Single Resolution Mechanism

Regulation 806/2014
European Union regulation
Title Establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund
Applicability All EU members. SRM provisions however only apply to Member States participating in the SSM.
Made by European Parliament and Council            
Made under Article 114 of the TFEU.
Journal reference L225, 30.07.2014, p.1
History
Date made 15 July 2014
Came into force 19 August 2014
Applies from

Applies in its entirety from 1 January 2016, conditional a prior transfer of contributions to the Single Resolution Fund has been met. Otherwise, it will apply in its entirety from the first day of the month following the day where the payment requirement has been met.

  • Articles 1‑4, 6, 30, 42‑48, 49, 50(1)(a)+(b)+ (g) to (p), 50(3), 51, 52(1)+(4), 53(1)+(2), 56‑59, 61‑66, 80‑84, 87‑95 and 97‑98, shall apply from 19 August 2014 (2014-08-19).
  • Articles 69(5), 70(6)+(7), and 71(3), which empower the Council to adopt implementing acts and the Commission to adopt delegated acts, shall apply from 1 November 2014 (2014-11-01).
  • Article 8+9 and all related provisions elsewhere in the regulation, which empowers the Board to collect information and cooperate with the national resolution authorities for the elaboration of resolution planning, shall apply from 1 January 2015 (2015-01-01).
Other legislation
Amends Regulation (EU) No 1093/2010
Current legislation
Agreement on the transfer and mutualisation of contributions to the Single Resolution Fund

Map of Europe with signatories and other EU members

Type Intergovernmental agreement
Signed 21 May 2014 (2014-05-21)[1]
Location Brussels, Belgium
Effective 1 January 2016
Condition Entry into force on the first day of the second month following the ratification by states representing 90% of the weighted vote of SSM and SRM participating states; but not before 1 January 2016[2]
Signatories 26 EU member states (all except Sweden and the United Kingdom) including all 19 eurozone states[1]
Ratifiers
20 / 26

[3]

Depositary General Secretariat of the Council     


The Single Resolution Mechanism (SRM) is one of the pillars of the European Union's banking union. The Single Resolution Mechanism entered into force on 19 August 2014 and is directly responsible for the resolution of the entities and groups directly supervised by the European Central Bank as well as other cross-border groups. The centralised decision making is built around a strong Single Resolution Board consisting of a Chair, a Vice Chair, four permanent members, and the relevant national resolution authorities (those where the bank has its headquarters as well as branches and/or subsidiaries).

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 any use of the Single Resolution Fund, established by the SRM Regulation (EU) No 806/2014. The Single Resolution Fund helps to ensure a uniform administrative practice in the financing of resolution within the SRM. By 1 January 2024, the available financial means of the SRF will reach the target level of at least 1% of the amount of covered deposits of all credit institutions authorised in all of the participating Member States.

A Single Resolution Fund (SRF) to finance the restructuring of failing credit institutions was established as an essential part of the SRM by a complementary intergovernmental agreement, after its ratification.[4] If it is decided to resolve a bank facing serious difficulties, its resolution will be managed efficiently, at minimum costs to taxpayers and the real economy. In extraordinary circumstances, the Single Resolution Fund (SRF), financed by the banking sector itself, can be accessed. The SRF is established under the control of the SRB. The total target size of the Fund will equal at least 1% of the covered deposits of all banks in Member States participating in the Banking Union. The SRF is to be built up over eight years, beginning in 2016.

History

The SRM was enacted through a Regulation and an Intergovernmental Agreement (IGA) which are titled:

The proposed Regulation was put forward by the European Commission in July 2013 to compliment the other pillars of the EU banking union, the Single Supervisory Mechanism (SSM).[4] The details of some aspects of the functioning of the SRF, including the transfer and mutualisation of funds from national authorities to the centralized fund, was split off from the Regulation into the IGA due to concerns, especially by Germany, that they were incompatible with current EU treaties.[1][7][8][9]

The Parliament and the Council of the European Union reached an agreement on the Regulation on 20 March 2014.[10] The European Parliament approved the Regulation on 15 April 2014,[11] and the Council followed suit on 14 July,[12] leading to its entry into force on 19 August 2014.[13] The SRM automatically applies to all SSM members, and states which do not participate in the SSM cannot participate in the SRM.

The IGA was signed by 26 EU member states (all but Sweden and the United Kingdom) on 21 May 2014 and is open to accession to any other EU member states.[1][14] It was to enter into force on the first day of the second month following the deposit of instruments of ratification by states representing at least 90% of the weighted vote of SSM and SRM participating states,[1] and was applied from 1 January 2016, since the Regulation had entered into force, but only to SSM and SRM participating states.[1]

Some of the provisions of the Regulation were applied from 1 January 2015, but the authority to carry out bank resolutions did not apply until 1 January 2016, and were subject to the entry into force of the IGA.[9][15]

Proposal and reactions

The European Commission argued that centralizing the resolution mechanism for the participating states will allow for more coordinated and timely decisions to be made on weak banks.[8] Internal Market and Services Commissioner Michel Barnier stated that "by ensuring that supervision and resolution are aligned at a central level, whilst involving all relevant national players, and backed by an appropriate resolution funding arrangement, it will allow bank crises to be managed more effectively in the banking union and contribute to breaking the link between sovereign crises and ailing banks."[4]

Ratings Agencies have stated their approval of the measure and believe it will cause European ratings and credit to rise as it will limit the impact of a bank failure.[16] Critics have stated their concerns that this mechanism will result in sovereign states' taxpayers' money being used to pay off other nation's bank failures.[17]

Functioning

The SRM allows for troubled banks operating under the SSM (as well as other cross border groups) to be restructured with a variety of tools including bailout funds from the centralized SRF, valued at at least 1% of covered deposits of all credit institutions authorised in all the participating member states (estimated to be around 55 billion euros), which would be filled with contributions by participating banks during an eight-year establishment phase.[1][8][11] This would help to alleviate the impact of failing banks on the sovereign debt of individual states.[4][7][17] The SRM also handles the winding down of non-viable banks. The Single Resolution Board is directly responsible for the resolution of significant banks under ECB supervision, as well as other cross border groups, while national authorities will take the lead in smaller banks.[8]

Like the SSM, the SRM Regulation will cover all banks in the eurozone, with other states eligible to join.[8] The text of the Regulation approved by the European Parliament stipulates that all states participating in the SSM, including those non-eurozone states with a "close cooperation" agreement, will automatically be participants in the SRM.[6]

The IGA states that the intention of the signatories is to incorporate the IGA's provisions into EU structures within 10 years.

Single Resolution Board

Single Resolution Board logo

The Single Resolution Board (SRB) opened on 1 January 2015 (fully responsible for resolution on 1 January 2016), is the resolution authority for around 143 significant banking groups as well as any cross border banking group established within participating Member States.

Resolution is the restructuring of a bank by a resolution authority through the use of resolution tools in order to safeguard public interests, including the continuity of the bank’s critical functions and financial stability, at minimal costs to taxpayers.

The Single Resolution Board's main tasks are :

• To draft resolution plans for the banks under its direct responsibility. This includes the banks under the direct supervision of the SSM and all cross-border groups

• To carry out an assessment of the banks’ resolvability and to adopt resolution plans

• To address any obstacles to resolution and cooperate on resolving them

• To set the minimum requirements for own funds and eligible liabilities (MREL)

• To follow up on early intervention measures

• To trigger resolution (with the ECB)

• To adopt resolution decisions; to choose and decide on the use of resolution tools

• To closely cooperate with, and give instructions, to national resolution authorities

The Board has its seat in Brussels and consists of the following members:

IGA ratification

As of 11 January 2016, twenty states have ratified the intergovernmental agreement (IGA).[3] A sufficient number of participating Member States ratified the IGA, surpassing the 90% voting share of participating member states required for entry into force, before 30 November, allowing the Single Resolution Board (SRB) to take over full responsibility for bank resolution as planned on 1 January 2016.[18] The only eurozone states which had not completed their ratification at the time were Greece and Luxembourg.[19] Greece subsequently did so in December, while Luxembourg followed suit in February 2016.

No requests to enter into "close cooperation" were made by non-eurozone states in 2014.[20] Therefore, only the eurozone states are considered when calculating the total weighted voting of participating member states for evaluating the 90% entry into force criteria.

Member state QM votes QM weight[lower-alpha 1] Ratification[3]
 France 29 12.95% 19 June 2015
 Germany 29 12.95% 28 October 2015
 Italy 29 12.95% 30 November 2015
 Poland 27 – –
 Spain 27 12.05% 15 October 2015
 Romania 14 – –
 Netherlands 13 5.80% 11 November 2015
 Belgium 12 5.36% 27 November 2015
 Czech Republic 12 – –
 Greece 12 5.36% 4 December 2015
 Hungary 12 – 29 December 2015
 Portugal 12 5.36% 23 October 2015
 Austria 10 4.46% 17 November 2015
 Bulgaria 10 – –
 Croatia 7 – –
 Denmark 7 – –
 Finland 7 3.13% 24 June 2015
 Ireland 7 3.13% 26 November 2015
 Lithuania 7 3.13% 25 November 2015
 Slovakia 7 3.13% 4 February 2015
 Cyprus 4 1.79% 14 October 2015
 Estonia 4 1.79% 25 November 2015
 Latvia 4 1.79% 4 December 2014
 Luxembourg 4 1.79% 5 February 2016
 Slovenia 4 1.79% 25 November 2015
 Malta 3 1.34% 30 November 2015
 EU 313[lower-alpha 2] 100.00%[lower-alpha 3] 20 states[lower-alpha 4]
  1. ↑ Of participating states
  2. ↑ 224 for participating states
  3. ↑ QM weight of ratifying states
  4. ↑ Ratifying states
Denmark

The Danish government announced in April 2015 its intention to join the banking union.[21] Although the justice ministry found that the move did not entail any transfer of sovereignty and thus would not automatically require a referendum, the Danish People's Party, Red Green Alliance and Liberal Alliance oppose joining the banking union and collectively the three won enough seats in the subsequent June 2015 election to prevent parliament from joining without the approval through a referendum.[22]

See also

References

  1. 1 2 3 4 5 6 7 "Member states sign agreement on bank resolution fund" (PDF). European Commission. 2014-05-21. Retrieved 2014-05-30.
  2. 1 2 "Agreement on the transfer and mutualisation of contributions to the Single Resolution fund" (PDF). Council of the European Union. 14 May 2014. Retrieved 29 May 2014.
  3. 1 2 3 "Agreement details". Council of the European Union. Retrieved 2014-05-30.
  4. 1 2 3 4 "Commission proposes Single Resolution Mechanism for the Banking Union". European Commission. 2013-07-10. Retrieved 2014-05-29.
  5. ↑ "Proposal for a Regulation of the European Parliament and of the Council establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Bank Resolution Fund and amending Regulation (EU) No 1093/2010 of the European Parliament and of the Council". EUR-Lex. European Union. 2013-07-10.
  6. 1 2 "European Parliament legislative resolution of 15 April 2014 on the proposal for a regulation of the European Parliament and of the Council establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Bank Resolution Fund and amending Regulation (EU) No 1093/2010 of the European Parliament and of the Council". European Parliament. 2014-05-14. Retrieved 2014-05-29.
  7. 1 2 "Brussels unveils Single Resolution Mechanism for banking union". Euractiv. Jul 11, 2013.
  8. 1 2 3 4 5 "A Single Resolution Mechanism for the Banking Union – frequently asked questions". European Commission. 2014-04-15. Retrieved 2014-05-29.
  9. 1 2 "Council agrees its position on the single resolution mechanism". Council of the European Union. 2013-12-19. Retrieved 2014-05-29.
  10. ↑ "European Parliament and Council back Commission's proposal for a Single Resolution Mechanism: a major step towards completing the banking union". European Commission. 2014-03-20. Retrieved 2014-06-22.
  11. 1 2 "Finalising the Banking Union: European Parliament backs Commission's proposals (Single Resolution Mechanism, Bank Recovery and Resolution Directive, and Deposit Guarantee Schemes Directive)". European Commission. 2014-04-15. Retrieved 2014-05-29.
  12. ↑ "Council adopts rules setting up single resolution mechanism" (PDF). Council of the European Union. 2014-07-14. Retrieved 2014-07-15.
  13. ↑ "Regulation 806/2014: Establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010". Official Journal of the European Union. 30 July 2014.
  14. ↑ "Commissioner Barnier welcomes the Signature of the intergovernmental Agreement (IGA) on the Single Resolution Fund". European Commission. 2014-05-21. Retrieved 2014-05-30.
  15. ↑ "A comprehensive EU response to the financial crisis: substantial progress towards a strong financial framework for Europe and a banking union for the eurozone". European Commission. 2014-03-28. Retrieved 2014-05-30.
  16. ↑ Harlow, Chris (July 12, 2013). "Single resolution mechanism a positive for sovereign credit says Fitch". City A.M.
  17. 1 2 "EU unveils plans to wind down failed banks". BBC. July 10, 2013.
  18. ↑ "Press Release – Single Resolution Board fully operational as of 1 January 2016" (PDF). Brussels: Single Resolution Board. 30 November 2015. Retrieved 2 December 2015.
  19. ↑ "Press Release – Commission welcomes the successful ratification of the Intergovernmental Agreement on the Single Resolution Mechanism by Greece and calls on Luxembourg to follow suit" (PDF). Brussels: European Commission. 7 December 2015. Retrieved 11 December 2015.
  20. ↑ "ECB Annual Report on supervisory activities" (PDF). European Central Bank. 2014.
  21. ↑ "Denmark moves closer to joining EU banking union". Reuters. 2015-04-30. Retrieved 2015-06-19.
  22. ↑ "Danish opposition parties seek referendum on EU banking union". Reuters. 2015-05-29. Retrieved 2015-06-19.
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