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Single Resolution Mechanism

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Regulation 806/2014
European Union regulation
TitleEstablishing 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
ApplicabilityAll EU members. SRM provisions however only apply to Member States participating in the SSM.
Made byEuropean Parliament and Council            
Made underArticle 114 of the TFEU.
Journal referenceL225, 30.07.2014, p.1
History
Date made15 July 2014
Entry into force19 August 2014
Applies fromApplies 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, 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, 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, apply from 1 January 2015 (2015-01-01).
Other legislation
AmendsRegulation (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
Parties to the Single Resolution Fund
  within the eurozone
  outside the eurozone (applying the treaty)
  outside the eurozone (not applying the treaty)
  Signatories that have not ratified
  EU members which may accede to the treaty
TypeIntergovernmental agreement
Signed21 May 2014 (2014-05-21)[1]
LocationBrussels, Belgium
Effective1 January 2016
ConditionEntry 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]
Signatories26 EU member states (all except Sweden) including all 20 eurozone states[1]
Ratifiers
24 / 26
[3]
DepositaryGeneral 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 the Single Resolution Board (SRB) 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. By July 2023, the SRF had reached a size of €77.6 billion.[5]

History

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

  • 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[6][7]
  • Agreement on the transfer and mutualisation of contributions to the Single Resolution Fund.[2]

The proposed Regulation was put forward by the European Commission in July 2013 to complement 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][8][9][10]

The Parliament and the Council of the European Union reached an agreement on the Regulation on 20 March 2014.[11] The European Parliament approved the Regulation on 15 April 2014,[12] and the Council followed suit on 14 July,[13] leading to its entry into force on 19 August 2014.[14] 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 except Sweden and the United Kingdom, the latter which withdrew from the EU) on 21 May 2014 and is open to accession to any other EU member states.[1][15] 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.[10][16]

An updated EMU reform plan issued in June 2015 by the five presidents of the council, European Commission, ECB, Eurogroup and European Parliament outlined a roadmap for integrating the Fiscal Compact and Single Resolution Fund agreement into the framework of EU law by June 2017, and the intergovernmental European Stability Mechanism by 2025.[17] Proposals by the European Commission to incorporate the substance of the Fiscal Compact into EU law and create a European Monetary Fund to replace the ESM were published in December 2017.[18][19]

On 30 November 2020 the finance ministers at the Eurogroup agreed to amend the IGA and treaty establishing respectively the SRF and ESM.[20] The reform proposal was blocked for months because of the veto of the Italian government.[21] The ratification of the amendments by Member States is ongoing and, as of February 2023, Italy is the only Eurozone Member State that has not yet ratified the amendments.[22] The proposed amendments include:[23][24]

  • The establishment of the ESM as a "backstop" to the Single Resolution Fund (SRF), through a revolving credit line.
  • Reform of the ESM Governance
  • Mandatory introduction of single-limb collective action clauses (CACs) in new euro area sovereign bonds issued
  • Changes of eligibility criteria to the precautionary financial assistance instruments
  • Clarifications and expansions of the ESM mandate on economic governance;

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.[9] 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.[25] 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.[26]

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][9][12] This would help to alleviate the impact of failing banks on the sovereign debt of individual states.[4][8][26] 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.[9]

Like the SSM, the SRM Regulation will cover all banks in the eurozone, with other states eligible to join.[9] 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.[7] As of 2023, this includes all 20 eurozone states, as well as Bulgaria which has a close cooperation agreement.

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

Main article: Single Resolution Board
Single Resolution Board logo
Single Resolution Board Headquarters by 2018 in 22 Treurenberg, Brussels

The Single Resolution Board (SRB) was established in 2014 by Regulation (EU) No 806/2014 on the Single Resolution Mechanism (SRM Regulation) and began work on 1 January 2015. It became fully responsible for resolution on 1 January 2016 and was henceforth 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

IGA ratification

As of 9 February 2023, 24 states, including all eurozone members, have ratified the intergovernmental agreement (IGA).[3] A sufficient number of participating Member States, surpassing the 90% voting share of participating member states required for entry into force, ratified the IGA by 30 November, allowing the SRB to take over full responsibility for bank resolution as planned on 1 January 2016.[27] The only eurozone states which had not completed their ratification at the time were Greece and Luxembourg.[28] Greece subsequently did so in December, while Luxembourg followed suit in February 2016.

The ECB governing council decided on 24 June 2020 to establish a close cooperation agreement with the Bulgarian and Croatian central banks. The close cooperation agreements enter into force on 1 October 2020, at which point SRF agreement will apply to them.[29][30]

Member state QM votes QM weight[a] 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 – 2 March 2017
 Netherlands 13 5.80% 11 November 2015
 Belgium 12 5.36% 27 November 2015
 Czech Republic 12 – 15 February 2021[31][32]
 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 – 13 December 2018
 Croatia 7 – 15 September 2020[33]
 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
 European Union 313[b] 100.00%[c] 24 states[d]
  1. ^ Of participating states as of entry into force
  2. ^ 224 for participating states as of entry into force
  3. ^ QM weight of ratifying states as of entry into force
  4. ^ Ratifying states

An amendment to the SRF Agreement (establishing the ESM as a "backstop" to the SRF) was signed on 27 January 2021 by Member States and its ratification by Member States' parliaments is ongoing.[34] As of 10 August 2023, 22 states have ratified the agreement amending the SRF agreement : among the 24 states that have ratified the intergovernmental agreement (IGA) enacting the SRM, only Italy and Czechia have not yet ratified the amendment to the SRF Agreement that establishes the ESM as a backtop to the SRF.

See also

References

  1. ^ a b c d e f g "Member states sign agreement on bank resolution fund" (PDF). European Commission. 2014-05-21. Retrieved 2014-05-30.
  2. ^ a b "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. ^ a b c "Agreement details". Council of the European Union. Retrieved 2014-05-30.
  4. ^ a b c d "Commission proposes Single Resolution Mechanism for the Banking Union". European Commission. 2013-07-10. Retrieved 2014-05-29.
  5. ^ "Single Resolution Fund grows by €11.3 billion to reach € 77.6 billion". Single Resolution Board. 6 July 2023.
  6. ^ 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
  7. ^ a b "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.
  8. ^ a b "Brussels unveils Single Resolution Mechanism for banking union". Euractiv. Jul 11, 2013.
  9. ^ a b c d e "A Single Resolution Mechanism for the Banking Union – frequently asked questions". European Commission. 2014-04-15. Retrieved 2014-05-29.
  10. ^ a b "Council agrees its position on the single resolution mechanism". Council of the European Union. 2013-12-19. Retrieved 2014-05-29.
  11. ^ "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.
  12. ^ a b "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.
  13. ^ "Council adopts rules setting up single resolution mechanism" (PDF). Council of the European Union. 2014-07-14. Retrieved 2014-07-15.
  14. ^ Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 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
  15. ^ "Commissioner Barnier welcomes the Signature of the intergovernmental Agreement (IGA) on the Single Resolution Fund". European Commission. 2014-05-21. Retrieved 2014-05-30.
  16. ^ "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.
  17. ^ "Completing Europe's Economic and Monetary Union: Report by Jean-Claude Juncker in close cooperation with Donald Tusk, Jeroen Dijsselbloem, Mario Draghi and Martin Schulz" (PDF). European Commission. 21 June 2015.
  18. ^ Proposal for a COUNCIL DIRECTIVE laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States
  19. ^ Proposal for a COUNCIL REGULATION on the establishment of the European Monetary Fund
  20. ^ "Statement of the Eurogroup in inclusive format on the ESM reform and the early introduction of the backstop to the Single Resolution Fund". www.consilium.europa.eu. Retrieved 2020-12-08.
  21. ^ Reuters Staff (2020-11-30). "Italy's economy minister signals he is ready to back ESM reform". Reuters. Retrieved 2020-12-08. {{cite news}}: |author= has generic name (help)
  22. ^ "Italy's Meloni renews criticism of euro zone bailout fund". 13 January 2023. Retrieved 2023-02-09.
  23. ^ "The proposed amendments to the Treaty establishing the European Stability Mechanism - Think Tank". www.europarl.europa.eu. Retrieved 2020-12-08.
  24. ^ "ESM Treaty Reform - Explainer". 21 November 2019.
  25. ^ Harlow, Chris (July 12, 2013). "Single resolution mechanism a positive for sovereign credit says Fitch". City A.M.
  26. ^ a b "EU unveils plans to wind down failed banks". BBC. July 10, 2013.
  27. ^ "Press Release – Single Resolution Board fully operational as of 1 January 2016" (PDF). Brussels: Single Resolution Board. 30 November 2015. Archived from the original (PDF) on 8 December 2015. Retrieved 2 December 2015.
  28. ^ "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.
  29. ^ Decision (EU) 2020/1015 of the European Central Bank of 24 June 2020 on the establishment of close cooperation between the European Central Bank and Българска народна банка (Bulgarian National Bank) (ECB/2020/30)
  30. ^ Decision (EU) 2020/1016 of the European Central Bank of 24 June 2020 on the establishment of close cooperation between the European Central Bank and Hrvatska Narodna Banka (ECB/2020/31)
  31. ^ "Sněmovní tisk 499/0, část č. 1/18 Doh. o převádění a sdílení příspěvků do fondu pro řeš". Parliament of the Czech Republic. Retrieved 2019-07-19.
  32. ^ "Sněmovní tisk 324 Doh. o převádění a sdílení příspěvků do fondu pro řeš. krizí". Parliament of the Czech Republic. Retrieved 2020-02-13.
  33. ^ "9. saziv Hrvatskoga sabora (14.10.2016.)". Croatian Parliament. Retrieved 2020-02-14.
  34. ^ "Agreement amending the Agreement on the transfer and mutualisation of contributions to the Single Resolution Fund". Council of the European Union. Retrieved 2021-05-02.
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