On 11 October 2017 the Commission published a Communication on Completing the Banking Union. The Communication takes stock of the achievements so far and outlines the Commission’s views on the outstanding elements of the Banking Union.

The Commission calls on the European Parliament and the Council of the European Union (“co-legislators”) to deliver the missing elements by the end of the current legislative term in 2019. These include, among others, the package of proposals to further reduce risks and strengthen the resilience of EU banks. As regards the Banking Union’s institutional set-up, the Communication calls for the establishment of its third pillar - the European Insurance Deposit Scheme. Amid the lack of political progress since this file was first tabled in 2015, the Commission now proposes a more gradual approach with a limited degree of risk sharing. Importantly, it is noted that the smooth functioning of a common deposit insurance system will also require further steps to harmonize the national options and discretions provided for by the Deposit Guarantee Schemes Directive (“DGSD”).

The Communication also calls for the establishment of a backstop to the Single Resolution Fund (“SRF”), which would provide last resort liquidity in cases where shareholders and creditors’ resources would not suffice to rescue a failing bank. The Commission insists that the backstop has to become operational as soon as possible and calls for progress to set up a credit line from the European Stability Mechanism (“ESM”). Concrete proposals are to be expected with the forthcoming package on the deepening of the Economic and Monetary Union in December.

Last but not least, a comprehensive package of measures to address the high levels of Non-Performing Loans (“NPLs”) was proposed, with the aim to facilitate the development of secondary markets for NPLs, including the creation of Asset Management Companies. Moreover, the Commission is expected to consider the introduction of minimum provisioning for future NPLs, with capital set aside to cover for NPLs’ losses. In line with this, the Commission also announced that it will consider a proposal enabling the development of sovereign bond-backed securities to help banks diversify their portfolios and create high-quality collateral for cross border transactions.