A Single Resolution Mechanism
for the Banking Union
21/05/2014
Key elements of the Banking Union
21/05/2014 2
Single Rulebook EU28
Single
Supervisory
Mechanism
EU18+
Single
Resolution
Board
EU18+
Funding
Arrangements
EU 18+
CRR/CRD IV BRRD
Political Agreement
The European Parliament and the Council reached a
political agreement on the Single Resolution Mechanism
on 20 March 2014.
The SRM is the second pillar of the Banking Union.
The SRM will ensure that potential future bank failures
in the banking union are managed efficiently, with
minimal costs to taxpayers and the real economy.
21/05/2014 3
Scope of Single Resolution Mechanism
• Mirrors the SSM: all banks established in the Euro
Area and other participating Member States
• Single Supervisor requires Single Board and Fund
• As for the SSM, there is a distribution of tasks
between the Board and the NRAs:
• Board is directly responsible for cross-border and significant
banks (›30bn)
• NRAs are responsible for all other banks (also to adopt
resolution decisions, provided no use of the Fund is required).
• But the Board is ultimately responsible for all banks.
21/05/2014 4
Key principles for the SRM
• Decisions are European, but involve NRAs in view of
significance of bank resolution for national economies
• Responsibility for supervision, resolution and funding is
aligned at EU level
• Funding arrangements are not funded by taxpayer
21/05/2014 5
Components of the Single Resolution
Mechanism
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A Single
Resolution
Board
National
resolution
authorities
x18+
Funding
arrangements
European
Commission
and Council
European
Central Bank
as bank
supervisor
21/05/2014 7
Internal Market
Single Resolution Fund
National
Resolution
Authorities
contributeinstructs
resolve
All banks
Failed bank
supervise
notify
ECB
National
Supervisors
COM &
Council
Single Resolution
Board
Owners /
creditors
manages
The Single Board:
Tasks of the Plenary and Executive Board
• As a rule, the Executive Board decides in specific
resolution cases
• Plenary Board decides:
• By silent procedure, if specific resolution case requires more
than 5bn (10bn for liquidity support) – (by simple majority +
30%)
• On guidance to the Executive Board, if the net accumulated use
of the Fund in the prior consecutive 12 months reaches 5bn (by
simple majority + 30%)
• On ex-post contributions and borrowing of the Fund (by 2/3
majority + 50%/30%)
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Triggering Resolution in practice
• Determination that the (i) bank is failing/likely to
fail is generally made by ECB
• Board may also if it has informed ECB, and the latter has not
reacted within 3 days
• Board assesses if there is a (ii) systemic threat
(public interest) and there is (iii) no alternative
private solution
• If so, it adopts a resolution scheme in which it sets
out the necessary resolution and funding measures
• Resolution scheme is submitted to Commission for
endorsement or objection.
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Role of the EU Institutions:
Commission and Council (Meroni functions)
• The Commission is in most cases the last instance
deciding on resolution on the basis of the resolution
scheme adopted by the Board
• The Council is also involved in some cases.
• Within 24 hours, the Commission shall either endorse
or object to the resolution scheme (except in the
cases where Council is competent)
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Role of the EU Institutions:
Commission and Council (Meroni functions)
• The Council may approve or object to a resolution
scheme, on a Commission proposal:
• on the ground that the resolution scheme does not fulfil the
criterion of public interest
• where there is a material modification of the amount of the
Fund
• Resolution scheme may enter into force only if no
objection has been expressed by the Council or the
Commission within a period of 24 hours
• If the Commission or the Council object, Board
shall incorporate reasons into the scheme
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Resolution Scheme:
Implementation
• Resolution scheme sets out the resolution tools and
provides, where necessary, for the use of a certain
amount of the Fund.
• Board instructs NRAs to implement the scheme.
• Board adopts general instructions to the attention of
NRAs.
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Funding arrangements
• A Single Resolution Fund sourced from the banking
sector – not the taxpayer – can provide mid-term
funding if needed
• A single fund creates economies of scale, boosts
credibility, and is instrumental in breaking the
sovereign-bank link
• The fund could borrow from the market
• Outside the EU budget
• During a transitional period of 8 years, the Fund
comprises national compartments corresponding to
each participating MS in the SRM
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Bank Contributions to the Fund:
Build up Period of 8 years
• All banks in the participating MSs contribute to the
Fund
• Target level of the Fund is set at European level
• Individual contributions are calculated at European
level but are collected at national level under the
IGA and transferred to the Fund
• Contributions comprise a flat part and a risk
adjusted part
• Method of calculation of contributions to be set out in a
Council implementing act
21/05/2014 14
10,45
15,40
20,35
25,30
30,25
35,20
40,15
45,10
50,05
55,00
11,69
17,88
24,06
30,25
36,44
42,63
48,81
55,00
0
10
20
30
40
50
60
1 2 3 4 5 6 7 8 9 10
Total Fund Size: EUR billion
Commission Proposal and Council General Approach Final Compromise
Final compromise: accelerated, non-linear
mutualization - more resources in common
from year 6.
1,90%
5,60%
11,10%
18,40%
27,50%
38,40%
51,10%
65,60%
81,90%
100,00%
8,50%
19,50%
29,17%
40,33%
53,00%
67,17%
82,83%
100,00%
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
70,00%
80,00%
90,00%
100,00%
1 2 3 4 5 6 7 8 9 10
Available Common Resources: % of total target
Commission Proposal Council General Approach Final Compromise
Remaining steps
• The Presidency should sign today the Coreper letter to
the attention of the EP
• Vote in the plenary is foreseen for 15 April
17/09/2012 17