 

1% 
5% 

34% 
30% 
26% 

26% 
23% 

5.3.4.2.Focus on small and medium-sized banks 

The following tables provide a granular breakdown of the holdings, for each instruments, 
per nature of holders by type of issuers according to their size and geographical location. 
They  include  figures  for  small  and  medium-sized  institutions,  as  well  as  for  largest 
entities to enhance the comparability of the results. 

In general, figures highlight the prevalence of holdings by financial institutions, although 
not necessarily banks and insurance or pension funds, across all types of instruments, but 
point  at  specific  features  in  some  Member  States  or  for  specific  categories  of  banks 
where  public  authorities  and  central  banks,  or  households,  represent  an  important 
proportion of the holders. This is particularly relevant for CET1, AT1 and subordinated 
debt held by households in certain Member States, or the absence of reported holdings of 
Tier 2 and senior non-preferred for many types of institutions in several jurisdictions.  

632  Example:  58%  of  the  reported  holdings  of  CET1  and  AT1  instruments  are  held  by  financials.  Banks 
represent  19%  of  the  holders  of  CET1  and  AT1  instruments  classified  as  financials.  The  sum  of  the 
columns financials, public authorities and central banks, households and non-profit institutions, and other 
non-financial holders is equal to 100%, covering the entire amount of reported holdings of each instrument. 

403 

 
 
 
  
 
                                                           
The outcome of the assessment suggests that the access to a wide investor base able to 
absorb  different  types  of  liabilities  to  meet  MREL  requirements  is  uneven  across 
Member States and varies across banks. 

CET1 and AT1:  

-  Financial  institutions  represent  a  large  proportion  of  holders  of  CET1  and  AT1 
instruments  for  many  issuers  in  all  jurisdictions.  The  distribution  remains 
heterogeneous  in  particular  for  small  institutions  with  balance  sheet  lower  than 
EUR 10 bn  where  the  proportion  of  financials  move  from  less  than  20%  to  up  to 
99% of the holdings.  

-  Public  authorities  and  central  banks  generally  represent  a  small  proportion  of 
holdings  of  CET1  and  AT1  instruments  except  in  limited  cases  (e.g.  publicly-
owned institutions). 

-  Households  represent  an  important  proportion  of  holders  of  CET1  and  AT1 
instruments,  in  particular  for  the  smallest  banks  with  a  balance  sheet  below 
EUR 10 bn,  in  several  groups  of  Member  States:  59%  in  ES/PT,  35%  in 
EE/LV/LT,  37%  in  DE/AT/FI  and  28%  in  FR/IT  where  this  proportion  remains 
high also for larger institutions. 

- 

Table 51: Holdings of CET1 and AT1 instruments (% of holdings) 

DE_AT_FI 

IT_FR 

CET1 and AT1 

Below EUR 10 billion 

EUR 30-10 billion 

EUR 50-30 billion 

EUR 100-50 billion 

35% 

60% 

60% 

58% 

EUR 300-100 billion 
63% 
Above EUR 300 billion  54% 
Below EUR 10 billion 

16% 

EUR 30-10 billion 

EUR 50-30 billion 

EUR 100-50 billion 

54% 

63% 

46% 

EUR 300-100 billion 
55% 
Above EUR 300 billion  60% 
Below EUR 10 billion 

39% 

EUR 30-10 billion 

NL_BE_LU_IE 

EUR 100-30 billion 

49% 

65% 

EUR 300-100 billion 
72% 
Above EUR 300 billion  63% 
Below EUR 10 billion 

13% 

EUR 30-10 billion 

EUR 100-30 billion 

Above 100 billion 

0% 

55% 

59% 

ES_PT 

Financials 

Of which: 
banks 

Of which: 
insurance and 
pensions funds 

Public 
authorities and 
central banks 

Households 
and non-
profit 
institutions 

Other, 
non-
financial 

4% 

3% 

3% 

2% 

6% 

7% 

6% 

12% 

5% 

17% 

8% 

7% 

3% 

1% 

19% 

19% 

23% 

55% 

0% 

9% 

8% 

20% 

26% 

11% 

25% 

30% 

31% 

8% 

24% 

11% 

-1% 

13% 

17% 

6% 

10% 

22% 

22% 

17% 

0% 

0% 

6% 

14% 

404 

3% 

0% 

0% 

1% 

0% 

1% 

0% 

0% 

0% 

1% 

1% 

1% 

1% 

0% 

0% 

4% 

1% 

0% 

0% 

0% 

2% 

37% 

5% 

12% 

13% 

4% 

6% 

28% 

37% 

9% 

38% 

25% 

5% 

4% 

17% 

5% 

1% 

1% 

59% 

0% 

13% 

6% 

26% 

36% 

27% 

29% 

32% 

39% 

55% 

10% 

27% 

16% 

19% 

34% 

56% 

35% 

29% 

23% 

35% 

28% 

0% 

32% 

34% 

 
 
 
  
  
  
  
Below EUR 30 billion 

EUR 50-30 billion 

GR_CY_MT 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

BG_SI_SK_HR 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

54% 

0% 

44% 

0% 

0% 

98% 

99% 

0% 

0% 

0% 

0% 

EE_LV_LT 

Below EUR 10 billion 

24% 

EUR 30-10 billion 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

0% 

0% 

0% 

0% 

0% 

Source: ECB data as of Q4 2021. 

Tier 2: 

59% 

0% 

53% 

0% 

0% 

0% 

82% 

0% 

0% 

0% 

0% 

1% 

0% 

0% 

0% 

0% 

0% 

13% 

0% 

2% 

0% 

0% 

89% 

11% 

0% 

0% 

0% 

0% 

6% 

0% 

0% 

0% 

0% 

0% 

82% 

0% 

45% 

0% 

0% 

0% 

1% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

12% 

0% 

9% 

0% 

0% 

2% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

3% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

35% 

41% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

-  Financial institutions represent a large proportion of holders of Tier 2 instruments 

together with other non-financial holders, across all jurisdictions.  

-  Holdings  of Tier 2 instruments  are mostly  relevant  for institutions with a balance 
sheet  size  of  at  least  EUR  50 bn.  In  several  Member  States,  no  holdings  are 
reported. 

Table 52: Holdings of Tier 2 instruments (% of holdings) 

DE_AT_FI 

IT_FR 

Tier 2 

Below EUR 10 billion 

EUR 30-10 billion 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

NL_BE_LU_IE 

EUR 30-10 billion 

EUR 100-30 billion 

EUR 300-100 billion 

Financials 

Of which: 
banks 

Of which: 
insurance and 
pensions funds 

Public 
authorities 
and central 
banks 

Households 
and non-
profit 
institutions 

Other, non-
financial 

0% 

0% 

0% 

64% 

72% 

57% 

63% 

0% 

0% 

53% 

70% 

65% 

0% 

47% 

65% 

79% 

0% 

0% 

0% 

15% 

18% 

11% 

24% 

0% 

0% 

15% 

14% 

14% 

0% 

8% 

16% 

17% 

405 

0% 

0% 

0% 

41% 

24% 

28% 

24% 

0% 

0% 

12% 

30% 

42% 

0% 

11% 

10% 

30% 

0% 

0% 

0% 

9% 

1% 

1% 

0% 

0% 

0% 

0% 

1% 

2% 

0% 

1% 

0% 

1% 

0% 

0% 

0% 

0% 

8% 

10% 

13% 

0% 

0% 

34% 

5% 

2% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

28% 

19% 

32% 

24% 

0% 

0% 

13% 

24% 

31% 

0% 

52% 

35% 

21% 

 
 
  
  
  
  
Above EUR 300 billion 

45% 

31% 

ES_PT 

Below EUR 10 billion 

EUR 30-10 billion 

EUR 100-30 billion 

Above 100 billion 

Below EUR 30 billion 

EUR 50-30 billion 

GR_CY_MT 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

BG_SI_SK_HR 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

EE_LV_LT 

Source: ECB data as of Q4 2021. 

Other subordinated securities: 

0% 

0% 

66% 

72% 

0% 

0% 

60% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

8% 

10% 

0% 

0% 

39% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

31% 

0% 

0% 

19% 

41% 

0% 

0% 

2% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

2% 

0% 

0% 

0% 

1% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

2% 

1% 

0% 

0% 

3% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

53% 

0% 

0% 

33% 

26% 

0% 

0% 

37% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

-  Financial  institutions  represent  a  large  proportion  of  holders  of  subordinated 
instruments,  sometimes  together  with  other  non-financial  holders  in  certain 
jurisdictions. 

-  Similarly  to  own  funds  instruments,  public  authorities  and  central  banks  often 
represent  a  limited  proportion  of  holders,  and  are  largely  outweighed  by 
households  and  non-profit  institutions  which  may  represent  up  to  40%  of  the 
holders of subordinated instruments.  
In general, holdings by households and non-profit institutions seem to remain high 
irrespective  of  the  size  of  the  institutions,  although  slightly  more  important  for 
banks  with  balance  sheet  up  to  EUR  50 bn,  in  those  jurisdictions  where  they 
account for a large proportion of the issuers. 

- 

406 

 
 
 
 
Table 53: Holdings of other subordinated instruments (% of holdings) 

Financials 

Of which: 
banks 

Of which: 
insurance and 
pensions funds 

Public 
authorities 
and central 
banks 

Households 
and non-
profit 
institutions 

Other, non-
financial 

DE_AT_FI 

IT_FR 

Other subordinated 

Below EUR 10 billion 

EUR 30-10 billion 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

NL_BE_LU_IE 

EUR 100-30 billion 

ES_PT 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

EUR 100-30 billion 

Above 100 billion 

Below EUR 30 billion 

EUR 50-30 billion 

GR_CY_MT 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

BG_SI_SK_HR 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

57% 

EE_LV_LT 

EUR 30-10 billion 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Source: ECB data as of Q4 2021. 

0% 

0% 

0% 

0% 

0% 

54% 

34% 

42% 

74% 

53% 

63% 

70% 

68% 

53% 

20% 

13% 

35% 

32% 

70% 

79% 

63% 

100% 

100% 

50% 

64% 

51% 

51% 

51% 

75% 

70% 

44% 

0% 

96% 

91% 

63% 

43% 

0% 

0% 

0% 

0% 

68% 

81% 

0% 

0% 

0% 

0% 

5% 

28% 

17% 

32% 

13% 

1% 

7% 

12% 

0% 

4% 

97% 

18% 

37% 

0% 

0% 

0% 

0% 

69% 

75% 

0% 

0% 

0% 

0% 

5% 

0% 

0% 

0% 

0% 

0% 

407 

15% 

17% 

48% 

21% 

34% 

11% 

5% 

11% 

0% 

19% 

19% 

35% 

39% 

17% 

62% 

33% 

17% 

0% 

94% 

14% 

44% 

16% 

0% 

0% 

0% 

0% 

26% 

8% 

0% 

0% 

0% 

0% 

12% 

0% 

0% 

0% 

0% 

0% 

3% 

2% 

5% 

0% 

1% 

0% 

0% 

0% 

0% 

2% 

0% 

1% 

0% 

1% 

2% 

0% 

0% 

0% 

0% 

0% 

0% 

34% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

22% 

40% 

17% 

6% 

14% 

12% 

19% 

22% 

0% 

32% 

26% 

23% 

0% 

8% 

2% 

1% 

25% 

0% 

2% 

32% 

5% 

18% 

0% 

0% 

0% 

0% 

1% 

2% 

0% 

0% 

0% 

0% 

22% 

23% 

37% 

20% 

33% 

24% 

11% 

10% 

0% 

16% 

10% 

25% 

48% 

39% 

22% 

30% 

31% 

0% 

2% 

27% 

32% 

4% 

0% 

0% 

0% 

0% 

30% 

17% 

0% 

0% 

0% 

0% 

28% 

15% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

 
  
  
  
  
 
 
Senior non-preferred securities: 

-  Holdings  of  non-senior  preferred  instruments  are  not  reported  for  institutions 

below EUR 30 bn in assets, except in a few Member States. 

-  Financials  remain  the  most  important  category  of  holders  of  these  instruments, 
sometimes  with  other  non-financial  holders  in  certain  jurisdictions.  Contrary  to 
subordinated instruments, households and non-profit institutions only represent a 
marginal proportion of holders of senior non-preferred instruments. 

-  Similarly  to  Tier  2  instruments,  no  holdings  are  reported  in  several  Member 

States. 

Table 54: Holdings of senior non-preferred instruments (% of holdings) 

DE_AT_FI 

IT_FR 

Senior non-preferred 

Below EUR 10 billion 

EUR 30-10 billion 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

NL_BE_LU_IE 

EUR 100-30 billion 

ES_PT 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

EUR 100-30 billion 

Above 100 billion 

Below EUR 30 billion 

EUR 50-30 billion 

GR_CY_MT 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

BG_SI_SK_HR 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

0% 

59% 

81% 

63% 

76% 

62% 

0% 

0% 

0% 

88% 

82% 

72% 

0% 

74% 

63% 

68% 

71% 

0% 

0% 

79% 

73% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

Financials 

Of which: 
banks 

Of which: 
insurance and 
pensions funds 

Public 
authorities 
and central 
banks 

Households 
and non-
profit 
institutions 

Other, 
non-
financial 

0% 

32% 

67% 

35% 

55% 

30% 

0% 

0% 

0% 

29% 

18% 

22% 

0% 

15% 

19% 

20% 

22% 

0% 

0% 

25% 

18% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

408 

0% 

10% 

7% 

31% 

8% 

21% 

0% 

0% 

0% 

24% 

42% 

38% 

0% 

28% 

29% 

27% 

42% 

0% 

0% 

27% 

35% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

2% 

4% 

3% 

3% 

1% 

0% 

0% 

0% 

1% 

1% 

2% 

0% 

2% 

1% 

2% 

3% 

0% 

0% 

2% 

2% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

1% 

2% 

0% 

1% 

2% 

0% 

0% 

0% 

1% 

1% 

0% 

0% 

1% 

0% 

0% 

0% 

0% 

0% 

0% 

1% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

39% 

13% 

34% 

20% 

35% 

0% 

0% 

0% 

11% 

16% 

25% 

0% 

23% 

36% 

30% 

26% 

0% 

0% 

19% 

24% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

 
 
  
  
  
  
Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

EE_LV_LT 

Above EUR 300 billion 

Source: ECB data as of Q4 2021. 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

Senior unsecured securities: 

-  Financials  also  represent  the  largest  proportion  of  holders  of  senior  unsecured 
instruments, with a relatively high share for banks, insurance and pension funds 
compared to other forms of instruments.  

-  On  average,  public  authorities  and  central  banks  represent  a  larger  share  of 
holders  of  senior  unsecured  instruments  compared  to  other,  more  subordinated, 
instruments. For certain categories of banks, they may represent up to 27% of the 
holders, without specific trend with respect to the size of the issuers. 

-  Households  and  non-profit  institutions  generally  represent  a  large  proportion  of 
the  holders  of  senior  unsecured  instruments  in  many  jurisdictions,  and  in 
particular for small and medium-sized institutions where the share can represent 
up to 52% of the holdings for the smallest banks below EUR 10 bn in assets.  

Table 55: Holdings of senior unsecured instruments (% of holdings) 

DE_AT_FI 

IT_FR 

Senior unsecured 

Below EUR 10 billion 

EUR 30-10 billion 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

NL_BE_LU_IE 

EUR 100-30 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

ES_PT 

Financials 

Of which: 
banks 

Of which: 
insurance and 
pensions funds 

Public 
authorities 
and central 
banks 

Households 
and non-
profit 
institutions 

Other, non-
financial 

51% 

70% 

51% 

54% 

68% 

69% 

42% 

76% 

95% 

60% 

78% 

74% 

59% 

70% 

52% 

46% 

69% 

100% 

81% 

409 

59% 

75% 

56% 

43% 

83% 

58% 

52% 

38% 

24% 

42% 

42% 

47% 

38% 

28% 

36% 

46% 

48% 

0% 

22% 

6% 

5% 

18% 

9% 

4% 

9% 

12% 

7% 

2% 

8% 

22% 

18% 

6% 

10% 

38% 

29% 

18% 

88% 

32% 

3% 

5% 

19% 

2% 

4% 

1% 

0% 

1% 

0% 

12% 

7% 

1% 

16% 

1% 

23% 

27% 

2% 

0% 

1% 

25% 

14% 

7% 

24% 

20% 

16% 

52% 

10% 

0% 

4% 

3% 

6% 

1% 

0% 

1% 

0% 

1% 

0% 

0% 

20% 

11% 

22% 

20% 

8% 

14% 

6% 

13% 

5% 

24% 

12% 

19% 

24% 

29% 

24% 

27% 

28% 

0% 

18% 

 
 
 
  
  
  
  
EUR 100-30 billion 

Above 100 billion 

Below EUR 30 billion 

EUR 50-30 billion 

GR_CY_MT 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

BG_SI_SK_HR 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

Below EUR 10 billion 

EUR 30-10 billion 

EUR 50-30 billion 

EUR 100-50 billion 

EUR 300-100 billion 

Above EUR 300 billion 

EE_LV_LT 

Source: ECB data as of Q4 2021. 

84% 

75% 

68% 

0% 

81% 

0% 

0% 

91% 

74% 

0% 

0% 

0% 

0% 

69% 

61% 

0% 

0% 

0% 

0% 

67% 

24% 

49% 

0% 

48% 

0% 

0% 

58% 

22% 

0% 

0% 

0% 

0% 

15% 

13% 

0% 

0% 

0% 

0% 

5% 

25% 

8% 

0% 

6% 

0% 

0% 

36% 

33% 

0% 

0% 

0% 

0% 

50% 

37% 

0% 

0% 

0% 

0% 

0% 

3% 

0% 

0% 

1% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

2% 

1% 

0% 

2% 

0% 

0% 

0% 

16% 

21% 

32% 

0% 

16% 

0% 

0% 

9% 

13% 

13% 

0% 

0% 

0% 

0% 

0% 

1% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

0% 

30% 

38% 

0% 

0% 

0% 

0% 

6.  OTHER METHODOLOGICAL CONSIDERATIONS 

The analyses conducted in this Annex rely on different samples of banks, depending on 
the source of information. Although not directly comparable due to the heterogeneity of 
the data sources used, these samples  allow for  robust analyses on  a standalone basis in 
order to support the assessment of the policy options. All samples have been subject to 
data quality checks that resulted in exclusions of certain observations. 

-  Overview of the application of the PIA 

The analysis pertaining to the application of the PIA is based on the information from the 
EBA CfA report. The analysis in the EBA CfA report is based on a sample of 343 banks, 
out of which 165 entities with resolution strategy, according to Q4 2019 data. This is the 
same sample of banks underpinning the analyses presented in Annex 7.  

The  classification  of  banks  into  large,  medium  and  small  banks  as  well  as  the  split  by 
deposit prevalence (i.e. share of deposits in the total amount of liabilities and own funds) 
follows the same methodology as described in the EBA CfA report and Annex 7.  

-  Overview of the operationalisation of transfer strategies 

The  analysis  regarding  the  allocation  of  banks  by  resolution  strategies  is  based  on  the 
EBA’s 2020 and 2021 quantitative MREL reports (based on Q4 2019 and Q4 2020 data, 
respectively)633. These reports are based on the MREL decisions for a scope of 238 and 
260 resolution groups and individual resolution entities, respectively covering the EU-27.  

633 EBA (June 2021), EBA quantitative MREL report, as of 31 December 2019.  

410 

 
 
                                                           
-  MREL 

The  analyses  pertaining  to  the  MREL  build-up  are  based  on  the  following  sources  of 
data, each featuring specificities in terms of sample size and composition:  

o  EBA  quantitative  2020  MREL  report:  sample  of  238  resolution  groups 
and individual resolution entities, consisting of 10 G-SIIs, 83 O-SIIs split 
into four categories according to their size and 145 other banks also split 
into  four  categories  of  size.  Figures  on  MREL  requirements,  eligible 
liabilities  and  shortfalls  are  weighted  by  TREA.  The  EBA’s  quantitative 
MREL 2020 report based on Q 2019 data reflects the implementation of 
BRRD I. Internal MREL targets and statistics not considered in the report. 
o  EBA  quantitative  2021  MREL  report:  sample  of  260  resolution  groups 
and individual resolution entities, consisting of 10 G-SIIs, 88 O-SIIs split 
into five categories according to their size and 162 other banks also split 
into  four  categories  of  size.  Figures  on  MREL  requirements,  eligible 
liabilities  and  shortfalls  are  weighted  by  TREA.  The  EBA’s  quantitative 
MREL 2021 report based on Q4 2020 data reflects the implementation of 
BRRD II. Internal MREL targets are also considered in the report. 

o  SRB MREL dashboards (presented in section 5.2 of this Annex): the most 
recent  SRB  MREL  dashboard  presented  MREL-related  information  and 
data  as  of  Q1  2022  for  a  sample  of  82  resolution  groups  and  individual 
resolution  entities,  reflecting  the  BRRD  II  MREL  policy.  The  MREL 
issuances-related  information  is  based  on  a  sample  of  82  resolution 
groups.  The  aggregated  MREL  targets  (%  TREA)  are  the  weighted 
average of targets of resolution entities per Member State.  

o  European  Commission,  ECB  and  SRB  joint  Risk  Reduction  Monitoring 
Reports  of  May  and  November  2021:  the  overview  of  MREL  targets, 
outstanding  stock  of  eligible  liabilities  and  shortfalls  as  of  Q4  2019  and 
Q4  2020  is  based  on  a  sample  of  101  and  98  resolution  groups, 
respectively.. These samples included nine G-SII and G-SII entities in the 
Banking  Union.  The  report  reflects  BRRD  II  MREL  policies,  however 
internal MREL targets and statistics are not considered in the report.  
o  ECB data on holdings: sample of Banking Union issuers of own funds and 
eligible  liabilities  as  of  Q4  2011,  based  on  the  combination  of  several 
ECB  data  sets.  The  information  focuses  on  the  buy-side  (investors)  of 
these instruments. The classification of the banks in the sample according 
to  size was done in  function of six thresholds of total  assets.  In order to 
prevent  confidentiality  concerns,  the  presentation  of  the  issuances 
according to their geographical location follows seven clusters of Member 
States.  In  addition,  individual  observations  where  key  data  fields  were 
missing (such as the absence of values related to the issuer’s total assets or 
values or the indication whether senior liability were secured or not) were 
excluded  from  the  analysis.  Finally,  the  sample  of  issuances  might  not 
systematically  capture  liabilities  that  comply  with  all  criteria  set  out  in 
CRR  to  qualify  as  MREL  eligible.  The  data  extracted  from  the  relevant 
ECB data sets is based on a proxy of MREL eligibility.  

411 

 
o  S&P  data  extracted  as  of  19  January  2023:  sample  covering  7  721 
issuances  by  298  issuers  with  a  balance  sheet  below  EUR  100 bn. 
Individual  observations  where  key  data  fields  were  missing  were  also 
excluded  from  the  analysis.  The  sample  of  issuances  does  not  provide 
clear delineation to identify MREL eligibility.  

412 

 
 
 
 
 
ANNEX 14: OPTIONS DISCARDED AT AN EARLY STAGE 

Additional policy options were analysed and discarded at an early stage: (i) resolution as 
the  sole  procedure  for  banks  needing  restructuring,  (ii)  set-up  of  a  parallel  harmonised 
national regime in insolvency – an orderly liquidation tool, (iii) withdrawal of the 2015 
Commission  EDIS  proposal  without  replacement  and  (iv)  incompatible  permutations 
between elements in the option packages presented in Chapter 6.  

Under  the  first  discarded  option,  the  existing  European  resolution  framework  for 
dealing  with  failing  banks  would  become  the  sole  procedure  for  banks  that  need 
restructuring634.  Alternative  national  insolvency  procedures  that  may  involve  the 
possibility of granting liquidation aid under State aid rules, would need to be eliminated 
to  leave  only  what  is  known  as  “atomistic”  piecemeal  liquidation  in  insolvency  as 
alternative to resolution. This option would eliminate any potential alternative measures 
outside  resolution  to  manage  a  bank  failure  other  than  piecemeal  liquidation,  while  the 
latter  could  be  difficult  to  implement  outside  a  minor  portion  of  very  small  banks. 
Accordingly, if certain banks cannot be put in atomistic liquidation, it must be possible to 
manage  them  in  resolution.  This  entails  certainty  in  the  ability  to  access  the  resolution 
fund, as there would be no flexibility to find other solution. The feasibility to resolve a 
very  large  number  of  banks  would  therefore  become  entirely  dependent  on  the 
availability  of  robust  funding  solutions  in  resolution.  Such  an  approach  would  require 
considerable  certainty  that  the  current  rules  could  be  amended  in  a  way  that  may 
accommodate access to resolution funding for also very small institutions, which in turn 
require  substantial  flexibility  by  Member  States  on  certain  key  principles,  such  as 
deviating  from  the  current  minimum  bail-in  requirement  (8%  TLOF)  to  access  the 
RF/SRF635, in addition to accessing the DGS. This level of certainty or flexibility is not 
presently considered politically realistic. 

Stakeholder  views:  Discussions  carried  out  in  the  Commission’s  expert  group  and  the 
replies to the targeted and public consultations636 showed that several Member States are 
not  favourable  to  this  option.  Some  object  to  important  and  intrusive  modifications  in 
their national insolvency laws to eliminate alternative measures (i.e. transfer tools). Other 
Member States, which do not have such alternative measures in their national laws, also 
see  this  option  as  too  rigid.  Some  degree  of  flexibility  in  the  framework  is  required  to 
deal with various cases of bank failure. Also, the above mentioned required flexibility on 
key principles to access the RF/SRF is not supported by some Member States. 

Under  the  second  discarded  option,  resolution  would  be  reserved  for  the  largest, 
systemic banks and a parallel harmonised regime in insolvency would be set up for the 

634 Under the watch of the SRB for the banks under its remit in the Banking Union and under the watch of 
NRAs for all the other ones. 
635 Flexibility regarding the 8% TLOF minimum bail-in rule to access RF/SRF would be required for those 
banks  lacking  sufficient  bail-inable  liabilities  to  reach  8%  TLOF.  In  a  scenario  where  resolution  were 
applied to a very large number of EU banks as the only alternative to piecemeal liquidation, the shortfalls 
towards 8% TLOF are likely to be affecting many banks. 
636 See Annex 2. 

413 

 
 
                                                           
vast  majority  of  banks,  which  would  not  meet  the  narrower  public  interest  to  go  into 
resolution  –  a  so-called  harmonised  national  administrative  liquidation  procedure. 
Creating such a new alternative regime would require harmonisation of certain important 
elements  of  national  bank  insolvency  laws,  which  would  present  significant  legal  and 
political  challenges.  This  procedure  would  be  conducted  under  national  governance, 
financed with DGS funds at national level with a risk of shortfalls637. This would mean 
that  the  funds  collected  from  all  banks  for  the  RF/SRF  would  remain  earmarked  for  a 
smaller scope of large banks, which could create asymmetries in terms of who pays and 
who  has  potential  access  to  the  fund,  with  possible  effects  on  level  playing  field, 
competitiveness  and  single  market  in  banking638,  potentially  opening  the  possibility  to 
narrow  down  the  contributors  to  such  funds.  By  bringing  procedures  and  their  funding 
back  to  the  national  level,  this  option  would  backtrack  on  the  progress  achieved  in  the 
Banking Union and the original intention of creating a European resolution framework. It 
would also create overlaps and duplications between existing restructuring tools available 
in  the  resolution  framework  and  new  national  restructuring  tools  available  through  the 
administrative  liquidation  procedure,  further  exacerbating  the  problems  related  to 
misaligned  incentives  to  apply  tools  and  the  legal  uncertainty  and  predictability  of 
outcome.  

Stakeholder  views:  Discussions  in  the  Commission’s  Expert  Group,  the  Council’s 
Working Party and the replies to the targeted and public consultations639 revealed that a 
majority  of  Member  States  do  not  support  this  option  because  it  would  create  overlaps 
with  the  resolution  toolkit,  as  well  as  significant  legal,  technical  and  implementation 
challenges.  A  few  stakeholders  are  favourable  to  such  an  option,  however  without 
offering a solution to the overlap issue.  

Under  a  third  discarded  option,  the  2015  EDIS  legislative  proposal  would  be 
withdrawn  without  replacing  it  by  a  new  EDIS  proposal.  Such  an  action  would  be 
inconsistent with the framework’s objective of achieving greater depositor protection and 
the Commission’s priorities to complete and strengthen the Banking Union with its third 
pillar640. This is primarily because the risks that EDIS is meant to address would continue 
to  exist,  as  explained  in  the  problem  definition.  A  withdrawal  of  EDIS  would  also 
jeopardise  the  technical  explorations  achieved  over  the  past  years  in  the  High-Level 
Working  Group  on  EDIS,  the  Commission’s  Expert  Group  and  the  Council’s  working 
party641.  Consequently,  this  option  would  represent  a  step  backwards  in  the  post-crisis 
regulatory reforms.  

637 The option of an orderly liquidation tool financed by national DGS funds but governed centrally in the 
Banking Union was also discussed and discarded by most Member States who insisted that the governance 
should be aligned with the funding.  
638 Retaining the broad contribution basis for the SRF is justified nevertheless on the ground of financial 
stability  preservation,  which  is  a  common  public  good  and  efficiency  gains  through  better  risk 
diversification  across  the  whole  population  of  banks.  It  however  creates  the  need  for  another 
complementing safety net, especially in case of a parallel regime. 
639 See Annex 2. 
640 European Commission (16 September 2020), State of the Union address by President von der Leyen at 
the European Parliament plenary. 
641 See Annex 5 (evaluation), section 6 on the status quo of EDIS. 

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Stakeholder  views:  With  few  exceptions,  the  majority  of  Member  States  shares  the 
ambition  to  complete  the  Banking  Union  with  a  fully-fledged  EDIS,  subject  to 
conditions,  and  would  be  expected  to  disagree  with  this  option.  The  banking  industry 
(smaller  and  larger  banks  equally)  mostly  supported  a  fully-fledged  EDIS  and 
acknowledged  the  opportunity  for  reduced  costs  in  terms  of  yearly  contributions,  and, 
hence,  would  also  disagree  with  this  avenue.  One  notable  exception  are  the  banks 
participating in IPSs located in a few Member States, which advocated for their exclusion 
from  EDIS642.  Also  consumer  associations  cite  EDIS  as  a  key  element  to  ensure  a 
uniform level of depositor protection and to increase consumer confidence across the EU 
and would consequently be expected to disagree with this option643.  

Finally, several incompatible combinations of elements across the option packages were 
also discarded such as considering an ambitious CMDI review with broad application of 
resolution  (via  legal  amendments  to  the  PIA)  without  the  necessary  changes  to  make 
funding  available.  Failing  to  secure  an  effective  access  to  common  safety  nets  to  all 
banks  would  continue  to  expose  taxpayers  to  (possibly  increased)  risks.  The  mere 
extension of resolution would deliver a dysfunctional and asymmetric framework, where 
the funding solutions fail to match the scope, putting the credibility and effectiveness of 
the  EU  resolution  regime  in  doubt.  Similarly,  theoretical  alternatives  such  as  more 
resolution  funding  through  an  increase  in  the  size  of  the  RF/SRF  (higher  industry 
contributions)  and/or  increasing  the  flexibility  to  access  it  (i.e.  loosening  the  minimum 
bail-in  condition  of  8%  TLOF)  are  possible  though  likely  not  realistic,  economically 
efficient  or  politically  palatable.  To  the  contrary,  some  industry  participants  are 
supporting  a  reduction  of  contributions  to  the  SRF,  which  has  never  been  used  yet  in 
practice.  Similarly,  reducing  the  minimum  bail-in  condition  of  8%  TLOF  would  also 
encounter  political  opposition  from  other  Member  States  seeking  to  protect  the  fund 
against  depletion  and  moral  hazard.  Overall,  these  combinations  would  lack  cost-
effectiveness  by  reducing  the  synergies  in  the  safety  nets  and  increasing  costs  for  the 
industry  (no  mitigation  in  terms  of  lower  contributions  to  DGS)  without  attaining  the 
same  robustness  of  the  safety  nets.  It  would  weaken  the  capacity  to  achieve  several 
objectives  such  as  limiting  the  recourse  to  public  funds,  weakening  the  bank-sovereign 
link, level playing field and robust depositor protection.  

Stakeholder views: The EU banking industry and several Member States voiced strongly 
the principle of cost neutrality (or possibly a cost reducing impact) of this package. 

642 German  savings banks association (DSGV) (August,  2020),  This is not the time to centralise  deposit 
guarantee  schemes  in  Europe  and  certain  IPSs  (April  2021),  Institutional  protection  schemes  in  Europe 
publish joint declaration in support of a strong Banking Union and responses to the consultation. 
643 See responses to the public and targeted consultations. 

415