A New Landscape for Banks
The European Commission’s Directive on Crisis Management and Deposit Insurance (CMDI) introduces significant changes to banks’ capital structures and funding costs. By introducing unified depositor preference, it further downgrades senior unsecured bonds, forcing banks to rethink their funding strategies.
Even with a two-year adjustment period, market effects are expected to be cumulative and accelerating. Moody’s notes the change is credit positive for depositors but credit negative for senior unsecured bondholders, directly impacting banks’ funding costs.
Banks are likely to pursue preemptive debt issuances before full implementation of the directive, securing cheaper funding before the rules take effect.
A New Creditor Hierarchy
CMDI is not just a regulatory tweak—it redefines risk and protection across Europe’s banking sector. The introduction of unified depositor preference represents a major shift in loss allocation and bankruptcy management.
Depositors are strengthened, while senior unsecured bonds are weakened, forcing banks to redesign funding strategies and reassess their capital structures.
The reform also reinforces the cohesion of the EU resolution framework, preparing the banking ecosystem for more consistent resolution processes, even without a common European deposit insurance scheme.
Changing the Rules
Documents published on November 6 introduce for the first time a unified ranking of depositors above senior unsecured bonds in case of bank insolvency.
According to Moody’s, this is credit positive for depositors but credit negative for senior unsecured investors, who will bear a larger share of losses in default scenarios.
The reform affects funding strategies, risk assessment, and harmonization of resolution practices across the EU.
A Surge in Bond Issuances
The two-year integration period allows banks to adjust, but they are expected to accelerate issuances of senior unsecured and subordinated debt before the full implementation of the new hierarchy.
This preemptive action is critical as markets price in the new risk reality, forcing banks to adjust capital and funding strategies.
Unified depositor preference reduces national divergences and increases regulatory predictability, aiming for a more coherent EU-wide resolution process.
Limited Depositor Eligibility for MREL
Only a limited set of deposits will remain eligible for Minimum Requirement for Own Funds and Eligible Liabilities (MREL). These are primarily bilateral term deposits, which resemble debt instruments more than traditional savings accounts.
Inclusion under ordinary deposits requires explicit investor consent and accompanying disclosure. In practice, these remain secondary funding tools, while banks will rely mainly on senior unsecured and subordinated debt to meet MREL and strengthen loss-absorbing capacity.
Source: pagenews.gr