Solving the problems of banks undergoing a crisis without using, mainly, public money and improving the supervision of the European banking sector are being implemented via the creation of the European Banking Union.
The European Banking Union relies on three pillars: the Single Supervisory Mechanism, the Single Resolution Mechanism and a national deposit guarantee scheme. In 2014, at European level, three regulations on the European Banking Union were adopted, respectively the Bank Recovery and Resolution Directive, the Regulation on the Single Resolution Mechanism and the Directive on Deposit Guarantee Schemes.
Romania has expressed its commitment to be part of the European Banking Union. We must mention from the very beginning that the banking sector of Romania which serves millions of customers has proven to be resilient during the crisis, so that there was no need of bail out with public money to support it.
In the Single Supervisory Mechanism (SSM), the first pillar of the European Banking Union, the European Central Bank (ECB) has the capacity of supervisor of the banks in the euro area. The ECB will supervise directly significant banks, the banks that have requested or received public financial support directly, the less significant banks (when there is need to provide for the consistent application of high supervisory standards) and the most important three banks in each participating Member state, namely some big banks from Romania too, taking into account the fact that our country has expressed its commitment to participate to the Banking Union. In 2017, an ample exercise for an asset quality review is due to take place, across the Romanian banking sector.
The capitalization of the Romanian banking sector is confortable, i. e. 19.10% in June 2016, contemplating the fact that the minimum threshold set in conformity with the European regulatory framework CRD IV/CRR stands at 8%.
The Single Resolution Mechanism (SRM) is operational starting with 2016 and includes the Single Resolution Fund (SRF) of €55 bn., supported by banks. The Bank Recovery and Resolution Directive (BRRD) applies to all Member States in the European Union and sets forth a harmonized and expanded set of resolution instruments for the bail out of the banks undergoing a crisis.
The secured deposits of €100,000 per depositor, perbank are excluded from recapitalization via the bail-in resolution measure.
The national deposit guarantee schemes represent the third pillar of the European Banking Union. The corresponding Directive revised and recast reconfirms the guarantee threshold of €100,000 per depositor, per bank and the gradual reduction from 20 days to 7 days of the reimbursement period in case deposits are unavailable. Moreover, the directive introduces the compulsoriness of the ex-ante (in advance) financing of the guarantee schemes in each European state. According to the directive, the coverage level of the deposits should represent 0.8% of the deposits guaranteed in a decade. From this point of view, Romania is in a good position, contemplating that the coverage of guaranteed deposits stands at 2.8% in our country.
The shaping of the European Banking Union is one of the most important projects of the European Union after its setting up, taking into account the responsibilities it involves as regards its outlining and enforcement, but also considering the implications and the challenges of the new plans to distribute capital at European level.
The risks involved in the outlining, transposition and observance of regulations pertain to the possibility of shrinking exposures and the with drawing of capital from credit institutions with foreign capital. 90% of our banking sector’s assets are held by institutions with foreign capital. In Romania, banks provide over 90% of the economy’s financing needs, and if we include also funding via non-banks (that are part of banking groups) we remark that only 5% of the financing of Romania’s economy is provided by other financial markets. At European level, banks provide 85% of their economies’ financing needs, the rest being raised from the capital market, while in the USA, companies obtain funding via bank loans amounting to a merely 20%.