EU Commission proposes Single Resolution Mechanism

On 10 July 2013, the EU Commission proposed a Single Resolution Mechanism (SRM), a complement to the Single Supervisory Mechanism (SSM) and one of the building blocks of EU Banking Union.  The SRM is designed to ensure that the resolution of a failing bank can be managed efficiently with minimal costs to taxpayers and the real economy.

The proposed SRM would apply the substantive rules of the Recovery and Resolution Directive (RRD). The EU’s Council of Finance Ministers reached agreement on a general approach to the RRD on 27 June and the EU Parliament’s Committee on Economic and Monetary Affairs adopted its report on 20 May. Negotiations between the Council and the European Parliament are due to start soon with the aim of reaching final agreement on the RRD in autumn 2013.  At its recent meeting, the EU Council of Ministers set themselves the target of reaching agreement on the SRM by the end of 2013 so that it can be adopted before the end of the current European Parliament term in 2014. This would enable it to apply from January 2015, together with the RRD.

Under the SRM:

  • the European Central Bank (ECB) would signal when a bank in the euro area or established in a Member State participating in the Banking Union was in severe financial difficulties and needed to be resolved;
  • a Single Resolution Board, consisting of representatives from the ECB, the EU Commission and the relevant national authorities, would prepare the resolution of a bank;
  • a Single Bank Resolution Fund, funded by contributions from the banking sector and replacing national resolution funds, would be set up under the control of the Single Resolution Board;
  • on the basis of the Single Resolution Board’s recommendation, or on its own initiative, the EU Commission would decide whether and when to place a bank into resolution and would set out a framework for the use of resolution tools and the Single Bank Resolution Fund; and
  • under the supervision of the Single Resolution Board, national resolution authorities would be in charge of the execution of a resolution plan.

This piece is cross-posted from Regulatory Reform with permission.

2 Responses to "EU Commission proposes Single Resolution Mechanism"

  1. Cameron Payne   July 17, 2013 at 8:56 am

    An historic step forward, if the numbers work. The funding will come only from the banks which are lacking in capital. How can they achieve capital levels required under Basel 3 ?

  2. margsview   July 30, 2013 at 8:56 pm

    Oh, if I am not mistaken there is a last paragraph missing covering the possibility of limits in the Resolution Fund—In-that case 'Bail-ins', would be utilized, whereby banking customer assets would be used if found to be necessary. Of course, these 'bail-ins' are not to be confused with 'bailouts'–even though for the most part these labels are interchangeable and therefore apply to the same people—whether we call them depositors/bank customers/ or taxpayers —the only difference is which hat is being worn at which time.