1. Resolution regimes: a macro- prudential perspective Francesco Mazzaferro, Head of the ESRB Secretariat EESC Public Hearing on Recover y and resolution Brussels, 2 October 2012

2. EESC Public Hearing on Recovery and resolution 2 Background: key elements of the Commission proposal: Prevention & mitigation: o Major banks to draw up recovery plans o Authorities to prepare resolution plans Early intervention o Triggered by deterioration of financial condition/solvency of a bank o Necessary measures to restore financial standing, e.g., implementing measures of recovery plan Resolution tools and powers o Sale of activities (as whole or in parts) o Bridge institution tool o Asset separation tool o Bail-in tool

3. EESC Public Hearing on Recovery and resolution 3 Macro-prudential perspective on resolution regimes Resolution regimes useful in supporting macro-prudential policy objective of prevention or mitigation of systemic risks to financial stability Key intermediate objective: help in limiting moral hazard problem rising from bail-out expectations In pursuing this objective, resolution regimes complement SIFIs surcharges

4. EESC Public Hearing on Recovery and resolution 4 Macro-prudential transmission channels Mitigation of direct and indirect spill-overs of bank default o Recovery and resolution plans will better prepare banks and competent authorities for possible contingencies o Resolvability of banks without adverse effects on financial system to be improved o Early intervention and resolution tools expected to limit amplification of problems Incentive effects: limiting moral hazard (too big/complex to fail) o Enhance market monitoring on counterparties creditworthiness during normal times o Avoid free-riding effects, through ex ante funding of resolution regimes, based on risk-based considerations

5. EESC Public Hearing on Recovery and resolution 5 Key issues: Ensure credibility of key transmission channels through: o Sufficient powers and tools for dealing with distressed banks o Authorities committed to taking necessary action as provided by the regime o Sufficient funding arrangements preferably from private stakeholders Banks contributions to resolution funding should reflect their risk-taking and systemic relevance, without pro-cyclical impact Recovery and resolution plans need to consider systemic distress, not only idiosyncratic problems Macro-prudential authorities should have the right to convey their views to relevant authorities when resolution regimes are introduced and implemented, including on preventing systemic risks from banks collective reaction to system-wide stress

6. 6 Thank you for your attention!