Specialist Topics

European Financial Market – Reforms in Banking Regulation

The banking sector is subject to constantly growing and ever changing regulatory requirements on a national, European and global level. Banks are thus facing major challenges in the implementation process. At the same time, proposals for regulation are having an equal impact on the work of deposit protection in general and the Auditing Association in particular.

Below is an overview of selected topics on deposit protection, financial restructuring and the resolution of banks, as well as topics relating to the European banking supervision.



11.04.2018 – ECB published the occasional paper "Completing the Banking Union with a European Deposit Insurance Scheme: who is afraid of cross-subsidisation?"

In 2015 the European Commission published a proposal for a European Deposit Insurance Scheme (EDIS) which provides for a Deposit Insurance Fund (DIF) in the euro area and the progressive mutualisation of its resources until a fully-fledged scheme is created. Ever since the proposal was content of discussion and was met with rejection especially in Germany.

On April 11th the ECB released an occasional paper concerning the matter. This paper investigates the potential impact and appropriateness of several features of EDIS in the steady state. The main findings are the following:

  • A fully-funded DIF would be sufficient to cover payouts even in a severe banking crisis
  • Risk-based contributions can and should internalize specificities of banks and banking systems
  • Smaller and larger banks would not excessively contribute to EDIS relative to the amount of covered deposits in their balance sheet
  • There would be no unwarranted systematic cross-subsidisation within EDIS in the sense of some banking systems systematically contributing less than they would benefit from the DIF.
  • Under a mixed deposit insurance scheme composed of national deposit insurance funds bearing the first burden and a European deposit insurance fund intervening only afterwards, cross-subsidisation would increase relative to a fully-fledged EDIS.

Shortly after the ECB stated its positive attitude through the occasional paper the German minister of finance Olaf Scholz and the president of the German Central Bank Jens Weidmann raised criticism. The risks of such a comprehensive system are severe. Their main criticism deals with the precipitated introduction of a fully-fledged system by 2024, as favoured by the Commission, and the transfer of risk from one to other member states. Even though a shared deposit insurance fund could potentially stabilise the European banking system, all risks need to be assessed and reduced before the DIF is implemented.



05.04.2017 - Reform of the Deposit Protection Fund

On 5 April 2017, the assembly of delegates of the Federal Banking Association (BdB) adopted a resolution, approving the proposal from the board, to make a reform of the Deposit Protection Fund, the voluntary deposit insurance system. The amendments to the Statute of the Deposit Protection Fund are due to enter into force on 1 October 2017.

The overarching goal is to adapt the scope of protection of the Deposit Protection Fund to the changing environment in the banking industry. In the foreground, the emphasis is to protect private customers and foundations, whose scope is not affected by the reform of the Deposit Protection Fund. These changes, however, will be made to bank-like customers (e.g. certain investment firms and financial institutions), as well as federal government, state government and local authorities, which are as of 1 October 2017 no longer subject to protection under the Deposit Protection Fund. The protection for companies, institutional investors and semi-public bodies, such as pension funds will remain protected. Commencing 1 January 2020, in a second phase, deposits with a term of more than 18 months will be exempted from protection in the case they are not held by private individuals or foundations. Furthermore, promissory note loans (Schuldscheindarlehen) and registered bonds not held by private individuals or foundations will already be without protection under the ESF as of 1 October 2017. Deposits made prior to 1 October 2017 shall be subject to grandfathering. More information at: https://einlagensicherungsfonds.de/aktuelles/reform-des-einlagensicherungsfonds/


29.03.2017 - EDIS (current status)

The draft regulation of the commission from 24 November 2015 to establish a European Deposit Insurance System (EDIS) will continue to be negotiated in the ad hoc working group of the Council, since 1 January 2017 under the Maltese presidency of the Council. The Member States still have varying opinions which are different from the proposal. Disagreement exists, in particular regarding the rapid implementation of the third phase (fully comprehensive insurance). A consensus has at this stage not yet been reached. Esther de Lange, the European Parliament's responsible rapporteur, has already published her report in November 2016. A new, two-tiered model is proposed, which is based on a European insurance system, but does not lead to complete communitarisation of all the Deposit Insurance Funds. The report is currently being discussed in the relevant committee of the European Parliament (ECON). The finalization of the draft report is not to be expected before summer 2017.


03.07.2015 – German Deposit Protection Act in effect

On 03.07.2015 the German Deposit Protection Act (EinSiG) took effect implementing the Directive on Deposit Guarantee Schemes (DGSD) into German Law.

Read Deposit Protection Act (german) 

02.10.2014 – Ministry of Finance presents draft DGS Directive Implementation Act

On 02.10.2014 the Federal Ministry of Finance presented a draft legislation on the implementation of the DGS Directive in Germany (DGSD Implementation Act). When taking effect, the Deposit Guarantee and Investor Compensation Act (EAEG) will be replaced by two separate acts. Germany's statutory deposit protection scheme will then be stipulated in the Deposit Protection Act (EinSiG).

Read draft DGSD Implementation Act (german)


15.04.2014 - European Parliament approves Directive on Deposit Protection

On 15.04.2014 the European Parliament decided in its last plenary session prior to the elections to approve the directive on the reform of EU statutory deposit guarantee schemes of up to 100,000 euros (DGS Directive), which was published in the Official Journal of the European Union on 12.06.2014. The objective of the DGS Directive is to eliminate differences between the EU member states' statutes on deposit protection schemes. Subject to individual state regulations it will in future be feasible that, among other things, DGS funds be utilised to prevent bank insolvencies (ex ante) instead of being used merely for the compensation of depositors (ex post). Taking preventative measures avoids the costs for compensation of depositors and other negative impacts. However, it requires the implementation of an appropriate risk management system within the DGS. Furthermore, the directive includes, among other things, regulations governing the type and scope of covered deposits, the curtailment of disbursement deadlines, as well as requirements on the financing of deposit protection schemes.

Read text of DGS Directive

Read report dated 15.04.2014

Read report dated 18.02.2014

Read report dated 17.12.2013



30.04.2015 - Draft Amendment to BRRD Implementation Act

Last year's BRRD Implementation Act requires adjustments to facilitate the start of the Single Resolution Mechanism with all its features as of 1 January 2016. The amendment effects rules on recovery and resolution of CRR institutions, the restructuring fund and the bank levy. 

Read draft legislation


30.07.2014 – SRM Regulation published

The Regulation establishing a Single Resolution Mechanism (SRM) for the Banking Union was published in the Official Journal of the EU.

Read text of SRM Regulation


09.07.2014 - Implementation of the Single Resolution Mechanism

The German cabinet approved four draft bills on 9 July 2014, all of which are aimed at implementing European agreements on the banking union. They include a law implementing the European Bank Recovery and Resolution Directive (BRRD Implementation Act), a law ratifying the intergovernmental agreement of 21 May 2014, which regulates the transfer of national bank levies to the Single Resolution Fund and the mutualisation of these contributions, as well as two laws dealing with the introduction of the ESM’s new direct bank recapitalisation instrument.

Read report dated 09.07.2014


Draft BRRD Implementation Act

The new draft legislation presents a regulatory framework for the recovery and restructuring plans of, in particular, systemically important banks. At the same time, it provides for effective resolution tools for failing banks. The new draft legislation consolidates existing rules and implements the requirements of the new European resolution directive required to be implemented by the end of 2014. It already includes the implementation of the bail-in rules that are to be implemented by the end of 2015. The Federal Agency for Financial Market Stabilisation (FMSA) in Frankfurt will initially act as the national resolution authority. After the FSMA has established its new function, the resolution authority will be integrated into BaFin (“agency-within-an-agency”-model). This will maximise the benefits of synergies and avoid potential inefficiencies with the financial supervisory authorities.

Read draft BRRD Implementation Act (german)

Read text of BRRD


Draft Bill on Intergovernmental Agreement of 21 May 2014

The intergovernmental Agreement (IGA) of 14 May 2014 stipulates the transfer of the national bank levy to the EU Single Resolution Fund (SRF) and the mutulisation of these contributions. With the new legislation the Parliament approved the aforementioned intergovernmental Agreement on 21 May 2014. The contributions to national resolution funds throughout 2015 shall be transferred to the SRF. How the contributions collected from 2011 until 2014 shall be treated is yet to be settled. The criteria of contributions to the SRF are still under discussion. The European Commission will adopt a delegated act related to the banks' contributions. A proposal by the European Commission is expected by September 2014.

Read draft Bill on IGA of 21.05.2014 (german)


Draft Bills on European Stability Mechanism (ESM)

The implementation of the Single Resolution Mechanism (SRM) also includes two bills on the European Stability Mechanism (ESM). In June 2012, the heads of state and government of the eurozone countries agreed to extend the ESM’s instruments to include direct bank recapitalisation, as soon as the Single Supervisory Mechanism (SSM) is in place. This will enable the ESM to provide direct assistance to financial institutions at the request of a member state and subject to the ESM’s existing rules. The aim is to help decouple crises in a member state’s banking sector from public budgets. Detrimental effects on public debt shall be eliminated. However, indirect recapitalisation will still take priority over direct recapitalisation. The instrument of direct recapitalisation is limited to 60 billion euros and requires the receiving bank to be subject to the supervision of the ECB.

Read draft Amendment to ESM-FinanzierungsG (german)

Read draft Amendment to ESM-FinanzhilfeinstrumenteG (german)


15.04.2014 – The European Parliament approves Regulation on the Single Resolution Mechanism (SRM)

The European Parliament decided in its last plenary session before the elections to approve the Single Resolution Mechanism (SRM) for ailing banks and the associated bank-financed Single Resolution Fund (SRF) with an overall majority. The EU has insofar managed to agree on the core legislative procedure of the banking union shortly prior to the end of the legislative period.

Read report dated 15.04.2014


27.03.2014 – EU Council adopts compromise amendment

The EU Council has formally approved the compromise amendment on the Single Resolution Mechanism. This enables the European Parliament to still pass the compromise amendment between 14th and 17th April 2014 in its last plenary session prior to the European Parliament.

Read report dated 27.03.2014


20.03.2014 – European Parliament and European Council reach preliminary agreement

The European Parliament and European Council have reached a preliminary agreement on the Single Resolution Mechanism for threatened banks in the eurozone. Vis-à-vis the compromise of 19.12.2013, the organisation of the Single Resolution Fund has mainly changed. The target level of 55 billion euros is expected to be reached as of 2016 already after eight instead of ten years. Moreover, a swifter mutualisation of the initially national compartments of contributions is intended. Already in the first year, 40% of the contributions are to be mutualised, a further 20% in the second year and the following years 6.67%, respectively and they are to be available for measures of the Single Resolution. Furthermore, the decision-making process on the crisis weekend was simplified: generally speaking, the ECB informs the Resolution Board, the Commission and the national ministries about a bank’s failure. The Resolution Board will then decide on a resolution concept. The EU finance ministers can reject the Resolution Board’s decision upon the European Commission’s proposal within 24 hours. In case of rejection, the decision would be passed to the respective national supervisory bodies. The Single Resolution Mechanism’s rules will most likely be formally passed in April 2014 by the European Council and the European Parliament.

Read report dated 20.03.2014


19.12.2013 – Single Mechanism on Bank Resolution

On 19.12.2013 the European Council approved a general orientation regarding the Single Resolution Mechanism of banks, subject to the ECB supervision, the second pillar of the so-called banking union. Resolution decisions are to be made in future by a committee made up of national bank supervisors and EU representatives. Through the establishment of a liability cascade, any losses will primarily be borne by shareholders and outside creditors of banks. National resolution funds are to be gradually transferred over ten years into a European Resolution Fund with a target level of 55 billion euros. The winding-up of smaller banks is expected to remain in national jurisdictions. Negotiations with the European Parliament are still continuing.

Read report dated 19.12.2013


12.12.2013 – EU framework for the financial restructuring and winding-up of banks

The European Parliament, the EU member states and the European Commission reached a trilogue agreement on 12th December 2013 on the framework for bank recovery and resolution. The political agreement is under restriction of technical revision and formal approval of legislative organs.

Read report dated 12.12.2013


10.07.2013 – Proposal for a Single Mechanism on Bank Resolution

The European Commission proposed a Single Mechanism on Bank Resolution for the banking union. The Single Mechanism on Bank Resolution supplements the Single Supervisory Mechanism proposed by the Commission in September 2012. The latter is expected to centralise the key competences and resources for dealing with any bank failure in the eurozone and in other member states in the banking union.

Read Proposal for SRM Regulation


06.06.2012- Proposal for a directive on the stipulation of a framework on the financial restructuring and resolution of credit institutions and investment companies

On 6th June 2012 the European Commission published draft legislation on the financial restructuring and resolution of banks. In the draft legislation, the Commission proposes the necessary procedures and authorisations to guarantee that bank insolvencies in the EU can be overcome without jeopardising financial stability and without burdening the taxpayer.

Read Proposal for BRRD



25.04.2014 – ECB publishes SSM Framework Regulation

The ECB published the SSM Framework Regulation for the Single Supervisory Mechanism (SSM). The SSM Framework Regulation lays the basis for the work of the SSM when it takes over as supervisor of euro area banks in November 2014.

Read text of ECB Framework Regulation


07.02.2014 - ECB presents draft for organisation of banking supervision

In the framework of the acquisition of the supervisory function for banks in the eurozone, the ECB initiated public consultation on the draft of an SSM Framework Regulation on 07.02.2014. The draft of the SSM Framework Regulation describes the collaboration between the national authorities responsible and the ECB. The final version is expected to be published by 4th May 2014.

Read Consultation Paper dated 07.02.2014


15.10.2013 – Regulation on the transfer of special tasks relating to the supervision of banks to the European Central Bank (ECB)

The European Council passed the provision on the transfer of special tasks relating to the supervision of banks to the European Central Bank taking effect on 3rd November 2013. The provision forms one of the core elements of the banking union and the SRM for the banks in the eurozone. Thus, direct responsibility for the banking supervision of the 128 largest banks in the eurozone has been transferred to the ECB. Prior to the complete taking over of the supervisory function, the respective banks will undergo the ECB Comprehensive Assessment, including a regulatory risk assessment, an asset quality review (AQR) and a stress test.

Read text of Regulation  



19.06.2015 - Council agrees its negotiating stance

On 19 June 2015, the Council agreed its negotiating stance on structural measures to improve the resilience of EU credit institutions. The proposal is aimed at strengthening financial stability by protecting the deposit-taking business of the largest and most complex EU banks from potentially risky trading activities.

Read Press ReleaseRead Proposal for Regulation


29.01.2014 – Structure reforms in the banking sector

On 29.01.2014 the European Commission proposed new regulations impeding the largest banks and those with particularly complex structures in taking risks from high-volume proprietary trading. Supervisory bodies are authorised to demand the separation of a bank's potentially risky trading business from its lending and deposit business if the activities concerned jeopardise the stability of the financial system. The objective is to prevent systemic risks, financial crises or failures of large, complex and linked companies in the financial system, especially of banks and other credit institutions.

Read Proposal for Regulation


04.09.2013 – Prosposal on a new Regulation on money market funds

On 4th September 2013 the European Commission presented a new proposal for a Regulation on money market funds. These funds constitute a vital source of finance for short-term financing to be mainly used by financial institutions, companies and governments. To guarantee the integrity and stability of the Single Market in this area, the regulation proposal introduces new rules to protect money market funds against new financial crises.

Read Proposal for Regulation


02.10.2012 – Expert proposals for structural reforms in the banking sector (Liikanen Report)

A high-ranking group of experts presents a report on the reforming of the EU banking structure to the European Commission. The group’s recommendations concern, in particular, the obligatory separation of proprietary trading from important trading activities; a possible additional separation of activities connected to the financial restructuring and resolution plan of banks; possible changes to the fallback to ”bail-in“ instruments as a resolution option; an evaluation of the capital requirements for assets held for trading and mortgage loans, as well as the expansion of the Governance and controls of banks.

Read Liikanen report




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