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The Single Resolution Mechanism

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The European Banking Union

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Abstract

This chapter addresses the second pillar of the banking union, namely the Single Resolution Mechanism (SRM). First, it outlines the main innovations introduced by the BRRD, introducing a new regime for crisis management in the EU. Second, it analyzes the organization and funding sources of the SRM, affecting the euro area. Some controversial issues are discussed, like the bail-in principle, the governance of the SRM, the possible role of the European Stability Mechanism (ESM) as a fiscal backstop, and the interplay between the SRM and the state aid rules. The analysis made in this chapter suggests several lines of reform to improve and complete the current design of the SRM.

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Notes

  1. 1.

    Directive 2014/59/EU.

  2. 2.

    Regulation No. 806/2014 of the European Parliament and of the Council, 15 July 2014 (hereafter “SRM Regulation”).

  3. 3.

    See Baglioni (2006) for an analysis of these risks and of the related institutional arrangements to deal with them.

  4. 4.

    The literature on contagion in banking is huge, and most of it builds on the seminal model of bank runs introduced by Diamond and Dybvig (1983). See Allen and Gale (2009) for an overview of the issue.

  5. 5.

    See EBA (2014).

  6. 6.

    Art. 9 of the BRRD.

  7. 7.

    See EBA (2015a).

  8. 8.

    Art. 6 of the BRRD.

  9. 9.

    Art. 27 of the BRRD.

  10. 10.

    See EBA (2015b).

  11. 11.

    Art. 28 of the BRRD.

  12. 12.

    Art. 31 of the BRRD.

  13. 13.

    Art. 10–14 of the BRRD.

  14. 14.

    Art. 32 of the BRRD.

  15. 15.

    Section 5 of the BRRD.

  16. 16.

    Some exemptions to these limits are allowed under strict conditions. See Art. 44 of the BRRD.

  17. 17.

    See Art. 103 of the BRRD. These indicators have been detailed by the EU Commission in its Delegated Regulation of 21 October 2014.

  18. 18.

    In particular, the eligible liabilities relevant for inclusion in the numerator of MREL are those with a residual maturity of at least 1 year.

  19. 19.

    See EBA (2015c).

  20. 20.

    See Bundesbank (2014), page 41.

  21. 21.

    See Art. 7 of the SRM Regulation.

  22. 22.

    Art. 13 of the SRM Regulation. Actually, the European legal framework lacks a clear definition of “early intervention measures,” providing a distinction between them and the resolution powers, and the ordinary supervisory actions as well. See Brescia Morra (2014) for a discussion of this issue.

  23. 23.

    See Art. 49–55 of the SRM Regulation.

  24. 24.

    Incidentally, the ECB is given a relevant role, as supervisory authority, also in the early intervention on a troubled bank. In order to coordinate the early intervention and resolution procedures, the ECB and the NCAs must inform the SRB of their actions (see Art. 13 of the SRM Regulation).

  25. 25.

    See Art. 18 of the SRM Regulation.

  26. 26.

    See Zavvos and Kaltsouni (2015) for a discussion of the legal issues related to the creation of the SRM.

  27. 27.

    See the SRM Regulation, Chap. 2.

  28. 28.

    See Art. 70–71 of the SRM Regulation and the Council Implementing Regulation of 19 December 2014.

  29. 29.

    See Art. 73–74 of the SRM Regulation.

  30. 30.

    See Eurogroup (2013).

  31. 31.

    In particular, a precondition for the use of the DRI is a contribution to loss absorption, by the holders of capital instruments and eligible liabilities, equal to an amount not less than 8 % of total liabilities. Another condition is a contribution by the resolution fund (SRF), equal to 5 % of total liabilities. See ESM (2014), Art. 8.

  32. 32.

    See Eurogroup (2013) and Art. 5 of the Treaty establishing the ESM.

  33. 33.

    See Eurogroup (2013) and Art. 12 of the ESM Treaty. See Art. 4 of ESM (2014) for details about the procedure to be followed by the ESM to grant financial support through the DRI.

  34. 34.

    This Report has been signed by a Committee including the Presidents of the EU Commission (coordinator), EU Council, Eurogroup, ECB, and EU Parliament. See European Commission (2015).

  35. 35.

    This requirement has been introduced by the Commission’s Communication and confirmed by the SRM Regulation (Art. 19). The Commission must be notified of the intention to grant state aid also when an ESM member applies for the use of the DRI for bank recapitalization; see ESM (2014), Art. 4.

  36. 36.

    Art. 18 of the SRM Regulation.

  37. 37.

    See Zavvos and Kaltsouni (2015).

  38. 38.

    See Recital 57 and Art. 37 of the BRRD.

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Authors and Affiliations

  1. Milano, Dipart Economia e Finanza, Università Cattolica Sacro Cuore, Milano, Italy

    Angelo Baglioni

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  1. Angelo Baglioni
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Baglioni, A. (2016). The Single Resolution Mechanism. In: The European Banking Union. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-56314-9_5

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  • DOI: https://doi.org/10.1057/978-1-137-56314-9_5

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  • Publisher Name: Palgrave Macmillan, London

  • Print ISBN: 978-1-137-56313-2

  • Online ISBN: 978-1-137-56314-9

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