EBA proposes early intervention distinctions after lack of usage

The European Banking Authority has put forward proposals to clarify when regulators should use early intervention measures, after finding that half of all competent authorities surveyed have not applied them when required.

The EBA announced the proposals in a discussion paper on 26 June.

In the report, the regulator suggests implementing a clearer “escalation ladder” between early intervention measures (EIMs) and supervisory measures would benefit regulators in member states.  

EIMs are laid out in the EU’s Bank Recovery and Resolution Directive (BRRD) while the supervisory measures are laid out in the Capital Requirements Directive.

The EBA proposes setting stricter conditions for using EIMs to clearly differentiate the conditions for applying them. It argues that stricter conditions will ensure that EIMs are applied at a more advanced stage of deterioration, but “earlier than resolution or insolvency procedures.”

While the EBA says that this would simplify the framework and decrease uncertainty, the agency acknowledges this could also reduce regulators’ flexibility to respond to situations.

Alternatively, the report says that EIMs and supervisory measures could merge under a single structure, erasing any overlap, arguing this could remove any uncertainty for regulators.

Under this framework, the closer an institution nears closer to a crisis the more intrusive the supervisory measure would be. Regulators would apply this principle of proportionality, rather than beginning the EIM framework’s set sequence of actions.

According to the EBA’s research, EIMs have had limited application across the EU since the BRRD entered into force in 2014. The EBA said for the first four years of its life almost half of the EU’s competent authorities applied supervisory measures rather than EIMs in cases where conditions for early intervention were satisfied.

Only nine regulators across the European Union reported using EIMs, and even within those nine the total number of EIMs applied was “very small.”

Among the member states that reported usage were Italy, Malta, Croatia, Poland, Belgium, France, Greece and Hungary.

The paper suggests that the set of EIMs introduced by the BRRD have “not increased, to the extent envisaged by the legislator, the competent authorities’ capability to prevent a crisis of institutions.”

The EBA will accept the submission of comments from stakeholders until 25 September.

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