Brussels, 27/03/2015 (Agence Europe) - The Single Resolution Board (SRB) that will be in charge of the winding down of big eurozone banks from January 2016 onwards held its first plenary in Brussels on Wednesday 25 March.
We aim to be a game-changer and introduce convergence in the diversity of bank resolution practices, explained Elke König, the SRB chair. The SRB was set up in Brussels earlier this year. It is responsible for the resolution arm of Banking Union in the eurozone and from 2016 onwards, if a bank directly supervised by the ECB or having cross-border business (the final list has not yet been drawn up, Ed.) should go bust, then the SRB would be responsible for applying the BRRD Directive that governs bank resolution (see EUROPE 11224). König explained that it would be for the bank itself to find a private solution in the first place, and if this was not feasible, then an insolvency procedure would kick off, but this could only happen if it would be the best solution, although this would not mean fully resurrecting the failing bank because some of the bank's bodies and subsidiaries would survive and others sold off or ceasing activity. König, formerly head of the German markets authority (BaFin), said that in the event of a bank resolution, the SRB would introduce a bail-in of at least 8% of the bank's total assets, following which the single resolution fund (SRF), which will be set up in 2016 under the authority of the SRB, could intervene “as a last resort.”
The BRRD directive harmonises bank resolution within the EU - creating a national resolution fund and preparing living wills in 2015 and SRF fund contribution and activation rules in 2016. At this stage, only 8 countries (Germany, Austria, Croatia, Hungary, Estonia, Finland, the United Kingdom and Slovakia) have notified national measures to the Commission to fully transpose the BRRD directive (see EUROPE 11272), which the Commission describes as unsatisfactory and has already issued infringement proceedings against the laggard states. Many countries are expected to comply, however, in June of this year.
Bridge financing. The SRF will have around €55 billion after an eight-year period of gradual pooling based on an intergovernmental agreement (IGA) that is still being ratified (Latvia and Slovakia have ratified it). Since there won't be much money in the fund in early years, a political agreement has been reached by the EP and Council of Ministers for bridge financing, and the Council is due to decide on the operational details of this by the end of the year. König said that bridge financing was needed until the SRF becomes fully operational and there are public and private options among the many bridging options that are possible. France wants the European Stability Mechanism (ESM) to act as a guarantor, but Germany opposes this. Another option is for the SRF to borrow from the money markets, leveraging its €55 billion budget.
Quizzed about the draft directive to reform the structure of banks, König said that it made a lot of sense for this to be connected with the bank resolution rules, as acting on bank structure was one of the best ways of facilitating resolution. This view is similar to that of European Parliament rapporteur Gunnar Hökmark (EPP, Sweden) (see EUROPE 11268).
According to the S&D group at the EP, Banking Union will not be authentic until a third pillar - a single savings/deposit guarantee scheme - has been added to the existing supervision and resolution arms. Germany opposes this at this stage, refusing to countenance German banks being guarantors for losses made by other member states' banks. In this connection, König said that the existing harmonisation of European rules was a “very good starting point” (see EUROPE 11061). She conceded that more harmonisation was possible.
Finally, the SRB chair promised to be proactive at international level in a number of debates, including the question of banks deemed 'too-big-to-fail,' and adjusting the nature and composition of bank capital to make bail-ins possible. (Mathieu Bion)