The Chair of the Single Resolution Board (SRB), Elke König, said that once the banks concerned have finalised the preparation of their resolution plans, the European authority in charge of resolving a failing bank will have the task of “testing” these plans in order to be able to react quickly in case of emergency.
“I hope that the banks will have addressed all the resolution topics by the end of next year” and then the SRB will reach a cruising speed where it can “test” the resolution plans, Mrs König said on Monday 19 September at a conference in Brussels.
With these plans, the competent authorities should at least “have the starting point of an answer” in the event of a failure of a major European bank, she added, recalling that a resolution decision had to be taken within 48 hours, during a weekend when markets are closed.
It is “crucial” to check that the resolution documents prepared by banks are “operational” and to identify whether there are any legal obstacles that could hinder the restructuring of a bank in difficulty, added Pedro Machado, a member of the Board. In particular, he cited possible “legal obstacles” that could complicate a resolution process, including the application of cross-border clauses.
As the Single Resolution Fund (SRF), the financial arm of the ‘resolution’ component of the euro area banking union, is set to reach €80 billion by 2024, several industry voices are calling for a review of the contributions banks make to the fund.
We are only applying EU law requiring the SRF’s firepower to be 1% of eligible deposits, stressed Mrs König, who “sees no political appetite” for changing the existing rules. She recalled that with the current blockage of the ratification of the treaty reform establishing the European Stability Mechanism (ESM) (see EUROPE 12613/4), the permanent rescue fund for the euro area, the SRF is being held “hostage” and cannot benefit from the safety net that the ESM is supposed to provide.
Noting that the SRF has never before been called upon to contribute to a bank resolution, Banque de France Governor François Villeroy de Galhau raised the possibility, after a detailed assessment, of setting a ceiling on the Fund’s envelope or limiting the weight of banks’ contributions to the SRF.
He also advocated extending the range of financial institutions that fall within the remit of the SRB to medium-sized banks. To do this, we need to identify “the criteria” that would allow it.
As for the proposals to strengthen the European crisis management framework, expected by the end of the year (see EUROPE 12974/10), Mrs König, who will leave her position in December, again called for harmonisation of national rules on insolvency procedures, the introduction of a harmonised ‘least-cost test’ to optimise the use of a national deposit guarantee scheme in the event of a bank resolution, and a review of the hierarchy of creditors that would be mobilised in the event of a bank failure.
And, of course, “we need EDIS”, concluded Mrs König, referring to the establishment of a European deposit insurance scheme, the third part of the Euro area banking union. (Original version in French by Mathieu Bion)