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28/09/2016

Bank resolution authority set for launch

Euro & Finance

Bank resolution authority set for launch

The Single European Mechanism (SRM) will be launched over the next three months, with the aim of rescuing or winding up stricken banks with minimal recourse to taxpayers’ money.

The SRM will consist of a board and a fund, and will cover banks overseen by the Single Supervisory Mechanism (SSM) which became operational last month, and represents a concluding part of the new Banking Union.

The board will be the European resolution authority for the Banking Union and will work in close cooperation with national resolution authorities of participating member states.

For the first three months of next year it will operate as a transitional taskforce from the EU executive, after which it will take up its own premises in Brussels and become the only such self-financing agency based in the Belgian capital.

It will be run on operating contributions from the banking sector, with a budget estimated at €22 million for the first year.

The board will have broad powers to prepare for the resolution of stricken banks. Upon notification from the ECB that a bank is failing or likely to fail, the board will adopt a resolution scheme including relevant resolution tools and determine how much of the Single Resolution Fund should be used.

The board will monitor national resolution authorities’ decisions, but has the power to intervene if national resolution authorities do not comply with its decisions.

The total target size of the Fund will equal 1% of the covered deposits of all banks in member states participating in the Banking Union.

The fund should represent around €55 billion when fully operational according to EU officials.

The Board will start work on developing resolution plans for credit institutions from January 2015 with the aim of being fully operational from January 2016.

Around 20 staff will begin working from within the Commission from January as a ‘transitional taskforce’ which by March will fold into the new organisation in its new premises.

The intention is to have up to 100–120 by the end of 2015, with the total staffing needs of the board estimated to be between 220 and 250. 

The chair, vice-chair and four other permanent members of the Board are set to be appointed this week following the approval of the European Parliament on Thursday and final agreement from the Council.

Subject to those approvals tomorrow (18 December) German Elke König is set to be chairman, with Finn Timo Löyttyniemi as her deputy.

Background

At a summit in October 2012, EU leaders agreed plans to complete the European banking union by January 2014, after the general elections in Germany.

The concession was made to German Chancellor Angela Merkel who argued for "quality" over "speed" in putting in place the new supervisory system, seen as a cornerstone of the EU's efforts to end the eurozone' sovereign debt crisis.

>> Read: EU summit deal aims for full 'banking union' in 2014

A new milestone in the EU’s efforts was reached in June 2013 when finance ministers struck an agreement on banking union that would force investors and wealthy savers to share the costs of future bank failures – or so-called ‘bail in’ – to shield taxpayers from unpopular bank bailouts.

The European Commission then tabled new proposals in July to complete the banking union with plans to establish a single euro zone authority to wind up failed banks.

>> Read: Commission seeks sweeping new powers over failed banks

Timeline

  • March 2015: SRM to move into new premises in Brussels
  • January 2016: SRM to be fully operational

Further Reading

European Commission