European Capital Markets

The first relates to harmonising insolvency frameworks – an area in which synergies between the banking union and the capital markets union are particularly strong. High non-performing loan ratios, and their effects on growth and bank lending, are a case in point.

Transparent and efficient insolvency frameworks are the backbone of cross-border capital markets transactions. They safeguard trust and legal certainty for issuers and investors. And by fostering effective and efficient resolution actions, they increase the expected return on investment and thereby stimulate investment in both credit and capital markets. The end result is higher rates of economic growth, more dynamic local economies and higher levels of private risk sharing.

Some progress has already been made, most notably through the proposal on preventive restructuring frameworks, second chance, and measures to increase the efficiency of restructuring, insolvency and discharge procedures.

But the Commission proposal fell short of harmonising core aspects of insolvency, such as rules on conditions for opening insolvency proceedings, a common definition of insolvency, ranking of claims and avoidance actions in general. And for various aspects that were included in the proposal, it has become clear that, at the current stage, we face significant challenges in overcoming prevailing divergences in views among Member States.

It thus makes sense for EU legislators to tackle this issue in stages, and focus first on harmonising specific elements of insolvency frameworks. Full harmonisation of creditor hierarchy in bank insolvency, for example, is one area where achieving tangible results would have a high impact.

A harmonised depositor preference rule would help create a level playing field for debt issuance by banks and enhance the robustness of their resolution framework, which benefits the overall stability of the financial system and, in turn, strengthens banks’ capacity to support the wider economy.

More generally, a clear credit hierarchy for all companies, not just banks, would provide cross-border investors with greater comparability and transparency on the ranking of their claims in insolvency.