“The task now is to implement the new rules with a sense of proportion. German lawmakers should make use of the envisaged transitional periods so that institutions and deposit guarantee schemes have time to adjust to the changes, particularly where they will face an additional administrative burden,” says Daniel Quinten, member of the Board of Managing Directors of the Bundesverband der Deutschen Volksbanken und Raiffeisenbanken (BVR) [National Association of German Cooperative Banks), on behalf of the DK.

The DK is pleased that ‘super-preference’ status will be retained for deposit guarantee schemes in insolvency proceedings and that the original plan to broaden the resolution mechanism to include all small and medium-sized institutions has been pared back. Furthermore, the ability of institutional protection schemes to function will be maintained and the great importance of alternative and preventive measures will also be taken into consideration. Nevertheless, it is still crucial that the new rules are applied in a practical manner and that the necessary flexibility is maintained. 

At the same time, there are still questions to answer about its implementation in practice. This particularly applies to the future funding of resolution measures. The extended options available under CMDI to deploy the ‘bridge-the-gap’ instrument in order to use deposit insurance funds to close funding gaps could place a considerable additional burden on the national systems. In addition, the planned realignment of the least-cost test runs the risk of perverse incentives being created and deposit insurance being used to excess. Furthermore, the opportunity was not taken to exclude pass-through loans from the definition of MREL by law in order to increase the flexibility of funding and strengthen the development lending infrastructure, particularly at a time of high requirements on investments.

“It is important that the new rules are put into practice with a sense of proportion. This is especially the case for the redefined process for categorization as a resolution entity. Additional complexity or costs must not compromise the systems’ ability to function,” stresses Quinten. The DK will provide constructive support for the implementation of the reform at national level. The goal remains to achieve a stable, practical, and balanced set of rules that preserves the diversity of the European banking landscape and strengthens rather than weakens functioning national deposit guarantee schemes.