EU finalises crisis management framework


European legislators this spring confirmed the Bank Recovery and Resolution (BRRD) and Deposit Guarantee Scheme (DGSD) Directives already agreed end of last year whilst also coming to an agreement on the Single Resolution Mechanism and Single Resolution Funds. This package completes the plans for a European Crisis Management framework which will provide a common framework to plan for and prevent bank failures and in the case of failure provides for special resolution measures for systemically important banks or fast payout for insured deposits up to €100,000 of non-systemic banks.

While the BRRD and DGSD will come into force by January 2015, the bail-in framework to support bank resolution will not be fully operational until 2016. Furthermore, the pre-funding of deposit insurance and resolution funds will occur over a 10 year build up period (8 years for the Single Resolution Fund) while the payout timeframe for guaranteed deposits will be incrementally shortened from 20 to 7 days by 2025.

On top of this, the Single Resolution Mechanism will be established in 2015 to complete the Banking Union project. The mechanism complements the Single Supervisory Mechanism (SSM) which, once fully operational in late 2014, will see the European Central Bank (ECB) directly supervise banks in the euro area and in other Member States which decide to join the Banking Union. The Single Resolution Mechanism will ensure that if, despite the enhanced supervisory framework put in place, a bank faced serious difficulties, its resolution could be managed efficiently with minimal costs to taxpayers and without any disruption to the functioning of the real economy. Only two Member States, the United Kingdom and Sweden, have opted to remain outside of this mechanism while other non-eurozone countries are still making up their minds whether to join. Supervisory and resolution actions in and outside of the Banking Union will be guided by the single rulebook in form of the Capital Requirements Regulation and the BRRD to ensure a uniform application of prudential supervision rules and resolution actions.



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