Memorandum of Understanding on Cooperation between the Financial Supervisory Authorities, Central Banks and Finance Ministries of the European Union on Cross-Border Financial Stability/Annex 1/Attachment

Voluntary Specific Cooperation Agreement (VSCA) on crisis management and resolution between

the Finance Ministries, Central Banks and Financial Supervisory Authorities

of Countries A, B and C

INTRODUCTION
1. This agreement is based on the following considerations:

a. The Finance Ministries, Central Banks and Financial Supervisory Authorities of Country A, Country B and Country C (the Parties) recognise that there (is) are (a) common financial group(s) with significant activities in all their countries. The Parties further recognise that they therefore have common financial stability concerns stemming from potential systemic interlinkages between their respective Member States, justifying enhanced cooperation in crisis management and resolution. This agreement covers the financial group(s) specified in Annex A.
b. This agreement is specifically designed to facilitate the management and resolution of cross- border systemic crises, potentially affecting the stability of the financial sectors in their respective countries. The ultimate objective of such cooperation is safeguarding the smooth functioning of the financial system and minimizing overall costs of a crisis.
c. This agreement is in accordance with the responsibilities specified in the EU-wide MoU ^[1]. Furthermore, the present agreement does not change the content of the EU-wide MoU but builds on it and expands it where special circumstances so require.


DEFINITIONS

2. For the purpose of this agreement, the following definitions are used:

a. Parties: the Signatories to the present agreement i.e. Financial Supervisory Authorities, Central Banks, Finance Ministries and other Ministries of Countries A, B and C, according to national competencies;
b. Relevant Parties: a cross-country sub-set of the above signatories whose policy-making functions may be significantly affected by a specific financial crisis;
c. Relevant financial froup: a financial group included in Annex A;
d. Financial group: a bank, banking group, insurance undertaking or insurance group, financial conglomerate and investment firm, which is important in several Member States due to significant subsidiaries or branches in host countries;
e. Home country: the country responsible for the supervision on a consolidated basis;
f. Host country: for the purpose of this agreement, the country where the relevant financial group has subsidiaries or branches;
g. Domestic Standing Group (DSG): a group which consists of the competent Financial Supervisory Authorities, Central Banks, Finance Ministries at the national level, with the objective to enhance preparedness in normal times and facilitate the management and resolution of a financial crisis. Such a group should be extendable to other relevant bodies if necessary;
h. College of Supervisors: a permanent, although flexible, structures for the cooperation and coordination among supervisors responsible for and involved in the supervision over the different components of cross-border financial groups;
i. Cross-Border Stability Group (CBSG) consists of representatives from the Parties, with the objective to enhance preparedness for and facilitate the management and resolution of a cross-border financial crisis;
j. Cross-Border Coordinator: The Party from the home country which is responsible for the overall coordination of actions in a particular cross-border context, and which may vary according to the nature and stage of the financial crisis;
k. Financial crisis: a situation starting from the emergence of a disturbance, regardless of its origin, affecting the stability of the financial system in one or more Member States with a potential cross-border systemic impact in other Member States or the EU as a whole and involving at least one financial group, infrastructure or market which

(i) has substantial cross-border activities;
(ii) is facing severe problems which are expected to trigger systemic effects in at least one Member State; and
(iii) is assessed to be at risk of becoming insolvent.


OBJECTIVE AND NATURE OF THE AGREEMENT

3. The Parties have signed this agreement in recognition of the fact that a financial crisis involving (one of) the financial group(s), included in Annex A, could pose a threat to the stability of the financial system in several of their countries.


4. The objective of this agreement is to ensure that the Parties are prepared to deal with crisis situations by agreeing in advance on procedures for cooperation and information sharing as well as for the crisis management and resolution of cross-border crises.


5. While recognising that the responsibility for the management and resolution of crises remains with the individual authorities, the Parties will, as far as possible, voluntarily coordinate their decisions and actions and take account of each others’ needs and problems.


6. This agreement is not legally binding. Therefore its provisions may not give rise to any legal claim on behalf of any Party or third parties in the course of their practical implementation.


7. The provisions of the agreement do not prejudge or assume that any particular decisions or remedies should be taken.


8. Cooperation among the Parties will take place in accordance with, and without prejudice to, their responsibilities under national and Community legislation. This agreement does not override the respective institutional responsibilities of the different Parties or restrict their capacity for independent and timely decision-making in their respective fields of competence, notably with regard to the conduct of day-to-day central banking and supervisory tasks.


9. The Parties recognise the different responsibilities of Financial Supervisory Authorities, Central Banks and Finance Ministries and their roles at different stages of a crisis. Depending on the nature and severity of the crisis, cooperation may therefore require the intervention of different Authorities.


10. The Parties recognise that certain crises may require international cooperation with authorities whose jurisdiction lies outside the countries involved. When needed, such cooperation will be agreed on a case by case basis.


GENERAL PROVISIONS

11. The Parties agree that the Common principles for cross-border crisis management as endorsed by the October 2007 Ecofin Council and included in the EU-wide MoU of July 2008 should guide their actions in any crisis management and resolution.


12. The Parties agree to cooperate closely, including through exchange of relevant information, with the aim of reaching an efficient and coordinated management and resolution of a crisis.


13. The Parties agree that if any public resources are involved in solving the crisis, direct budgetary net costs should be shared among affected Member States on the basis of equitable and balanced criteria, which take into account the economic impact of the crisis in the countries affected and the framework of home and host countries’ supervisory powers.


14. The Parties agree that, if any public costs are shared as a consequence of a crisis, such costs will be shared when incurred. Any benefits accruing from subsequent asset sales or similar resolution actions will also be shared accordingly.


CROSS-BORDER COOPERATION MECHANISMS

15. The Parties will prepare cooperative mechanisms to handle and resolve crisis situations efficiently.


16. In order to enhance the cooperation procedures to deal with a cross-border and systemic crisis affecting (a) relevant financial group(s), the Parties will form a Cross-Border Stability Group (CBSG), composed of one representative of sufficient seniority from each of the Parties. The functions and tasks of the CBSG complement those of other cooperative structures.


17. The CBSG may convene in 'restricted composition' (i.e. small groups involving relevant authorities according to needs and competences) or in 'full composition' (all interested Parties represented).


18. The CBSG will be chaired by the relevant home country authority, taking into account its legal competencies and the specificities of the crisis situation, also called Cross-Border Coordinator and designated in accordance with the stipulations of the July 2008 MoU. The Cross-Border Coordinator will organise the work as well as the meetings of the CBSG.


19. In normal times, the group will meet regularly, at least yearly. Restricted multilateral or bilateral meetings may be convened by the Cross-Border Coordinator when the situation so requires. Any of the Parties may ask for ad hoc meetings to be arranged by providing supporting evidence for that. Summary results of all meetings will be circulated to all Parties.


20. In a crisis situation the functioning and composition of the CBSG should be flexible depending on the specific features and stages of the crisis. The CBSG should contribute to the management of a crisis, when deemed necessary according to specific circumstances, taking into account the roles of the other existing channels of cross-border cooperation among authorities (Domestic Standing Groups, Colleges of Supervisors and networks of Central Banks).


21. The main task of the CBSG is to implement and efficiently apply the provisions of this agreement, with the aim of fostering an efficient and sufficiently detailed process for cooperation in the crisis management and resolution. More specifically the CBSG shall:

a. maintain an updated list of its members,
b. maintain an up-to-date description of the relevant financial group(s) based on publicly available data; containing at least the information items of the common database as shown in Annex B paragraph 1 to this agreement; and in order to enable a rapid coordinated assessment of the relevant financial group’s financial position;
c. develop a template for useful crisis data according to the indicative list shown in Annex B paragraph 2 to this agreement where the template does not necessarily contain any real data in normal times;
d. establish procedures to ensure that the relevant financial group can provide the information needed in a crisis in a timely manner;
e. ensure that Financial Supervisory Authorities and Central Banks will implement the analytical framework for the assessment of the systemic impact of the crisis of the relevant financial group, based on the analytical framework approved by the Ecofin Council of October 2007, where the assessment will include information on:

(1) the impact of the crisis on the relevant financial group;
(2) the potential systemic implications for the domestic financial system;
(3) the systemic impact on other Member States’ financial systems as well as on the EU 's financial markets as a whole;
(4) the specific channels of contagion of the crisis to institutions, markets and market infrastructures;
(5) the consideration of other relevant economic implications of the crisis situation;
(6) any constraints to the implementation of policy measures;


f. prepare for an efficient management of any potential crisis and aim at a joint understanding on how to resolve such a crisis;
g. prepare for an efficient coordination of any action, if taken in a crisis;
h. aim at agreeing on common principles to determine which costs are to be shared if public support is needed to solve a crisis, and on how to share these costs as well as making adequate preparations to support discussions on cost sharing in a crisis and indicating specific criteria which may be used as a tentative benchmark for this discussion;
i. investigate and, as far as possible, help remove any national or other constraints there may be to efficient cross-border crisis management solutions;
j. establish and test procedures for coordinating any public communications;
k. suggest and assist in regularly conducted joint crisis simulations exercises, to support the provisions in this agreement; and


l. document its work and suggestions in a sufficient manner.


COOPERATION IN FINANCIAL CRISIS SITUATIONS

22. The Party that first identifies a potential financial crisis shall:

a. activate the DSG, with the purpose inter alia, to reach a joint assessment of the impact of the crisis on the domestic financial system; and
b. request a meeting of the CBSG or a subset thereof including the Parties relevant to the situation.


23. Once requested by one of the members of the CBSG, the Cross-Border Coordinator shall organise a meeting of the CBSG, or a subset thereof, to be held as soon as possible.


24. In the event of a crisis or emerging crisis, the Parties will, as far as practical,

a. use the assessment framework outlined in the BSC TFCM-report from September 2007 with the aim of producing a joint assessment;
b. aim at a coordinated response to the crisis; and
c. inform and consult each other before taking any significant policy action.


25. In a crisis or an emerging crisis, the CBSG, or a subset thereof, may have an advisory and

supportive function to the extent deemed appropriate by the individual Parties. Specifically, the CBSG may:

a. be instrumental in the fulfilment of the tasks in paragraphs 20-21;
b. prepare the crisis resolution discussions between the Parties; and
c. assist in the implementation of the outcome of any crisis resolution discussions.


26. The responsibility for the management and resolution of any crisis as well as for any decisions taken, however, rests with the individual Parties.


OTHER POSSIBLE ELEMENTS

The Parties agreeing on a voluntary specific cooperation agreement may also consider including:


I. A section on the workings of the Colleges of Supervisors^[2] in the context of cross-border cooperation at supervisory level, by including the following paragraphs in the VSCA:

1. The “Colleges of Supervisors" are permanent, although flexible, structures for the cooperation and coordination among the authorities responsible for and involved in the supervision over the different components of cross-border financial groups.
2. The College of Supervisors is chaired and coordinated by the Group Supervisor. According to the activities to be carried out, it convenes in a plenary format or in a restricted multilateral configuration. Bilateral relationships are also used as a form of continuous dialogue between Financial Supervisory Authorities.
3. While the colleges do not have decision making powers, they play a role in the coordination of supervisory activities and in enhancing supervisory cooperation. In the context of the colleges^[3], supervisors regularly exchange information; develop a common understanding of the risk profile of the relevant group/institution; determine priorities and establish supervisory plans, arrange any allocation of tasks and joint on-site examinations and co-ordinate major decisions.

II. The possibility to set-up a mediation panel for dealing with non-compliance with the provisions of the agreement, by including the following paragraphs in the VSCA:

1. The Parties may agree to appoint a Mediation Panel, consisting of at least three independent and impartial experts. The task of the Mediation Panel is to evaluate whether any Party has refrained from complying with the provisions in the agreement.
2. Parties have the right to bring non-compliance issues before the Mediation Panel. If the Mediation Panel finds that one Party has not complied with the agreement’s provisions, it shall give the Party reasonable time to comply. In the case of further non-compliance, the Mediation Panel will decide whether and how to inform other EU-Parties or the public.


PUBLIC COMMUNICATION

27. The Parties agree to inform each other, as early and fully as possible, before issuing any public statements. If the communication relates to any public support to (a) relevant financial group(s), the Parties also agree to coordinate such communication with this group(s).
28. The Parties agree to aim for jointly crafted public statements even in cases where only one Party makes the statement. Only in cases of overriding and sudden public need will any Party be expected to make separate statements before consulting all other Parties.


CONFIDENTIALITY

29. The Parties agree that any information exchanged and received by virtue of the application of the provisions of this Memorandum is subject to conditions of confidentiality and professional secrecy as provided in Community and national legislation. The Parties will ensure that all persons dealing with, or having access to, such information are bound by the obligation of professional secrecy.
30. The Parties will maintain, vis-à-vis third Parties, the confidentiality of any request for information made under this Memorandum, the contents of such requests, the information received, and the matters arising in the course of cooperation without prejudice to relevant Community and national provisions.


EXTENDING THE AGREEMENT

31. The Parties agree that this agreement may need to be extended. If the activities of the relevant financial group(s) become(s) significant in another Member State or in a country which is part of the European Economic Area, the authorities in that country should be invited to take part in the agreement.


ENTRY INTO EFFECT


32. This agreement shall enter into effect on (date).

Notes

1. Memorandum of Understanding on Cooperation between the Financial Supervisory Authorities, Central Banks and Finance Ministries of the European Union on Cross-Border Financial Stability agreed in April 2008.
2. In case colleges of supervisors are prescribed by the CRD, the Parties should pay attention to the relationship between the college and the CBSB in order to avoid overlap.
3. Ongoing cooperation among Banking Supervisors of the relevant financial group is performed pursuant to the Capital Requirements Directive (CRD), in particular art. 129, 131 and 132, and to the Multilateral Agreement on the Supervision of relevant financial group which defines the roles and tasks of Banking Supervisors represented in the College of Supervisors of the relevant financial group.