On Thursday 14 January, the European Court of Auditors identified shortcomings in the planning of banking resolution carried out under the auspices of the Single Resolution Board (SRB), the European authority responsible for resolving large failing banks within the euro area banking union.
“We audited the initial phase of resolution planning” for a large failing bank and found that “some elements are still missing”, said Rimantas Šadžius, member of the Court of Auditors, presenting the report. In particular, he cited the lack of concrete policy on financial continuity under a resolution regime and on information exchange.
The Court of Audit is also of the opinion that the SRB Council’s decisions on the planning of bank resolutions should be binding on the staff involved in this process in order to promote consistency within the industry. On this point, Mr Šadžius said there was “creativity” at work and “disagreement” between the Court and the SRB Council. He also called for the annual review of resolution plans to take place for all systemic banks.
Contrary to the rules in force, the EU auditors also note that the SRB Council has refrained from identifying the ‘substantive impediments’ to a bank’s solvency, even though these impediments determine the choice of resolution instrument and its effectiveness. We are asking the SRB Council to identify these obstacles in advance and to try to remove them alongside the banks, said Mr Šadžius.
According to the former Lithuanian Minister of Finance, EU law must also be supplemented to strengthen the ‘resolution’ aspect of the banking union, particularly with regard to ‘financing under resolution’. The aim is to ensure that a resolved bank has sufficient liquidity to continue to operate.
The Court also considers that the establishment of the Single Resolution Fund’s backstop via the European Stability Mechanism, hoped for in 2021 (see EUROPE 12613/4), “risks being insufficient” to cover financing needs, should very large banks default.
In December 2017, the European Court of Auditors issued a first opinion on bank resolution plans (see EUROPE 11929/15).
See the report: https://bit.ly/3iaMEPj (Original version in French by Mathieu Bion)