1. What does CMDI stand for, and what does it mean?
The EU bank crisis management and deposit insurance framework (CMDI) lays out rules for how to handle banks that are having financial problems. It was created after the financial crisis in 2008, with one goal being to ensure that there is no need to use tax revenue to bail out banks.
The CMDI framework consists of three components:
- The Directive on the recovery and resolution of credit institutions (BRRD) harmonises, to a large extent, the rules for bank resolution within the EU.
- The regulation on uniform procedure for resolution (SRMR) created uniform resolution procedures for banks within banking union countries, as well as initiating the single resolution board (SRB) and the creation of a single resolution fund (SRF) funded by banks.
- The Directive on deposit guarantee schemes (DGSD) determines the amount to which client deposits are insured within the EU and the compensation process in the event that a bank fails.
In 2020, the European Commission reviewed the CMDI framework, finding that it had, to date, not been used as expected. They then set out to improve it.
2. What changes are the European Commission planning?
In April 2023, the European Commission presented a new legislative proposal designed to improve the existing regulations. As part of this proposal, many small and medium-sized banks would be required to undergo resolution instead of bankruptcy proceedings. The national deposit guarantee schemes would have joint responsibility for financing resolution processes for these banks and, if the proposal goes through as written, would have to shoulder a greater financial burden during a bank resolution. This could lead to gaps in the financial resources that are earmarked for their core responsibility, compensating depositors. Banks would therefore be more likely to have to pay out unplanned-for extra contributions to the deposit guarantee schemes, which in turn could exacerbate a potential crisis, having a negative influence on the stability of the financial system.
3. What is the position of the Association of German Banks regarding the CMDI review?
The Association of German Banks does not agree with the European Commission’s proposed expansion of resolution regulations. The largely harmonised national deposit guarantee schemes work well, as demonstrated in two existing cases, Greensill Bank and Sberbank. Thanks to national bankruptcy proceedings, most banks are already well positioned, if required, to leave the financial market without risk to its stability.
