On Friday 25 May 2018, the Ecofin Council made an important step towards the realisation of the banking union by adopting a general orientation on the banking package.
This banking package aims to strengthen the resilience of credit institutions and thereby contribute to financial stability. The banking union decision following the financial crisis of 2007-2008 aims to make banks more resilient to external shocks and to avoid that the European taxpayer will be used in the future to save the banks experiencing financial difficulties. It currently includes the 19 countries of the euro area and is open to other Member States wishing to join.
The agreement reached on Friday covers a set of two regulations and two directives concerning the capital requirements of banks, as well as the recovery and resolution of banks in difficulty.
In particular, it safeguards the balance of interests of the Member States in which the parent companies (States of origin) and the Member States which host subsidiaries of banking groups (host States) are established, a subject on which Luxembourg has played an important proactive role welcomed by all actors. The agreement found guarantees an adequate allocation of equity and the MREL (minimum capital requirement and eligible liabilities) between parent company and banking subsidiaries, as well as appropriate liquidity management within banking groups. The package takes into account the principle of proportionality, with some relief for smaller banks in terms of the reporting requirements and the resulting administrative burden.
The agreement reached at the Ecofin Council will contribute to risk reduction in the banking sector, which is a prerequisite for risk sharing, in line with the Council conclusions of June 2016.
Pierre Gramegna, Minister of Finance, commented “I am pleased that in the course of long negotiations Luxembourg, together with its partners, has managed to change the original Commission proposal to fully take into account the interests of both origin and host States. The compromise adopted on 25 May 2018 is thus an important step towards the realisation of the banking union and the reinforcement of the financial stability within the European Union in each member country of the euro zone.”