Head of Europe’s bank-failure agency ‘reasonably comfortable’ with Irish plans

The head of the euro-area agency that deals with bank failures has said he is “reasonably comfortable” with the recovery plans Irish banks have drawn up in the event of another crisis, in advance of the 15th anniversary of the controversial banking guarantee.

Speaking in an interview with The Irish Times on Tuesday in Dublin, Dominique Laboureix, chair of the Single Resolution Board (SRB), which was set up in 2015 to manage failing lenders, said the board was moving into a new phase where the authority planned to focus more on testing banks’ recovery and resolution plans, including on-site inspections.

Mr Laboureix, who took charge of the SRB in January, also said it was “not a question of luck” that euro-zone banks avoided being caught up in the international banking crisis earlier this year, which saw Silicon Valley Bank and two other regional US banks collapse and Credit Suisse’s shotgun takeover by Swiss peer UBS.

“We are comfortable with the Irish banks, in terms of progress made. That doesn’t mean that it’s the end of the journey,” said Mr Laboureix.

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The SRB chair said that while the “level of resolvability” of euro-zone banks had continued to improve since the body was set up, risks facing the global banking sector were evolving. He highlighted earlier this year that cyber risks, digital finance, climate change and the current macroeconomic outlook are all among the new challenges being faced by the industry.

The SRB has directed banks to have targeted levels of junior and senior bonds by the start of next year that could be “bailed in” in the event of a lender running into financial trouble.

Under the next phase, the institution will also press banks to make sure that they can share losses with holders of so-called “bail-in-able” bonds if and when they are required, have readily available data on liquidity and collateral that could be used to secure emergency central bank funding, and be able to set up virtual data rooms quickly to allow authorities to sell on an ailing bank, he said.

The Republic injected €64 billion into the country’s banks during the financial crisis, as shareholders were virtually wiped out and junior bondholders had €15 billion of losses inflicted on them. However, senior bank bondholders were spared financial pain.

Mr Laboureix said he wants the SRB to consult more with banks in future than it has in the past on developments and rules – “not to put the industry in the driving seat” of what’s decided, but to give them a better chance to explain “potential difficulties”.

The SRB chair said the regulatory reforms and “tool kits” developed in the euro zone since the financial crisis helped banks in the single-currency area avoid being sucked into the international banking crisis earlier this year.

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The US banks that ran into trouble had balance sheets that were deemed to be too small to be required to comply with global standards on capital, liquidity and resolution. Credit Suisse was also widely known to have been the most troubled major bank in Europe long before it almost imploded in March.

However, Mr Laboureix acknowledged there was no political momentum behind efforts to complete a banking union by establishing a euro zone deposit insurance scheme.

The SRB is on track to reach its targeted resolution fund size of €80 billion by the end of this year, having imposed a levy on euro area banks to build up the pot. Plans for the euro zone permanent bailout fund, the European Stability Mechanism (ESM), to provide a further €68 billion of backstop loans to the SRB, if needed, are currently being held up as one member state, Italy, has so far failed to ratify the amendments to the ESM Treaty.

Since its inception, the SRB has taken charge of the resolution of Spanish lender Banco Popular Espanol in 2017 and units of Russian lender Sberbank last year. Banco Popular was taken over by Santander, Spain’s largest bank. Sberbank Europe was put into liquidation in March 2022 as it risked succumbing to bankruptcy, while its Croatian and Austrian units were sold to local buyers.