Strides of the Lithuanian Presidency of the EU Council are Being Transposed into National Law

Date

2015 09 02

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Vilnius, September 2. Today, the Government approved the package of draft laws prepared by the Ministry of Finance aimed at strengthening national financial stability and protection of depositors – the provisions of the Single Resolution Mechanism Regulation, Bank Recovery and Resolution Directive as well as Deposit Guarantee Schemes Directive are being transposed into national law. The package consists of 2 main draft laws and 14 appendant draft laws that will be submitted to the Seimas as a matter of urgency. The Government also decided to apply to the President of the Republic with a request to submit the inter-governmental Agreement on Transfer and Mutualisation of Contributions to the Single Resolution Fund to the Seimas for its ratification.

“Today the key elements of the Banking Union created in response to the recent financial crisis and exactly the agreement on which was reached by Lithuania during its Presidency of the EU Council are being transposed into national law. Now, these decisions will enable our country to strengthen insolvency prevention of financial institutions and, if needed, to tackle the issues of their insolvency in more effective manner”, said Minister of Finance Rimantas Šadžius, who chaired the EU Economic and Financial Affairs Council (ECOFIN) in the second half of 2013.  

The Bank Recovery and Resolution Directive aims at effective solution of problems related to credit institutions and large investment firms by using funds of the financial institutions themselves rather than those of the taxpayers. The purpose of the Deposit Guarantee Schemes Directive is to ensure that deposit insurance funds had enough resources and, if needed, the insurance payments were promptly paid to depositors.

According to the proposals approved by the Government, the Bank of Lithuania would be assigned to be the authority responsible for resolution of the financial sector entities.

Financial institutions facing insolvency risk will be able to be resolved by applying 4 resolution tools (used individually or in various combinations): by transferring business, establishing a bridge institution, using asset management vehicle and applying bail-in (i.e. writing-off the capital). It is also planned to establish the Resolution Fund financed from the contributions by the financial market participants. The resources of this Fund, if needed, would be used for resolution. Starting from 2016 the Fund will gradually merge into the Single Resolution Fund of the euro area.

After adoption of the amendments to the Law on Insurance of Deposits and Liabilities to Investors, within the period of 10 years the Deposit Insurance Fund should store up at least 0.8 per cent of total amount of the insured deposits, and within subsequent 4 years – the Deposit Insurance Fund should make up at least 2 per cent of total amount of the insured deposits. The cases will be also established when the insurance amount will exceed EUR 100, 000; the time limit for reimbursement of the deposit compensation will be gradually shortened up to 7 working days;  the deposits of state and municipal authorities and bodies will no longer be insured. Contributions by credit institutions to the Deposit Insurance Fund are differentiated into ex-ante and ex-post. The latter contributions will be collected from credit institutions in cases when the amount of resources available in the Fund will not be sufficient for reimbursement of compensations, therefore, they will reduce the probability of using state resources.

After the Seimas adopts these draft laws, legal conditions for ensuring Lithuania’s full-fledged participation in the Banking Union will be fulfilled.

Remigijus Bielinskas
Adviser to the Minister of Finance
(+370 5) 2390 008; +370 616 94846

Public Relations Office
(+370 5) 2390 187
Vrs@finmin.lt