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CREDIT INSTITUTIONS
in the EU Single Financial
Market
professor
Anna Jurkowska-Zeidler
The new legal framework of
european banking
• The new framework divides the current
Directive 2006/48/EU (Capital
Requirements Directive) into two
legislative instruments: a directive
2013/36/EU governing the access to
deposit-taking activities and a
Regulation (EU) No 575/2013
establishing the prudential requirements
institutions need to respect.
• While Member States will have to
transpose the directive into national law,
the regulation is directly applicable,
which means that it creates law that
takes immediate effect in all Member
States in the same way as a national
instrument, without any further action
on the part of the national authorities.
The new legal framework of
european banking. CRD IV
• Directive 2013/36/EU lays down the rules
on the taking-up and pursuit of the
business of credit institutions and on the
prudential supervision of such
institutions.
• It constitutes the essential instrument for
the achievement of the internal market
from the point of view of both the
freedom of establishment and the
freedom to provide financial services in
the field of credit institutions.
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Capital Requirements
Regulation.CRR
• Regulation is a “Single Rule Book”: For
the first time a single set of harmonised
prudential rules is created which banks
throughout the EU must respect.
• CRR regulation lays down: the scope of
application of prudential requirements
on an individual and consolidated basis;
capital requirements and the method of
its calculation; rules to limit risk, e.g.
rules for large exposures and rules for
the transfer of risk; liquidity rules; and
rules for the calculation of the leverage
ratio to limit banks from incurring
excessive debts on financial markets.
The Single Rulebook
• derives from the idea that technical rules
should be defined at the European Union
level and adopted through EU Regulations.
• The Single Rulebook aims at providing a
single set of harmonised prudential rules
for financial institutions throughout the EU,
helping create a level playing field and
providing high protection to depositors,
investors and consumers.
• That would ensure their direct applicability
to all credit institutions, eliminating the
additional layer of domestic rules.
• Such single rules would reduce costs of
compliance, limit the scope of regulatory
and supervisory arbitrage, and prevent loss
of competitiveness of EU wide banking
groups.
The new legal framework of
european banking
• Together, Directive 2013/36/EU and
Regulation (EU) No 575/2013 are the
legal framework governing the access to
the activity, the supervisory framework
and the prudential rules for credit
institutions and investment firms
(referred to collectively as
"institutions"). The Regulation should
therefore be read together with that
Directive
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CRD IV/CRR package:
implemented Basel III
agreement
• is a comprehensive set of reform measures
in banking prudential regulation developed
by the Basel Committee on Banking
Supervision, to strengthen the regulation,
supervision and risk management of the
banking sector.
• These measures aim to: improve the
banking sector's ability to absorb shocks
arising from financial and economic stress,
whatever the source; improve risk
management and governance; strengthen
banks' transparency and disclosures.
• The Basel III agreement was endorsed by
the G20 in November 2010.
Directive
(Strong links with national law,
less prescriptive)
Regulation
(Detailed and highly prescriptive
provisions establishing a single
rule book)
Access to taking up/pursuit of
business
Capital
Exercise of freedom of
establishment and free movement
of services
Liquidity
Prudential supervision Leverage
Capital buffers Counterparty credit risk
Corporate governance Large exposures
Sanctions Disclosure requirements
Harmonisation
• It is appropriate to effect harmonisation
which is necessary and sufficient to
secure the mutual recognition of
authorisation and of prudential
supervision systems, making possible
the granting of a single licence
recognised throughout the Union and
the application of the principle of home
Member State prudential supervision.
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The legal definition of Credit
Institution. Regulation (EU) No 575/2013
"credit institution" means:
• an undertaking the business of which is
to take deposits or other repayable
funds from the public and to grant
credits for its own account;
• The EU Law does not directly define the
concept of bank
• EU Law impose on the Member States
an obligation to introduce restictions
against natural and legal persons
lacking the status of credit institutions to
provide deposit services (art. 9 CRD IV)
Polish Banking Law act
Article 2
• A bank shall constitute a legal person,
• established pursuant to the provisions of
statute,
• operating on the basis of authorisations
• to perform banking operations
• that expose to risk funds which have
been entrusted to the bank and which
are in any way repayable
Regulation No 575/2013.
Definitions
• "authorisation" an instrument issued in
any form by the authorities by which the
right to carry out the business is
granted;
• "competent authorities„ means a public
authority or body officially recognised by
national law, which is empowered by
national law to supervise institutions as
part of the supervisory system in
operation in the Member State
concerned;
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Requirements for authorisation
The essential requirements for authorisation to take up and
pursue the business of credit institutions are:
CAPITAL: existence of separate own funds; existence of initial
capital of at least 5 million euros; (art. 12 CRD IV)
PERSONAL: presence of at least two persons who effectively
direct the business of the credit institution (and who are of
sufficiently good repute and have sufficient experience to
perform such duties) (art. 13 CRD IV); notification to the
competent authorities of the identities of the shareholders or
members, whether direct or indirect, natural or legal
persons, that have qualifying holdings, and of the amounts
of those holdings (art. 14 CRD IV);
ORGANISATIONAL: existence of place of the head office (art.
13 CRD IV); presence of programme of operations setting
out the types of business envisaged and the structural
organisation of the credit institution (art. 10 CRD IV).
Requirements for authorisation
• Where a competent authority refuses
authorisation to commence the activity of a
credit institution, it shall notify the
applicant of the decision and the reasons
therefor within six months of receipt of the
application (art. 15 CRD IV)
• The competent authorities may withdraw
an authorisation subject to the conditions
set out in the CRD directive, in particular
when the above conditions are no longer
fulfilled (art. 18 CRD IV)
• All authorisations must be notified to the
European Banking Authority (EBA) which is
responsible for drawing up a register of
authorised credit institutions and making it
accessible on its website (art. 20 CRD IV).
Institutional forms of the credit
institutions activity in host
Member States
The EU Law allows credit
institutions to open:
• Subsidiaries
• Branches
• Representative offices
in host Member States as well as
outside the European Union.
Any of those situations is
associated with different rights and
obligations of credit institution.
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Regulation No 575/2013.
Definitions
• "branch„ means a place of business which
forms a legally dependent part of an
institution and which carries out directly all
or some of the transactions inherent in the
business of institutions;
• Host Member States shall not require
authorisation or endowment capital for
branches of credit institutions authorised in
other Member States. The establishment
and supervision of such branches shall be
effected in accordance with the single
licence rule (art. 17 CRD IV).
Regulation No 575/2013.
Definitions
"subsidiary" means:
• a subsidiary undertaking is any
undertaking over which a parent
undertaking effectively exercises a
dominant influence.
Regulation No 575/2013
Definitions
• "home Member State"means the
Member State in which an institution
has been granted authorisation;
• "host Member State„ means the Member
State in which an institution has a
branch or in which it provides services;
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Measures taken by the competent
authorities of the home Member State in
relation to activities carried out in the host
Member State (art. 153 Directive)
• Should a credit institution having a branch or providing
services within a territory of the host Member State breach a
Member State’s prudential rules, the host Member State shall
request the home Member State to take the necessary
measures.
• If the measures taken are insufficient then the host Member
State has the power to take appropriate measures to prevent
or punish the breach committed by the branch. The home
Member State must be informed before such measures are
taken.
• In urgent cases, the competent authorities of the host
Member State may take any preventive measures necessary
to protect interests. In these cases, they must inform the
Commission, the EBA and the competent authorities of the
other Member States.
Name of credit institution
(art. 19 Directive)
• For the purposes of exercising their
activities, credit institutions may,
notwithstanding any provisions in the
host Member State concerning the use
of the words "bank", "savings bank" or
other banking names, use throughout
the territory of the Union the same
name that they use in the Member State
in which their head office is situated. In
the event of there being any danger of
confusion, the host Member State may,
for the purposes of clarification, require
that the name be accompanied by
certain explanatory particulars.
Single Licence (passport) rule
• Credit institutions authorised in their
home Member States should be
allowed to carry out throughout the
Union any or all of the activities
referred to in the list of activities
subject to mutual recognition by or
by providing services:
• by establishing branches or
• by providing services (directly from
the home Member State across the
borders)
without the need to grant another
authorisation in the host Member
State.
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Requirements for access to the
taking up and pursuit of the
business of credit institutions
• The EU law (Articles 8-20 of the
Directive 2013/36/EC) comprises
reqiurements in the procedure of
granting authorisations for credit
institutions.
• As those requirements are
obligatory, they have to be
included in national legislation
concering this subject (conditions
for establishment of domestic
banks).