The European Banking Federation has given a guarded welcome to the European Commission’s recent announcement of a Single Resolution Mechanism as a complement to the Single Supervisory Mechanism (SSM) as part of the Banking Union project.
The Single Resolution Mechanism (SRM) aims to provide a common framework for the treatment of ailing banks within the Banking Union. It would further alleviate contentious home-host issues in the recovery and resolution process within the participating Member States, as it would overrule national interests in cross-border bank failures. It would also speed up cross-border resolutions which should minimise the systemic impact and the cost of bank failures as well as the need for taxpayer support.
The SRM with a separate Authority to take impartial decisions to resolve a failing bank would further help to break the link between sovereign crises and the banking sector. It should promote a level playing field as well as provide an effective common crisis management framework for SSM supervised banks.
Furthermore, Europe’s banks see the need for the SRM to be supported by resolution-financing arrangements. However, the majority of EBF Members believe that a Single Resolution Fund is not feasible in the short term, as significant preconditions need to be fulfilled. Most importantly, these include an equal footing for all participating Member States in terms of the legacy assets of the financial crisis.