| LONDON, July 9
LONDON, July 9 The European Union's banking
watchdog has set out guidance on how supervisors must determine
from next year whether an ailing bank can be closed down without
disrupting markets or calling on taxpayer money.
The European Banking Authority's draft guidance, put out to
public consultation, fleshes out one aspect of a new EU law on
dealing with troubled banks without requiring government money
as happened in the 2007-09 financial crisis.
Supervisors will have to make sure that a bank removes any
obstacles to being closed down quickly so as to avoid the
disruption to customers and markets that was seen after the
collapse of U.S. bank Lehman Brothers in September 2008.
"The guidelines do not prescribe or privilege certain
business models or organizational structures but allow for a
case-by-case analysis of the impediments caused by the
institution or group and of the best way to address them," the
EBA said in a statement.
The overall cost for the EU's banking industry to apply the
new requirements is estimated at 2.4-12.8 million euros, the EBA
Banks already have to write so-called living wills or
recovery plans that set out how they would survive a market
The latest guidance covers the next stage, known as
resolution, where a bank cannot be saved and needs to be closed.
The new EU law requires a resolution plan for each bank to
be credible and feasible, with structural changes imposed if
"This may involve changes to the legal, operational and
financial structure of credit institutions or their business
activities," the EBA said.
Most banking assets are held at cross-border lenders whose
supervisors operate collectively in colleges. Each college will
have to agree that a bank's resolution plan is workable in the
heat of a crisis.
The guidance is likely to take effect from the middle of
2015 but there is no fixed deadline for banks to remove
obstacles to resolution.
In the first instance, lenders would offer changes to
satisfy regulators but if these are deemed to be inadequate then
the EU law gives supervisors powers to impose changes.
The EBA will hold further consultations in the autumn on
draft rules for determining when resolution is triggered.
There will also be a consultation on the amount of bonds a
bank will have to hold for tapping if it collapses.
Under the EU law, it will be up to national supervisors to
decide on how big the cushion of bonds should be, but the EBA
will set parameters to constrain this discretion.
(Editing by Mark Potter)