The Crisis Management of Smaller Banks: Perspectives of Reform

Abstract

The current common framework for bank crisis management and national deposit guarantee schemes (CMDI) is tailored for banks which are considered too big (or too complex) to fail. Smaller banks are de facto excluded from the application of resolution, even though they are obliged to contribute to its functioning. In practice, not even the size element has been decisive and both the crises of significant and less significant institutions have been managed at the national level instead of within the perimeter and conditions foreseen by the BRRD. The consequent and persistent fragmentation in the European financial market requires that the dichotomy between resolution and liquidation be overcome and that the scope of resolution also include smaller banks. The paper analyses the main reforms needed to achieve this goal, including the European Commission's recent proposal to revise the CMDI.

Keywords: banking union, CMDI reform, resolution, liquidation, deposit guaratee schemes

JEL Classification: 01, G18, G21, G28, K22, K23