EU banks told to get crisis-ready by removing wind-down hurdles

Bloomberg

Big euro-area lenders face a choice; clean up the complicated corporate structures that make them difficult to wind down in a crisis, or watch Elke Koenig do it for them.
Koenig, head of the Brussels-based Single Resolution Board, said in an interview that streamlining banks’ architecture and ensuring they can fund their own demise without taxpayers’ help will be priorities in the year ahead. “You have banks where you end with something that looks more like a spider web than a clean structure,” Koenig said. The message that those banks will receive is: “Please tidy up,” she said.
The SRB is part of the European Union’s efforts to end the problem of too-big-to-fail banks. In 2018, it will adopt resolution plans for nearly all of the 140-odd lenders within its remit, then start to identify “substantive impediments” to orderly wind-down.
Under EU law, when the SRB finds such obstacles, it sends a report to the bank, which must respond within four months on how it plans to fix the problem. If the SRB isn’t satisfied, it can instruct the supervisor to impose a range of measures on the bank, including issuing loss-absorbing liabilities, altering its legal or operational structures and selling assets.
This task assumed greater importance earlier this year when the the European Commission withdrew a bill that could have forced major banks such as Deutsche Bank AG and BNP Paribas SA to split their trading and retail operations. Finance Watch, a public-interest watchdog, has said that without that bill, it’s “squarely” on authorities like the SRB to make sure systemically important banks can be wound down in an orderly manner.
Koenig accepts that the SRB is
responsible for making sure banks have resolvable structures.
“That’s clearly on us,” she said. “And it’s something that needs to be addressed swiftly.”
“The ideal structure for me is one where you can with confidence isolate certain functions to keep them up and running in case something unforeseen happens,” Koenig said.