The draft Directive establishes an array of instruments with which to tackle banking crises in three phases or stages: in the preventive stage, in the case of early intervention and in the case of resolution. In the preventive phase, banks must draw up recovery plans in the event that their situation should significantly worsen. The authorities will, in some cases, be empowered to appoint managers at banks. The principal resolution measures would be the sale of part of the business; the establishment of bridge banks for the temporary transfer of healthy assets to a bank controlled by the public sector; the segregation of assets through the transfer of impaired assets to a management vehicle; and measures that impose losses on shareholders and uninsured creditors, known as a bail-in as opposed to a bail-out, which involves or usually involves the assumption of losses by the public sector. The bail-in tool will allow the resolution authorities to cancel or convert into capital the entitlements of the shareholders and creditors of banks that are insolvent or close to insolvency. Under the decision by Ecofín, the deposits of individuals and of small and medium-sized enterprises, along with liabilities to the European Investment Bank, will have preference over uninsured creditors and over the deposits of large corporations. The Deposit Guarantee Fund will at all times make good any guaranteed deposits, i.e. those of less than € which will have greater seniority or preference over other deposits. In any event, the bail-in will exclude, inter alia, insured deposits, i.e.
Notable examples are the Financial Stability Oversight Council in the United States, the UK Financial Policy Committee and the European Systemic Risk Board (ESRB) in the EU. I shall focus in my address on the proposals by the FSB and the Basel Committee on Banking Supervision, which has worked under its guidelines. I shall refer to four broad issues which I consider to be most important in the new regulatory framework being designed. Firstly, the entry into force of the new capital rules known as Basel III, the basic thrust of which, as we all know, is to strengthen banks’ capital; second, the new treatment of systemic banks and the new banking resolution frameworks. Here, I shall comment on potential reforms to banking business models, which we normally call “structural reforms”. And finally, I shall refer to outstanding accounting issues, with significant consequences for bank balance sheet management, geared to achieving the sought-after convergence between US Financial Accounting Standards Board (FASB) rules and the International Accounting Standards Board (IASB) criteria applied in Europe. The entry into force of the new Basel III capital accord One of the key elements of the new regulatory framework is the amendment of the prudential rules governing the banking sector by means of the agreement we refer to as “Basel III”. The adaptation of this accord to the European arena came about just a few days ago with the approval of the new Capital Requirements Directive.