A step closer to the Banking Union – the Single Resolution Mechanism


Late December, the Council and European Parliament respectively reached an agreement on their General Approach and Report to negotiate the proposed Single Resolution Mechanism (SRM) in Trilogues in early 2014. It includes the creation by 1 January 2015 of Single Resolution Board (SRB) and a Single Resolution Fund (SRF) to provide it with financial means to support it in resolving failing banks.

After the Single Supervisory Mechanism (SSM), the SRM is the logical next step in the Banking Union process to centralise crisis management for ECB supervised banks. It will further ensure a consistent application of the recently agreed Bank Recovery and Resolution framework for banks within the SSM.

The draft regulation agreed by the Council and Parliament provides for a SRB with broad powers in cases of bank resolution. Upon notification by the ECB that a bank is no longer viable, or on the SRB’s own initiative, the SRB would adopt a resolution scheme placing the bank into resolution.

It was crucial to give the Single Resolution Board more autonomy in order to make decisions on the resolution of banks deemed unviable by the new single supervisor for the SSM-zone. Europe’s banks welcome any effort to establish an efficient and timely decision-making process for the resolution of cross border banks in the SSM.

Parliament and Council also agree to the Single Resolution Fund to be set up within 10 years and funded solely by banks. The Council however prefer to base the fund on an intergovernmental agreement where in its initial build-up phase the contributions are compartmentalised and reserved for the contributing Member States and their banks. The use of these compartments would each year incrementally become available for the use by the SRB in all SSM Member states. The Council also pledges to pursue further work to create a common back-stop solution similar to the European Stability Mechanism.

In order to traverse the initial funding gap both Council and Parliament have also agreed to bring forward the entry into force of the bail-in regime to 1 January 2016 which would hold shareholders and bondholders accountable for the cost of resolving banks in Europe.

Council and Parliament are under pressure to conclude their negotiations which are only starting now by end of March as the Parliament will retreat in May in light of its election.

 EBF contact: t.buenker@ebf-fbe.eu