* Commission urges Council to speed up proposal adoption
* Council to clarify status of existing and future
By Alice Gledhill
LONDON, March 17 (IFR) - There could be a light at the end
of the tunnel for European lenders waiting to issue billions in
loss-absorbing debt as rulemakers ramp up the pressure to
accelerate the requisite legislation.
The European Commission endorsed a new form of senior
unsecured debt in November 2016 in an attempt to harmonise the
increasingly fragmented European bank debt market, the result of
diverging national approaches to meeting post-crisis regulation.
At the time, it provisionally indicated a June 2017 deadline
for the amendments to the Bank Recovery and Resolution Directive
(BRRD), though whether such a deadline was feasible immediately
met with broad scepticism.
However, in a working paper from earlier this month seen by
IFR, the Commission underlined the need to expedite the adoption
of its proposal tackling the harmonisation of the bank creditor
It warned that failure by the European Council to fast-track
the adoption of the proposal could prompt member states to adopt
their own national rules on creditor hierarchy.
"This means that banks would issue subordinated instruments
under different legal regimes to cover TLAC/MREL shortfalls," it
wrote in the paper.
"This would create market uncertainty and no clear view on
ranking in creditor hierarchy for investors, especially in the
case of cross-border issuing institutions."
Signs have already started to emerge that banks are getting
around the lack of legislation by coming up with idiosyncratic
Santander, for example, inserted a contractual clause into a
new issue priced in January giving it a "second ranking senior"
status, allowing it to chip away at one of the largest issuance
targets of any bank in Europe.
THE NEED FOR SPEED
But for many other lenders, the lack of legislation
permitting the issuance of loss-absorbing senior debt in many
major European jurisdictions has thwarted issuance.
This is a severe handicap as they square up to a new
standard known as minimum requirement for own funds and eligible
In the paper published earlier this month, the Commission
recommended that the Council Working Party should aim at a
general approach for May 2017.
According to a market source, the Maltese presidency of the
Council has prepared a new version of the relevant BRRD article
containing certain concessions should that May deadline not been
Such concessions would come as a relief to lenders who until
now have been constrained by the bureaucratic tussles in
The new version includes an additional clause allowing for
member states "to proceed with an 'anticipated transposition' of
the Directive and start accumulating the necessary buffers as
well as signal to markets the necessary legal certainty."
It proposes that "Member States may, after 31 December 2016
and before the date of application of this Directive, adapt
their national laws governing the ranking in normal insolvency
proceedings of debt instruments issued after the date of
application of such laws only in order to comply with the
conditions laid down in this Directive."
Its introductory statement said issuance should start as
soon as possible due to possible limitations in the capacity of
the market to absorb new eligible debt, the source added.
A Council spokesman confirmed that the presidency has
drafted some proposals to clarify the status of existing
legislation or legislation to be adopted, on which member states
have been invited to comment.
"The issue of transposition is one of the issues being
discussed, in a situation where a number of member states have
amended or are in the process of amending the insolvency ranking
of unsecured senior debt under their national insolvency laws to
allow their banking institutions to comply with the
subordination requirement," he said.
(Reporting by Alice Gledhill, Additional reporting by Helene
Durand, editing by Julian Baker)