The Different Legal and Operational Structures of Banking Groups in the Euro Area, and their Impact on Banks’ Resolvability. 3 vols

Please note: Each In-Depth Analysis is assigned a DOI (digital object identifier), which is a safe and long term way of ensuring a hyperlink to the full text of this report. However, when ESO creates this record, on occasion the DOI still has not been activated by the EU Bookshop. If you find the source url hyperlink does not work please use the alternative location hyperlink listed as a related url.Vol.1 by Dirk Schoenmaker
The legal and operational structures of banks matter for their resolvability. While resolution applies to legal entities, its success depends on the underlying logic and viability of bank business models. Moreover, to the extent that activities of a bank transcend borders, resolution is an affair for multiple national authorities.

The author categorises the largest euro-area banking groups according to their number of entities, cross-border assets and governance. We identify three main impediments to resolvability: complex structures, the broad definition of critical functions and provision of liquidity after resolution. We make recommendations to address these impediments. This paper was requested by the European Parliament under the supervision of its Economic Governance Support Unit.

Vol.2 by Rosa M Lastra (et al)
This paper discusses the legal and operational structure of the 129 banking groups in the euro area, which meet the test of SSM significance. Following a brief consideration of some key definitional and theoretical aspects, the paper analyses the data available from those 129 groups under a tri-dimensional taxonomy (considering their institutional, organizational, and operational structure).

Based upon such data and taxonomy, the paper poses a number of questions or issues that the Single Resolution Board might consider in their resolvability assessments in the light of the Bank Recovery and Resolution Directive and the SRM regulation.

The paper outlines avenues for further research since greater clarity is needed to understand both legal and operational structures of banking groups in the euro area. This paper was requested by the European Parliament under the supervision of its Economic Governance Support Unit.

Vol.3 by Willem Pieter de Groen
The Single Resolution Mechanism, which started in January 2016, must ensure that even the largest, most interconnected and complex bank in the euro area can fail. One critical element to make this feasible is enhancing the resolvability of banks. Systemic banking groups are in general highly complex institutions composed of many different legal entities that are interconnected not only in a juridical sense but also operationally and financially.

To carry out this analysis, the author assessed the 125 banks that were under the direct supervision of the European Central Bank as of May 2016, of which almost three-quarters are internationally active and more than a third of which are owned or controlled by one or more other banks. This paper looks at the critical elements in the resolvability of these internationally active and bank-owned banking groups and reaches two main findings.

First, resolution authorities need to introduce closer coordination and cooperation in order to lower the costs of resolution (e.g. bail-in costs and negative financial stability effects). Secondly, decision-makers within bank-owned banking groups need to change their system of governance to allow for orderly resolution (e.g. to allow prompt capital and asset transfers for loss absorption in resolution).

This paper was requested by the European Parliament under the supervision of its Economic Governance Support Unit.

• Primary Source

European Parliament: Directorate-General for Internal Policies of the Union: Publications available via the EU Bookshop http://bookshop.europa.eu/en/directorate-general-for-internal-policies-of-the-union-cbf.cKABstF7wAAAEjwYYY4e5K/

European Parliament: European Parliamentary Research Service: In-Depth Analysis, November 2016: The Different Legal and Operational Structures of Banking Groups in the Euro Area, and their Impact on Banks’ Resolvability. Vol.1 http://www.europarl.europa.eu/RegData/etudes/IDAN/2016/587376/IPOL_IDA(2016)587376_EN.pdf

European Parliament: European Parliamentary Research Service: In-Depth Analysis, November 2016: The Different Legal and Operational Structures of Banking Groups in the Euro Area, and their Impact on Banks’ Resolvability. Vol.2 http://www.europarl.europa.eu/RegData/etudes/IDAN/2016/587377/IPOL_IDA(2016)587377_EN.pdf

European Parliament: European Parliamentary Research Service: In-Depth Analysis, November 2016: The Different Legal and Operational Structures of Banking Groups in the Euro Area, and their Impact on Banks’ Resolvability. Vol.3 http://www.europarl.europa.eu/RegData/etudes/IDAN/2016/587378/IPOL_IDA(2016)587378_EN.pdf

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