European Council and European Parliament reach deal to overhaul the EU bank crisis management and deposit insurance framework

The European Council announced a political agreement with the European Parliament to reform the EU crisis management and deposit insurance (CMDI) framework, aimed at making resolution a more workable option for small and medium-sized banks. The package expands access to industry-funded safety nets as a resolution-financing tool, intended to support orderly resolution and market exit while keeping losses primarily with shareholders and creditors. The agreed approach would allow deposit guarantee scheme (DGS) resources and resolution funds, including the Single Resolution Fund (SRF) in the Banking Union, to “bridge the gap” by supplementing a failing bank’s own loss-absorption buffers (Minimum Requirement for Own Funds and Eligible Liabilities, MREL) when these are insufficient at the point of resolution. Access to these tools is framed as a last resort and subject to safeguards to maintain market discipline. The reforms also clarify the public interest assessment used by resolution authorities, broaden criteria that can favour resolution over liquidation while keeping liquidation the default in most cases, and require consideration of disruption to the real economy at both national and regional levels. In addition, the text introduces a harmonised “least cost test” for use of DGS funds, including a cap that DGS support cannot exceed the amount of covered deposits at the bank, and it retains the existing depositor preference hierarchy. The co-legislators will finalise the legal text at technical level before formal adoption by the European Council and the European Parliament, after which the new framework will become law.