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Single Resolution Mechanism

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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 and amending Regulation (EU) No 1093/2010
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
Implementation date

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).
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 not in force
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
8 / 26
[3]
Depositary General Secretariat of the Council     

The Single Resolution Mechanism (SRM) is one of the main pillars of the European Union's banking union which centrally implements in participating Member States the EU's Bank Recovery and Resolution Directive, the framework for the recovery and resolution of credit institutions and investment firms found to be in danger of failing. The SRM was created by an EU Regulation that entered into force on 19 August 2014. A Single Resolution Fund (SRF) to finance the restructuring of failing credit institutions is planned to be established as an essential part of the SRM by a complementary intergovernmental agreement, pending its ratification.[4] The ECB has been selected to be the resolution authority of the SRM. The resolution scheme is set to be launched on 1 January 2016, provided that the SRF has been established and funded prior of this date. The SRM will function in conjunction with the other main pillar of the EU banking union, the Single Supervisory Mechanism (SSM). The SRM will automatically apply to all SSM members, and states which do not participate in the SSM cannot participate in the SRM.

History

The SRM is planned to be 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[5][6]
  • 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.[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 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 will 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 will apply from 1 January 2016, provided that the Regulation has entered into force, but only to SSM and SRM participating states.[1]

It is planned that some of the provisions of the Regulation will apply from 1 January 2015, but the authority to carry out bank resolutions will not apply until 1 January 2016 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 would allow for troubled banks operating under the SSM to be restructured with a variety of tools including bailout funds from the centralized SRF, valued at 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 would also handle the winding down of non-viable banks. The Single Resolution Board would be directly responsible for the resolution of significant banks under ECB supervision, while national authorities would 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 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) is open as of 1 January 2015. It is the resolution authority within the European Banking Union and is a key element of the newly created Banking Union and its "Single Resolution Mechanism" (SRM). It works in close cooperation in particular with the national resolution authorities of participating Member States, the European Commission and the European Central Bank. Its mission is to ensure an orderly resolution of failing banks with minimum impact on the real economy and public finances of the participating Member States and beyond.

The SRB will in short:

  1. Maintain financial stability by ensuring the continuity of critical banking functions which are in the public interest.
  2. Ensure that potential future bank failures in the Banking Union are managed efficiently, with minimal costs to taxpayers and the real economy while ensuring losses are borne by bank shareholders and creditors (legal certainty + break the link between banks and sovereigns).
  3. Avoid disorderly insolvency

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

  • Elke König (Chair), formerly President of Germany's Federal Financial Supervisory Authority since 2012 (de)
  • Timo Löyttyniemi (Vice Chair)
  • Mauro Grande
  • Antonio Carrascosa
  • Joanne Kellermann
  • Dominique Laboureix

IGA ratification

As of 28 October 2015, eight states had ratified the intergovernmental agreement (IGA).[3]

No requests to enter into "close cooperation" were made by non-eurozone states in 2014.[18] 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[1] Ratification[3]
 France 29 12.95% 19 June 2015
 Germany 29 12.95% 28 October 2015
 Italy 29 12.95%
 Poland 27
 Spain 27 12.05% 15 October 2015
 Romania 14
 Netherlands 13 5.80%
 Belgium 12 5.36%
 Czech Republic 12
 Greece 12 5.36%
 Hungary 12
 Portugal 12 5.36% 23 October 2015
 Austria 10 4.46%
 Bulgaria 10
 Croatia 7
 Denmark 7
 Finland 7 3.13% 24 June 2015
 Ireland 7 3.13%
 Lithuania 7 3.13%
 Slovakia 7 3.13% 4 February 2015
 Cyprus 4 1.79% 14 October 2015
 Estonia 4 1.79%
 Latvia 4 1.79% 4 December 2014
 Luxembourg 4 1.79%
 Slovenia 4 1.79%
 Malta 3 1.34%
 EU 313[2] 53.13%[3] 8 states[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.[19] 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.[20]

See also

References

  1. ^ a b c d e f g
  2. ^ a b
  3. ^ a b c
  4. ^ a b c d
  5. ^
  6. ^ a b
  7. ^ a b
  8. ^ a b c d e
  9. ^ a b
  10. ^
  11. ^ a b
  12. ^
  13. ^
  14. ^
  15. ^
  16. ^
  17. ^ a b
  18. ^
  19. ^
  20. ^

External links

  • Single Resolution Mechanism
  • Regulation (EU) No 806/2014 of 15 July 2014
  • Single Resolution Board
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