Brussels, 14/07/2014 (Agence Europe) - On Monday 14 July, the EU Council of Ministers enshrined the regulation establishing the bank resolution mechanism (SRM) section of banking union in the eurozone.
In a press release, Italian Finance and Economy Minister Pier Carlo Padoan said that the single resolution mechanism makes a great improvement to the European Union's regulation of the banking sector, which will be of greater service to European economic development without private sector risks being transferred to the public purse.
The regulation establishes a resolution board, which is a European agency based in Brussels that will have some 300 employees. The board will have the power to decide to wind up cross-border banks and banks directly supervised by the European Central Bank in its work as bank supervisor for the eurozone. Following notification from the ECB that a bank is failing, the board will decide on a resolution plan laying down resolution tools to be used and the scale of any possible intervention from the single resolution fund (SRF). Such plans will normally be drawn up by the “executive” resolution board, with the board's full sitting having the power to decide by a simple majority vote on bank resolutions for which more than €5 billion would be forthcoming from the SRF. The resolution plan shall be deemed passed unless the board issues an objection to the size of the intervention from the SRF. Once enshrined, the resolution authorities in the countries directly affected by the bank collapse shall implement it.
The board's plenary sitting will also have the power to authorise the SRF to raise capital on the money markets or to require banks to provide contributions to the SRF after a bank crisis materialises.
The sections of the regulation on preparations for the resolution plans, data collection and cooperation among member states' resolution authorities will come into force on 1 January 2015. The sections on drawing up resolution plans and mobilisation of resolution funds will come into force on 1 January 2016, as will the bail-in measures (to require bank shareholders and depositors to contribute before any public bailout is forthcoming) and establishment of the single resolution fund.
SRF. From 2016 onwards, a bank resolution fund, SRF, for the eurozone will be based in part on an intergovernmental treaty signed in May 2014 by 25 member states (all bar the United Kingdom and Sweden, see EUROPE 11084). Financed exclusively by the financial basis in advance of any crisis, it will have €55 billion of capital to cover 1% of bank eurozone bank deposits. (MB)