emerging
CMDI Revisions Impacting Banks
Upcoming revisions to the Crisis Management and Deposit Insurance (CMDI) framework are poised to reshape the bank liability hierarchy, impacting preferred senior unsecured bonds and potentially leading to wider spreads.
Timeframe
long-term
Subcategories
Impact areas
Detailed Analysis
The CMDI revisions, while aimed at enhancing the resolution framework for banks, particularly small and medium-sized ones, introduce a general depositor preference. This preference elevates depositors above ordinary unsecured claims in the liability hierarchy, potentially increasing the likelihood of bail-in for preferred senior bondholders. The changes are motivated by the need to protect taxpayer money and shield the real economy from bank failures. The proposals also aim to enhance depositor protection by extending the deposit guarantee to public entities and certain types of client funds.
Context Signals
Negotiations on the final text are ongoing, with no agreement reached yet.
Implementation is expected around 2028 at the earliest.
The changes are driven by the need to improve resolution frameworks, particularly for small and medium-sized banks.
Edge
Banks might strategically adjust their MREL buffers, decreasing subordinated debt and increasing reliance on preferred senior debt, potentially altering market dynamics.
The increased attractiveness of deposits as a funding option for banks could lead to lower funding costs compared to preferred senior debt.
The most junior deposits, especially for large banks, may benefit the most, while those of smaller banks with limited subordinated buffers could be more at risk.
