Proportionating rules on bank crisis prevention and management to the case of retail banks: an analysis on the European and national legal framework (Pro. Re. Ba.) – NextGenerationEU – PIANO NAZIONALE DI RIPRESA E RESILIENZA (PNRR) – MISSIONE 4 COMPONENTE 2, INVESTIMENTO 1.1 Fondo per il Programma Nazionale di Ricerca e Progetti di Rilevante Interesse Nazionale (PRIN) – CUP N. H53D23002980006 – Codice Progetto 2022YXTHZF
The Single Resolution Mechanism (SRM), as the second pillar of the Banking Union (BU), is based on a clear rationale: banks and investment firms must be able to fail as any other business venture, without the need to be bailed out on financial stability grounds; resolution, implying the use of a tool (or a combination of tools) purported to bring the bank back to a going concern status, can only be used when the public interest is at stake. However, after 8 years since its enactment, resolution has proved to be largely unenforceable: only the Banco Popular and, most recently, Sberbank Europe AG have entered into resolution so far. In fact, the standardisation of the EU crisis management and deposit insurance framework (CMDI)— tailored on large universal banks—has led resolution authorities (RAs) to provide a strict interpretation of the public interest (PIA). In essence, given that resolution has become a synonym of bail-in, RAs have considered its application only to a small subset of EU banks, leaving out of its scope not only small- and medium-sized banks, but also retail banks (approx. 60% of significant, ie with a balance sheet above EUR 30bn, and cross-border less significant institutions would be classified as retail banks). While the quantity of bail-inable debt is important, the identity of their holders matters too: retail banks, having limited access to institutional investors compared to wholesale and investment banks, have few funding alternatives than placing their own instruments to retail investors (households and MSMEs), who are often also their retail depositors. As shown in recent cases, the so-called self-placement has often come with mis-selling practices. The consequent inability to enforce bail-in upon retail banks may lead RAs to search for alternative solutions outside resolution, where public funding may be more easily accessible (eg, the BPVi and Veneto Bank case).The research, thus, plans on investigating on the relevance of the proportionality for the CMDI (yet recognising that a certain level standardisation has positive effects), focusing on a) the SRM institutional framework, granting authorities with more discretion and providing a tiered regulation, featuring multiple equilibria (such as, in part, occurred within the supervisory framework, also as a result of the work of the Basel Committee on Banking Supervision) b) the substantive rules for planning and handling bank crises, where the resolution framework should incorporate greater flexibility and suitable tools should be devised, either at the EU or national level, to deal with banks out of the scope of resolution. The research will carry out a theoretical and empirical (quantitative and qualitative) analysis of the CMDI, examining its effects on banks—based on their different business models, funding structures, and sizes—both from a legal and economic perspective, and will lead to draw policy recommendations addressed to the EU and national lawmakers.