In accordance with European accounting rules, the Single Resolution Board, the EU body responsible for managing the resolution of failing banks in the euro area, and the European Commission did not disclose any contingent liabilities potentially arising from ongoing judicial proceedings against their role in winding up failing euro area banks, mainly the Banco Popular resolution (see EUROPE 11953/8).
This is the observation made by the European Court of Auditors in a report published on Wednesday 27 November.
The Single Resolution Board and the Commission would need to recognise liabilities or provisions, or disclose contingent liabilities in relation to these judicial proceedings in their accounts if they assessed the likelihood of an "outflow of economic resources" as certain, probable or possible. However, this is not the case, the EU auditors note, and they have not found any evidence to contradict the assessments of the two entities, they said in a press release. However, it is recommended that the Single Resolution Board’s process should be strengthened further.
At the same time, the European agency disclosed €90 million of contingent liabilities related to legal proceedings in EU and national courts, in which banks challenge their upfront (ex ante) contributions to the Single Resolution Fund, the financial arm of the ‘resolution’ pillar of the banking union.
The auditors say that the Single Resolution Board has made a fair effort to disclose the cases from the related legal proceedings as contingent liabilities. However, they noted in a statement that "shortcomings" still remain, "as several national resolution authorities stated they were not in a position to assess whether contingent liabilities exist".
See the report: http://bit.ly/33n60aU (Original version in French by Mathieu Bion)