The Banking Recovery and Resolution Directive (BRRD) changed the logic of the European financial markets. It has clarified that shareholders and investors must take on the losses themselves. They can no longer expect governments and taxpayers to bail them out. This is a principle that applies to all regular companies and now also to banks in the European Union.
Today, the European Parliament’s Economic and Monetary Affairs Committee adopted its position on the Directive on the ranking of unsecured debt instruments in insolvency proceedings (bank creditor hierarchy). "This proposal will improve the resilience of European banks and bring our legislation into line with new prudential international standards", said EP Rapporteur Gunnar Hökmark MEP.
The creditor hierarchy proposal is part of a legislative package aimed at reducing risks in the EU banking industry. It creates a new asset class of ‘non-preferred’ senior debt with the intention of enhancing resolvability and minimising the compliance costs stemming from differing subordination approaches in Member States. The European Parliament broadly supports the European Commission proposal while recognising that this approach may not be easily accommodated in a number of Member States where a statutory subordination has been enshrined in national legislation. Therefore, in order to ensure legal certainty for investors and issuers, transitional arrangements need to be put in place.
"For depositors and investors, this new proposal provides legal clarity and certainty which also gives security", concluded Gunnar Hökmark MEP.