Brussels, 04/01/2016 (Agence Europe) - The second pillar of Banking Union, the Single Resolution Mechanism ('SRM'), became fully operational on 1 January 2016. It brings in rules introducing the 'bail-in', whereby the shareholders and creditors of a bank will be called upon first of all in the event of bank failure (the 'BRRD' directive).
“The Banking Union already has the tools it needs to supervise the banks within the euro area”, said the European Commissioner for Financial Services, Jonathan Hill. With the SRM, “we now have a system for resolving banks and of paying for resolution so that taxpayers will be protected from having to bail out banks if they go bust”. Between 2008 and 2011, the European Commission approved around €4,500 billion in State aid to financial institutions.
The provisions on the bail-in introduce a hierarchy of investors which will be called upon to contribute in the event of bank failure. First the shareholders and then the creditors of a bank will have to chip in and cover any losses up to at least a total of 8% of all of the debts of the bank in question before any recourse to public money (either the resolution fund fed into by the banks, or the State). At the bottom of the chain, unprotected credits and private deposits above the threshold of €100,000 may also be mobilised.
Between now and 2023, a Single Resolution Fund (SRF) will be built up to an intervention capacity of €55 billion, taken from the banking industry. The banks' contributions will first of all be allocated to national compartments created within the Fund, which will be gradually pooled after a transitional period of eight years (40% in 2016, 60% in 2017 and an extra 10% the subsequent years).
According to the Financial Times, the Single Resolution Mechanism is already scheduled to liquidate around ten banks over the next four years. (Original version in French by Elodie Lamer)